Category: Currencies

  • USDCHF Holds Steady as SNB Easing Bias Persists – Monday, 25 May

    Snapshot: USDCHF is little changed this morning despite broader USD strength; the pair is hovering around 0.78. The dominant driver remains the SNB’s active easing posture, with the potential for further rate cuts or FX intervention. Focus remains on Schlegel’s explicit nod to FX intervention readiness.

    • Watch for any hawkish repricing in US yields, with US 2Y at 4.08%, which could pressure USDCHF lower.
    • Geopolitical headlines regarding Iran-US relations may also impact safe-haven flows, influencing the Swiss Franc.

    Bias into NY: Sideways. The SNB’s commitment to price stability and readiness to intervene in FX markets should limit excessive CHF appreciation, even if the USD sees further upside on rising US real yields.

  • Kiwi Under Pressure as RBNZ Easing Looms – Monday, 25 May

    Snapshot: The New Zealand Dollar is trading under pressure as the market anticipates further easing from the Reserve Bank of New Zealand, with another rate cut priced for later in the year. Recent RBNZ communication has cemented this dovish bias amid slack in the labour market. The absence of fresh NZ macro data leaves the Kiwi vulnerable ahead of the NY open.

    • Watch 0.5850 in NZD/USD; a break opens a test of the May low.
    • Rising US real yields pose a downside risk for commodity-linked currencies.

    Bias into NY: We see continued downside pressure on the Kiwi. The RBNZ’s easing bias remains the dominant driver, with any rallies likely capped by the prospect of further rate cuts; a sustained breach of 0.5900 would negate this view.

  • NY Session Tactical Brief – Friday, 22 May

    Regime: Mixed — VIX steady at 17.44 despite higher oil and Dow futures, indicating risk appetite remains selective and rate-sensitive.

    Today’s market themes:

    • USD Strength: DXY supported by relatively hawkish Fed pricing.
    • Oil Volatility: Geopolitical tensions and inventory concerns drive swings.
    • Data Dependence: Retail sales releases in GBP and CAD in focus.

    The setup: USD strength continues, fueled by hawkish Fed bets as US yields remain elevated. Traders eye the 1.1600 level on EUR/USD; a break could trigger further downside. Focus remains on incoming data and any further escalation of geopolitical tensions in the Middle East.

    Watch list (native time per event):

    • 07:00 BST GBP: Retail Sales m/m (forecast -0.6%, prior 0.7%)
    • 08:30 ET CAD: Retail Sales m/m (forecast 0.6%, prior 0.7%)
    • 10:00 ET USD: Revised UoM Consumer Sentiment (forecast 48.2, prior 48.2)

    Bias by asset:

    STRICT SILO RULE: For every non-USD asset, the Domestic line MUST contain only domestic content (home central bank / domestic data / domestic yield / domestic political-fiscal driver). USD, DXY, Fed, US yields, and risk regime go in the Cross line — never in Domestic. If no fresh domestic catalyst exists, write “No fresh domestic catalyst — sensitive to US response” in Domestic. For commodities, Domestic = real-yields / supply / inventories / flows. For BTC, Domestic = funding / ETF flow / on-chain.

    • DXY:
      • Direction: Neutral
      • Domestic (US): Fed pricing stable / economic resilience
      • Cross: Global growth worries / safe-haven bids on tension
      • Levels: Support 99.00 / Resistance 99.50
    • EUR/USD:
      • Direction: Bearish
      • Domestic (EU): No fresh domestic catalyst — sensitive to US response
      • Cross: DXY strength / rate divergence / risk-off flows
      • Levels: Support 1.1600 / Resistance 1.1650
    • GBP/USD (Cable):
      • Direction: Neutral
      • Domestic (UK): Disappointing retail sales weigh on GBP
      • Cross: DXY strength / US-UK yield spreads / risk sentiment
      • Levels: Support 1.3380 / Resistance 1.3450
    • USD/JPY:
      • Direction: Bullish
      • Domestic (JP): Intervention risk high / BoJ dovish
      • Cross: US yields / risk-on / DXY strength
      • Levels: Support 158.50 / Resistance 159.50
    • USD/CAD (Loonie):
      • Direction: Bullish
      • Domestic (CA): No fresh domestic catalyst — sensitive to US response
      • Cross: DXY strength / WTI volatility / US-CA spread
      • Levels: Support 1.3600 / Resistance 1.3700
    • AUD/USD (Aussie):
      • Direction: Bearish
      • Domestic (AU): Surprise unemployment rise weighs on Aussie
      • Cross: DXY strength / China growth / commodity prices
      • Levels: Support 0.6600 / Resistance 0.6650
    • NZD/USD (Kiwi):
      • Direction: Bearish
      • Domestic (NZ): No fresh domestic catalyst — sensitive to US response
      • Cross: DXY strength / risk aversion / US-NZ yield spreads
      • Levels: Support 0.5850 / Resistance 0.5900
    • USD/CHF (Swissy):
      • Direction: Bullish
      • Domestic (CH): No fresh domestic catalyst — sensitive to US response
      • Cross: DXY strength / safe-haven demand eases
      • Levels: Support 0.7800 / Resistance 0.7900
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP neutral, EUR/JPY bullish, GBP/JPY bearish
      • Domestic: BoE vs ECB / BoJ, relative yield spreads / economic data
      • Cross: DXY / risk aversion / cross-of-crosses dynamic
      • Levels: Monitor for breakout patterns
    • XAU (Gold):
      • Direction: Bullish
      • Domestic (asset-specific): Real yields down / safe-haven bids
      • Cross: DXY weaker / risk aversion
      • Levels: Support $4500 / Resistance $4550
    • XAG (Silver):
      • Direction: Neutral
      • Domestic (asset-specific): Industrial demand / Gold-Silver ratio
      • Cross: DXY / risk appetite
      • Levels: Support $29.50 / Resistance $30.00
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): Refinery attack / supply concerns
      • Cross: DXY / risk appetite
      • Levels: Support $108 / Resistance $115
    • Copper:
      • Direction: Neutral
      • Domestic (asset-specific): China stimulus hope/ LME stocks
      • Cross: DXY / global growth
      • Levels: Support $5.00 / Resistance $5.10
    • SPX:
      • Direction: Bullish
      • Domestic (US): Better earnings / Rate cut expectations
      • Cross: Steady VIX / Global sentiment
      • Levels: Futures support 5280 / Resistance 5320
    • NDX:
      • Direction: Bullish
      • Domestic (US): Mega-cap tech / Yield sensitivities
      • Cross: rates sensitivity / VIX
      • Levels: Support 19700 / Resistance 19900
    • US30 (Dow):
      • Direction: Bullish
      • Domestic (US): Industrial activity / Positive earnings
      • Cross: Bond yield reaction
      • Levels: Support 39500 / Resistance 40000
    • UK100 (FTSE):
      • Direction: Neutral
      • Domestic (UK): Weak pound / commodity-heavy mix
      • Cross: global risk / US tone
      • Levels: Support 10400 / Resistance 10500
    • DAX:
      • Direction: Bullish
      • Domestic (DE): Bund yields stable / EU confidence
      • Cross: US tech/ DXY / risk-on
      • Levels: Support 24700 / Resistance 24900
    • Nikkei:
      • Direction: Bullish
      • Domestic (JP): JPY weakness / BoJ policy
      • Cross: US Tech / risk sentiment
      • Levels: Support 63000 / Resistance 63500
    • BTC:
      • Direction: Neutral
      • Domestic (asset-specific): ETF inflows / funding rates
      • Cross: DXY / risk regime / Nasdaq correlation
      • Levels: Support $67500 / Resistance $68500

    Positioning watch: AUD and Copper are crowded long (>98th percentile), leaving them vulnerable to a squeeze lower on weaker China data or disappointing earnings. Nasdaq is crowded short (<0th percentile) and ripe for a rally if yields soften further.

    The pain trade: A sharp rally in the Nasdaq fueled by falling real yields would squeeze crowded shorts and force further buying, pushing indices higher.

  • Dollar Near Recent Highs, Awaiting Sentiment Data – Friday, 22 May

    Where we are: The DXY is holding steady near recent highs at 99.30 in pre-market trading, consolidating after yesterday’s mixed session. The index remains within striking distance of the six-week high printed earlier in the week, supported by a relatively hawkish Fed narrative. We saw a modest overnight range, contained by the key resistance at 99.40 and support at 99.15, with the index essentially flat versus yesterday’s NY close.

    What’s driving it: Dollar strength is primarily anchored in the persistent uncertainty surrounding the Fed’s rate path. Despite dovish hopes lingering in some corners, the FOMC minutes suggest a willingness to consider further tightening if inflation proves stubborn. This hawkish tilt, coupled with a resilient US economy, continues to lend support to the Greenback. A fresh catalyst today will be the revised UoM Consumer Sentiment data at 10:00 ET, which bears watching for any hints of shifting inflation expectations or consumer confidence.

    • US 10-year yields have softened slightly, down 10bp to 4.57%, but remain at levels that provide underlying support for the Dollar.
    • The CFTC data shows a crowded net long positioning in the Dollar, at the 85th percentile, suggesting a squeeze risk on any dovish surprises.
    • Warsh’s takeover at the Fed introduces an element of uncertainty.

    NY session focus: Today’s session hinges on the 10:00 ET release of the revised UoM Consumer Sentiment, with particular attention paid to the inflation expectations component. A strong reading could fuel further Dollar gains, targeting a break above 99.40 and potentially testing the 99.60 level. Conversely, a weaker-than-expected print could trigger a short squeeze, pushing the DXY back towards 99.00. The trade that’s working remains fading dips in the Dollar, while the trade at risk is chasing the upside breakout. The pain trade for the Buck is a surprisingly dovish shift in Fed rhetoric sparked by weakening sentiment.

  • Euro Pressured by ECB Dovishness, Geopolitical Concerns – Friday, 22 May

    Where we are: EUR/USD is currently trading around 1.1605, testing the lower end of its recent range. Overnight, the pair remained largely contained between 1.1590 and 1.1620, failing to capitalize on the mild risk-on sentiment seen in Asia. This level is significantly below the prior NY close, highlighting the persistent selling pressure on the single currency.

    What’s driving it: The dovish undertones from the ECB continue to weigh on the Euro. Despite Eurozone HICP holding at 2%, and Core HICP at 2.3%, the ECB’s recent 25bp cut to the Deposit Facility Rate at its April 17th meeting, coupled with a maintained mild easing bias, signals further potential easing to come. Lane’s speech overnight has done little to counter this narrative. Concerns surrounding the impact of war on European stocks, as highlighted by Bloomberg, add to the bearish sentiment. The drop in US 2Y and 10Y yields is offering limited support, as the market anticipates potential divergence in monetary policy between the ECB and the Fed.

    • ECB’s mild easing bias retained despite headline inflation at target, suggesting a willingness to tolerate a slight overshoot to stimulate growth.
    • Net non-commercial Euro positioning remains modestly long at +40,200 contracts, near the 13th percentile, leaving room for further short-covering rallies if sentiment shifts.
    • Strategist warnings of a growing war impact on European stocks are amplified by FT’s alert that the EU is braced for a ‘dramatically’ worse economic outlook.

    NY session focus: All eyes are on the 10:00 ET release of Revised UoM Consumer Sentiment, although that is distinctly secondary to the overall risk picture and ECB narrative. A weaker print could offer some temporary relief to the Euro, but the overall trend remains down. Key levels to watch include the 1.1575 support zone, a break below which could trigger further downside towards 1.1500. Resistance lies at 1.1650. The short EUR/USD trade continues to work, given the ECB’s stance and broader geopolitical risks. The pain trade would be a significant de-escalation of geopolitical tensions coupled with hawkish signals from ECB officials shifting the policy outlook; that seems increasingly unlikely given current circumstances.

  • Cable Pressured by Soft Retail Sales – Friday, 22 May

    Where we are: GBP/USD is currently trading around 1.3405, pressured after disappointing domestic data. The pair traded in a tight overnight range of 1.3400-1.3430. This is below yesterday’s New York close around 1.3420, suggesting the intraday bias is bearish. Key support lies at 1.3370, with resistance around 1.3450.

    What’s driving it: Sterling is on the back foot this morning following a significantly weaker-than-expected UK Retail Sales print, which came in at -0.6% m/m versus a forecast of -0.6%. This reinforces concerns of slowing UK economic activity, adding to earlier data suggesting a cooling labor market and contraction in private sector activity. These concerns, coupled with the Bank of England’s cautious and data-dependent stance, are weighing on rate hike expectations. US yields are retreating from recent highs, but the dominant intraday driver remains domestic.

    • UK Retail Sales printed -0.6% m/m, missing expectations and highlighting consumer weakness.
    • FT Markets reports gilt relief rally sending yields to biggest weekly drop since 2024 as Burnham pledge to stick to fiscal rules and pullback from bets on higher BoE interest rates drive rebound.
    • CFTC data shows moderate short positioning in GBP, leaving some room for further downside.

    NY session focus: The main event for the NY session will be the Revised UoM Consumer Sentiment release at 10:00 ET. While technically a USD driver, given the soft UK retail sales, any downside surprise could amplify Sterling weakness. Key levels to watch are 1.3370 on the downside and 1.3450 on the upside. The trade that’s working is fading Cable rallies. The trade at risk is a short squeeze if US data significantly disappoints and risk sentiment improves sharply, though BoE caution is a headwind. The pain trade is a sustained break above 1.3450, fueled by a dovish repricing of the BoE.

  • USD/JPY Faces Intervention Threat as BoJ Patience Wanes – Friday, 22 May

    Where we are: USD/JPY is currently trading around 159.05, edging lower after hitting intraday highs overnight in Asia. The pair remains elevated, threatening the prior intervention zone around 160.00. We’re well above the prior NY close as the market tests the BoJ’s resolve.

    What’s driving it: The prospect of further BoJ tightening is diminishing after softer core inflation data, which printed at 1.4% in April, well below the BoJ’s 2% target. Board Member Koeda’s speech yesterday offered little new guidance, reiterating a data-dependent approach. The yen’s weakness is compounded by a slightly bid USD, as the broad index holds around 119.28, and a continued risk-off vibe in rates markets, with the US 2-year yield down 9bp to 4.04% and the 10-year yield down 10bp to 4.57%.

    • Japanese core inflation softened to a four-year low of 1.4% in April, weakening the case for near-term BoJ rate hikes.
    • Net non-commercial JPY positioning remains heavily short at -75,102 contracts, sitting in the 8th percentile, suggesting a potential for a sharp squeeze on any hawkish BoJ surprise or intervention.
    • Wage data from the spring shunto consolidates the case for one more hike this year, but the BoJ has been slow to act.

    NY session focus: Watch for any intervention signals as USD/JPY lingers around 159.00-160.00. The UoM Consumer Sentiment data at 10:00 ET will be closely watched, as a surprisingly weak print could weigh on the USD and provide some relief to the yen. Key levels to watch are 158.50 on the downside (intra-day support) and 160.00 as the immediate upside resistance. The current trade is to fade USD/JPY strength tactically, but the risk is clearly for a break higher if the BoJ remains passive. The pain trade is a coordinated intervention by the MoF and BoJ that finally breaks the back of the yen shorts.

  • Loonie Faces Retail Test as BoC Easing Risks Persist – Friday, 22 May

    Where we are: USDCAD is trading around 1.3660, consolidating after yesterday’s choppy session. The pair has largely traded within a tight 1.3640-1.3680 range overnight, and sits slightly above its prior NY close. Key resistance remains around the 1.3700 handle, while support is eyed near 1.3620.

    What’s driving it: The Canadian Dollar’s direction hinges on today’s domestic Retail Sales data at 08:30 ET. The Bank of Canada’s dovish tilt, cemented by Macklem’s April comments highlighting tariff uncertainty and a softer growth path, continues to weigh on the Loonie. While headline CPI at 7.1% remains well above target, the BoC’s emphasis on underlying price pressures keeps the door open for potential easing, especially given the still-solid but slightly decelerating Monthly GDP growth. Rising WTI crude prices offer some support, but the potential for tariff pass-through continues to create headwinds.

    • The BoC’s April decision to hold rates at 2.75% despite elevated inflation, with Macklem explicitly referencing downside risks, signaled a high bar for hawkish surprises.
    • Speculator positioning remains modestly short CAD, offering limited room for further downside extension unless data materially deteriorates; squeeze risk is low given that the net-short positioning is around the 79th percentile of its 52-week range.
    • The narrowing 2s10s spread in the US, currently at 0.49%, signals a potential slowdown in the US which would pressure Canadian growth and the CAD.

    NY session focus: All eyes are on the 08:30 ET release of Canadian Retail Sales and Core Retail Sales. Stronger-than-expected prints could provide a short-term boost to the Loonie, potentially pushing USDCAD below 1.3620. Conversely, a miss could exacerbate easing concerns and send the pair towards 1.3700. The 10:00 ET release of Revised UoM Consumer Sentiment could introduce some noise, but the primary focus remains squarely on Canadian data. The trade that’s working is fading rallies above 1.3700; the trade at risk is shorting CAD aggressively into positive data surprises. The pain trade is a hawkish repricing of BoC expectations driven by surprisingly strong Canadian data.

  • AUDUSD Under Pressure After Weak Australian Jobs Data – Friday, 22 May

    Snapshot: The Australian Dollar is trading softer after a surprise rise in the Australian unemployment rate to 4.5%. The weak labour market data has dampened expectations for further RBA rate hikes. The U.S. Revised UoM Consumer Sentiment is due at 10:00 ET.

    • A break below $0.7100 would signal further downside, potentially opening the door to a test of the $0.7050 level.
    • Watch for spillover from the U.S. Revised UoM Consumer Sentiment release at 10:00 ET; a large beat could provide a boost to the USD.

    Bias into NY: Short AUDUSD. The weak employment print reinforces the RBA’s cautious stance, as Bullock stated inflation progress is ‘still uneven’, making it less likely they will commit to an aggressive tightening path; crowded long positioning heightens squeeze risk on further data disappointment.

  • Swiss Franc Under Pressure as SNB Easing Looms – Friday, 22 May

    Snapshot: USD/CHF is trading around 0.7861, marginally firmer. The dominant driver remains the SNB’s active easing posture, reinforced by Schlegel’s recent comments leaving the door open for a return to negative rates. Focus remains on the SNB’s willingness to intervene in FX markets.

    • A break above 0.7880 would suggest further USD strength.
    • Risk lies in any surprise hawkish hints during upcoming SNB speeches, though unlikely.

    Bias into NY: Mildly bullish USD/CHF as the market continues to price in further SNB easing; eyes on a potential test of 0.7900. US yields, having softened in recent sessions, may offer limited resistance given the prevailing SNB stance.

  • Kiwi Under Pressure as RBNZ Easing Looms – Friday, 22 May

    Snapshot: NZDUSD holds near $0.587, pressured by the RBNZ’s firmly entrenched easing bias. The central bank, having already cut rates to 3.50%, has signaled further easing if disinflation embeds. Focus remains on the 10:00 ET Revised UoM Consumer Sentiment print.

    • RBNZ easing bias remains the dominant driver, with markets anticipating further rate cuts if domestic inflation fails to pick up.
    • Watch for reactions to today’s 10:00 ET Revised UoM Consumer Sentiment print, which could offer clues on near-term USD direction and indirectly impact NZDUSD.

    Bias into NY: Bearish NZDUSD, targeting a move towards $0.585, given the RBNZ’s dovish stance and potentially amplified by any further USD strength if US sentiment data surprises to the upside. Falling US 10Y yields offer a mild offset but are unlikely to override the domestic narrative.

  • NY Session Tactical Brief – Thursday, 21 May

    Regime: Risk-off, fueled by rising real yields and renewed Iran tensions, with VIX at 18.06 and DXY bid.

    Today’s market themes:

    • Oil shock revival: Geopolitical tensions around Iran exacerbate supply concerns, driving crude higher.
    • Rates repricing: Dimon’s hawkish comments reinforce the potential for higher-for-longer, lifting Treasury yields.
    • Mixed PMI signals: Eurozone and UK PMIs offer a mixed bag, with services sector weakness raising growth concerns.

    The setup: Renewed geopolitical risks are stoking inflation fears and pushing real yields higher, putting pressure on risk assets. Look for opportunities to fade rallies in equities, especially tech. Watch the 10Y real yield at 2.18% as a key level. Initial weakness in Dow futures around 39,850 offers a possible short entry.

    Watch list (native time per event):

    • 11:30 AEST AUD: Employment Change (forecast 16.7K, prior 17.9K)
    • 09:15 CET EUR: French Flash Manufacturing PMI (forecast 52.1, prior 52.8)
    • 09:30 London GBP: Flash Services PMI (forecast 51.7, prior 52.0)

    Bias by asset:

    • DXY:
      • Direction: Bullish
      • Domestic (US): Fed policy uncertainty, strong US yields
      • Cross: Risk-off sentiment, safe-haven demand
      • Levels: Resistance 119.50, support 119.00
    • EUR/USD:
      • Direction: Bearish
      • Domestic (EU): Weak Eurozone PMIs, ECB dovishness
      • Cross: Strong DXY, widening US-DE 10Y spread, risk-off flows
      • Levels: Resistance 1.1620, support 1.1580
    • GBP/USD (Cable):
      • Direction: Bearish
      • Domestic (UK): Mixed UK PMIs, uncertainty around BoE path
      • Cross: Strong DXY, US-UK 10Y spread, risk aversion
      • Levels: Resistance 1.2660, support 1.2600
    • USD/JPY:
      • Direction: Neutral
      • Domestic (JP): BoJ caution, intervention risk remains high
      • Cross: Rising US 10Y yields, DXY strength, risk sentiment
      • Levels: Resistance 159.50, support 159.00
    • USD/CAD (Loonie):
      • Direction: Bullish
      • Domestic (CA): BoC cautious tone, WTI volatility
      • Cross: Strong DXY, US-CA 10Y spread
      • Levels: Resistance 1.3820, support 1.3750
    • AUD/USD (Aussie):
      • Direction: Bearish
      • Domestic (AU): Mixed labour data, RBA tightening path uncertain
      • Cross: Strong DXY, US-AU 10Y spread, China growth concerns
      • Levels: Resistance 0.6680, support 0.6620
    • NZD/USD (Kiwi):
      • Direction: Bearish
      • Domestic (NZ): RBNZ easing bias
      • Cross: Strong DXY, US-NZ 10Y spread, risk-off sentiment
      • Levels: Resistance 0.5900, support 0.5850
    • USD/CHF (Swissy):
      • Direction: Bullish
      • Domestic (CH): SNB dovishness, Swiss yields lagging
      • Cross: Strong DXY, safe-haven demand
      • Levels: Resistance 0.7900, support 0.7850
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP: Neutral; EUR/JPY: Bearish; GBP/JPY: Bearish
      • Domestic: Relative ECB/BoE/BoJ stance, relative yields
      • Cross: DXY, risk regime, cross-of-crosses dynamics
      • Levels: Monitor key supports/resistances on charts
    • XAU (Gold):
      • Direction: Bearish
      • Domestic (asset-specific): Rising real yields, CB demand waning
      • Cross: Strong DXY, risk aversion not fully supportive
      • Levels: Resistance $4,510, support $4,480
    • XAG (Silver):
      • Direction: Bearish
      • Domestic (asset-specific): Slower industrial demand growth
      • Cross: Strong DXY, risk-off sentiment
      • Levels: Follow Gold
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): Iran tensions / potential supply disruption
      • Cross: DXY offsetting factor, risk-off a moderate headwind
      • Levels: WTI Resistance $102, Support $98
    • Copper:
      • Direction: Bearish
      • Domestic (asset-specific): China growth concerns, LME inventories stable
      • Cross: Strong DXY, global growth proxy
      • Levels: Follow market trend, trade in accordance with real yields.
    • SPX:
      • Direction: Bearish
      • Domestic (US): Rising yields, earnings headwinds
      • Cross: Elevated VIX, global risk-off
      • Levels: Futures resistance 5300, cash support 5250
    • NDX:
      • Direction: Bearish
      • Domestic (US): Real yield sensitivity, mixed earnings
      • Cross: Rates sensitivity, elevated VIX
      • Levels: Follow SPX general resistance and support level
    • US30 (Dow):
      • Direction: Bearish
      • Domestic (US): Cyclical headwinds, rising yields
      • Cross: Bond-yield reaction
      • Levels: Follow SPX general resistance and support level
    • UK100 (FTSE):
      • Direction: Neutral
      • Domestic (UK): Sterling strength, mixed PMI data, commodity exposure
      • Cross: Global risk, US tone
      • Levels: Resistance 10,400, support 10,350
    • DAX:
      • Direction: Bearish
      • Domestic (DE): Weak German PMIs, Bund yield increase
      • Cross: US tech, DXY, risk-off
      • Levels: Resistance is high, monitor yield trend
    • Nikkei:
      • Direction: Neutral
      • Domestic (JP): Cautious BOJ commentary, JGB yield focus
      • Cross: US tech reaction, global risk
      • Levels: Follow global risk sentiment
    • BTC:
      • Direction: Neutral
      • Domestic (asset-specific): ETF flows slowing, funding rates stable
      • Cross: DXY strength, risk-off, Nasdaq correlation
      • Levels: Resistance $68,000, support $67,500

    Positioning watch: AUD, Copper, and US Dollar are crowded longs (>80th percentile), creating squeeze risk on any positive surprises or a shift in sentiment. Nasdaq 100 and Japanese Yen are crowded shorts (<20th percentile), risking a sharp rally on positive catalysts.

    The pain trade: A dovish pivot from a Fed speaker today would trigger a violent short squeeze in Nasdaq and Yen, simultaneously undermining the DXY.

  • DXY Firm as Yields Climb – Thursday, 21 May

    Where we are: The DXY currently trades around 119.35, buoyed by a persistent bid in US Treasury yields. Overnight, the index traded in a narrow range, consolidating gains from earlier in the week. The index remains above the 119.28 level last seen Friday, having broken above that on Tuesday’s close.

    What’s driving it: The primary driver remains the expectation of a continued, patient hold from the Federal Reserve. The market is reacting to sticky inflation concerns, particularly as evidenced by yesterday’s rise in front-end yields. With the Fed reaffirming its data-dependent stance and the dot plot suggesting only two cuts in 2026, the path of least resistance for the dollar remains upward, especially if inflation pressures persist and crude remains above $112. The recent easing in 10-year breakeven inflation to 2.44% is a mild headwind, but overshadowed by the firming in real yields.

    • The 2-year Treasury yield sits at 4.13%, up 6bp yesterday, reflecting market pricing of continued Fed patience.
    • Speculative positioning is net long at the 85th percentile, increasing the risk of a squeeze if economic data disappoints.
    • Gold is under pressure due to the rising dollar and yields, hinting at a risk-off dynamic at play.

    NY session focus: The market will be closely watching this morning’s 08:30 ET releases of the Philly Fed Manufacturing Index and Unemployment Claims. A weaker-than-expected Philly Fed print could trigger a minor pullback, while a strong showing would reinforce the dollar’s upward trajectory. Later, the 09:45 ET Flash Manufacturing and Services PMIs will provide further insight into the health of the US economy. Key levels to watch are 119.50 as resistance and 119.00 as support. The prevailing trade remains buying dips in the DXY, but the squeeze risk on short USD positions is real. The pain trade is a sharp reversal in yields driven by dovish comments or a weak payrolls report next week.

  • Euro Under Pressure as PMI Data Disappoints – Thursday, 21 May

    Where we are: EUR/USD is currently trading around 1.1600, near its weakest level since early April. The pair traded in a tight overnight range, failing to hold onto earlier gains after disappointing Eurozone PMI data. It is currently below yesterday’s New York close, suggesting continued selling pressure.

    What’s driving it: The primary driver is the weaker-than-expected Eurozone PMI data, raising concerns about the pace of economic recovery and potentially influencing the ECB’s policy path. French and German Flash PMI figures all came in below forecasts this morning. While the ECB cut rates by 25bp in April to 2.50%, keeping a mild easing bias, a sustained economic slowdown could embolden doves to push for further easing. A slightly negative 2s10s spread suggests concerns over future growth, amplified by EU cutting growth forecasts to 0.9% this year.

    • The French Flash Services PMI printed at 46.6 vs 46.5 expected.
    • The Eurozone economy unexpectedly contracted in May at the fastest pace since late 2023.
    • Speculator positioning in the Euro is modestly long at +40,200 contracts, offering limited fuel for a major squeeze.

    NY session focus: The focus shifts to the US data releases this morning, with the 08:30 ET Philly Fed Manufacturing Index and Unemployment Claims providing further cues on the relative strength of the US economy. Then later we get Flash Manufacturing PMI (Forecast: 53.8 | Previous: 54.0) and Flash Services PMI at 09:45 ET. A strong print in the US could push EUR/USD lower towards the 1.1550 level, while weaker data could offer a temporary reprieve. The key trade is fading rallies above 1.1620. The risk trade is an upside surprise in the US PMIs, triggering a sharp dollar rally and a test of the April lows in EUR/USD. The pain trade would be an unexpected hawkish signal from the ECB, catching the market leaning the wrong way.

  • Pound Weakness to Persist on Growth Concerns – Thursday, 21 May

    Where we are: Cable currently trades at 1.2635, consolidating near the bottom of its recent range. Overnight, GBP/USD oscillated between 1.2620 and 1.2670. This level is significantly below yesterday’s NY close of 1.2680 and the pair remains under pressure, struggling to gain traction above the 1.2650 mark. Technicals suggest further downside risk, with limited support until 1.2580.

    What’s driving it: Sterling is under pressure this morning following a concerning slowdown in UK economic activity. Today’s Flash PMI data at 09:30 BST are expected to confirm this cooling, with both manufacturing and services sectors projected to show a slowdown; manufacturing is expected to print 52.9 (prior 53.6) while services are expected to drop to 51.7 (prior 52.0). This comes on the heels of recent data showing April inflation undershooting expectations and the labour market unexpectedly softening, reinforcing the view that the BoE may be hesitant to tighten policy aggressively. This contrasts with a still-hawkish priced US curve, sending real-rate differentials in favour of the Dollar.

    • The MPC’s current cautious, data-dependent bias, underscored by the 8-1 vote split at the last meeting, leaves Sterling vulnerable to downside surprises.
    • Speculative positioning in GBP remains moderately short, but has increased in net length in the latest week, leaving room for further short build if the incoming data continues to disappoint.
    • Rob Wood at Pantheon Macroeconomics notes that a sharp downturn in output means the Bank of England is more likely to hold interest rates in July, as mentioned in a Guardian Business article.

    NY session focus: Traders will be closely watching the 08:30 ET release of the Philly Fed Manufacturing Index and Unemployment Claims for further clues on the US economic outlook, which will likely impact DXY and indirectly affect Cable. BoE Gov Bailey’s speech at 16:00 BST will also be closely scrutinised for any shift in tone or forward guidance. Key levels to watch are 1.2600 for a potential break lower and 1.2680 as immediate resistance. The short GBP/USD trade remains favoured, while long positions are at risk. The pain trade would be a surprisingly hawkish tone from Bailey after a beat on the US data, triggering a rapid short squeeze.