Category: Currencies

  • Dollar Flight to Quality Intact as Middle East Strains – Tuesday, 19 May

    Where we are: The Dollar index is holding firm around 119.30, consolidating gains after the recent surge fueled by geopolitical tensions and rising US yields. Overnight, the DXY saw a narrow range, oscillating between 119.15 and 119.45. This level sits well above Friday’s close, underpinned by persistent safe-haven demand and a continued bid in US Treasuries. The 2-year yield is still above 4.0%, providing a strong anchor for the Greenback.

    What’s driving it: The primary driver remains the ongoing uncertainty surrounding the conflict in the Middle East, specifically the US-Iran tensions and Gulf War fallout. This has sparked a flight to safety, with the Dollar benefiting as a traditional haven. Furthermore, the Fed’s patient hold stance, reaffirmed in the latest minutes, continues to support the Dollar as markets price in fewer rate cuts. Sticky core CPI, firm payrolls or a re-acceleration in services inflation would push the committee further out, solidifying the Dollar’s gains.

    • 10Y real yields are at 2.1%, acting as a headwind for gold and tailwind for the Dollar.
    • Net non-commercial positioning in the Dollar is at the 85th percentile, suggesting a crowded long and a potential squeeze risk on any dovish surprises.
    • Japan and China are leading the foreign government retreat from US Treasuries, adding further pressure on Asian currencies and supporting the Dollar’s strength.

    NY session focus: Watch for the Pending Home Sales release at 10:00 ET, but geopolitical headlines will likely remain the dominant driver. Key levels to watch are 119.00 as initial support and 119.50 as near-term resistance on the DXY. The trade that’s working is buying dips in the Dollar against Asian currencies, particularly the Yen, given the BOJ’s continued dovish stance. The trade at risk is chasing the Dollar higher without confirmation from the bond market. The pain trade would be a swift de-escalation in the Middle East alongside a surprisingly weak US data print that reignites Fed cut expectations.

  • Euro Still Struggling for Traction – Tuesday, 19 May

    Where we are: EUR/USD is currently trading near 1.1630, struggling to hold above one-month lows after dipping to 1.1625 overnight. The pair remains capped below its prior NY close around 1.1640, with bearish momentum prevailing after yesterday’s risk-off move. Immediate resistance lies at 1.1650, with support around 1.1610.

    What’s driving it: The Euro remains under pressure, weighed by the ECB’s dovish stance and persistent concerns over energy supply disruptions stemming from the ongoing Middle East conflict. The ECB, at its last meeting on April 17th, delivered a 25bp rate cut to 2.50% but retained a meeting-by-meeting approach, leaving the door open for further easing. This contrasts with the stronger hawkish signals emanating from the US, reinforcing the divergence trade; yesterday’s rise in US yields of +9bp on the 2Y and +12bp on the 10Y amplified that effect. Meanwhile, the rise in WTI crude continues to add to inflationary pressures in the Eurozone.

    • The recent Eurozone HICP data, showing headline inflation at 2.0% and core at 2.3%, offers only limited respite, as these figures remain above the ECB’s target and are vulnerable to energy-price spikes.
    • Speculator positioning in EUR remains modestly long at +40,200 contracts, which, while below the 50th percentile, offers scope for further downside as longs are washed out.
    • FT reporting suggests that markets still expect an 80% chance of a 25bp hike in the Eurozone, and it might be an overestimation given rising energy prices and ongoing military conflict.

    NY session focus: All eyes will be on the US Pending Home Sales data at 10:00 ET, though the primary driver for EUR/USD will remain the broader risk sentiment and the path of US yields. Watch for a potential test of the 1.1600 level on further dollar strength. Any sustained break below would open the door to a test of 1.1550. The working trade remains short EUR/USD on upticks. The pain trade for EUR is a surprise re-pricing of ECB hawkishness fueled by stronger-than-expected data or de-escalation in the Middle East conflict.

  • Cable Remains Under Pressure Amid Mixed UK Data – Tuesday, 19 May

    Where we are: GBP/USD is currently trading around 1.2485, consolidating losses from the overnight session. The pair traded in a tight range overnight, failing to break above 1.2510 resistance. The price sits well below the prior NY close of 1.2520, reflecting the ongoing bearish sentiment.

    What’s driving it: Sterling remains on the defensive after this morning’s mixed bag of UK data. While the Claimant Count Change came in slightly below expectations at 23.1K, signalling some tightness in the labour market, the Average Earnings Index held steady at 3.8%, failing to provide the dovish signal the BoE needs to justify a rate cut. The persistent stickiness of wages keeps the MPC in a holding pattern, as highlighted by the 8-1 vote at the last meeting where Dhingra dissented for a cut. Hawkish repricing in US yields is adding further pressure to Sterling as the 2-year yield sits above 4.09%.

    • BoE Governor Bailey has repeatedly stressed the importance of services CPI in determining the future path of monetary policy, placing increased scrutiny on upcoming inflation releases.
    • CFTC data shows net non-commercial GBP positions remain moderately short, but at the 35th percentile for the year, there is little risk of an imminent short squeeze.
    • Worries on gilts, rising public debt, and increased hedge fund activity have sparked some vulnerabilities in the bond market, as reported by the FT.

    NY session focus: The market will be closely watching the 10:00 ET release of US Pending Home Sales m/m, with expectations of a 1.0% increase. A strong print could further fuel dollar strength and pressure Cable lower, potentially testing support around 1.2450. Resistance remains around 1.2510. The current trade is short Cable on rallies toward 1.2500, while longs are at risk until we see a clear dovish shift from the BoE or a significant reversal in US yields. The pain trade for GBP/USD is a surprise downside print in US data that triggers a sharp dollar selloff and allows Cable to break above 1.2550.

  • Yen Crumbles as Intervention Risk Overshadows BoJ Hike – Tuesday, 19 May

    Where we are: USD/JPY is currently trading around 159.15, pushing towards fresh multi-decade highs. The pair has broken above the overnight high of 159.00 and is well above Friday’s New York close, as the relentless dollar bid continues. The next major level to watch is the psychological 160.00 mark, a level that previously triggered intervention by Japanese authorities.

    What’s driving it: The primary driver remains the widening gap between the Bank of Japan’s slow normalization and the hawkish stance of other major central banks. Despite stronger-than-expected Q1 GDP data, which showed a 0.5% expansion, the Yen has failed to find sustained support. This is compounded by the market’s increasing skepticism about the BoJ’s willingness to aggressively hike rates, especially given the uncertainty surrounding the broader economic impact of the Middle East conflict. The relentless rise in US yields, with the 10-year at 4.59%, is further exacerbating Yen weakness, though today’s catalyst is dollar strength as measured by the Broad Dollar Index which closed Friday at 119.2825.

    • Kazuyuki Masu, Member of the Policy Board of the Bank of Japan, gave a speech on May 14th, discussing economic activity, prices, and monetary policy in Japan, but offered little new guidance on intervention.
    • The crowded short JPY positioning (net non-commercial -75,102 contracts, 8th %ile) suggests a squeeze is possible if intervention fears recede.
    • The rise in the US 10Y real yield to 2.1% is putting pressure on gold and risk assets, further supporting the dollar against the Yen.

    NY session focus: Today’s US Pending Home Sales data at 10:00 ET will likely offer little to change the near-term trajectory. The key level remains 160.00 in USD/JPY, with traders closely monitoring for any signs of intervention from the BoJ or the Ministry of Finance. The trade that’s working is short JPY, long USD, but the risk of a sharp reversal from intervention is ever-present. The pain trade is a coordinated global easing cycle that sends US yields plummeting, forcing Yen shorts to cover en masse.

  • Canadian Dollar Pressured by US Yields – Tuesday, 19 May

    Where we are: USDCAD trades near 1.3725, consolidating gains after an overnight push higher. The pair traded in a tight overnight range of 1.3700-1.3730. This level is above Friday’s NY close, reflecting the underlying bid driven by rising US yields. Resistance is eyed near the recent high of 1.3750, with support around 1.3680.

    What’s driving it: The Canadian Dollar is facing headwinds as US Treasury yields extend their ascent, overshadowing domestic considerations. The Bank of Canada’s easing bias, reiterated by Governor Macklem’s cautious tone on tariff uncertainty and slower growth, keeps rate-cut expectations alive despite sticky headline CPI at 7.1%. This morning’s Canadian CPI data (08:30 ET) will be crucial in shaping near-term expectations, but the market’s primary focus is on the broader USD strength and US yields.

    • US 2Y yield at 4.09%, up 9bp on Friday.
    • Macklem cited tariff uncertainty in April.
    • Speculators remain modestly short CAD (-16,242 contracts), leaving room for further downside on negative data surprises.

    NY session focus: This morning’s Canadian CPI data (08:30 ET) will be the immediate catalyst, with any downside surprise likely to exacerbate CAD weakness. Focus then shifts to US Pending Home Sales at 10:00 ET. Key levels to watch are 1.3750 (resistance) and 1.3680 (support). The market is currently rewarding USD strength, particularly against commodity currencies. The risk to this trade is a significantly weaker-than-expected US macro print, which could trigger a rapid reversal in US yields and a CAD rally. The pain trade is a surprisingly strong Canadian CPI print that forces a BoC hawkish pivot.

  • Aussie Under Pressure as RBA Remains Cautious – Tuesday, 19 May

    Snapshot: AUD/USD is struggling near three-week lows as the RBA’s May meeting minutes reinforced a cautious stance. The minutes highlighted the Board’s assessment of cumulative rate hikes and external uncertainties, suggesting a pause is increasingly likely. Attention now turns to US Pending Home Sales at 10:00 ET.

    • Watch for a break below $0.7100, which would open the door to further downside.
    • Rising US real yields pose a headwind for AUD.

    Bias into NY: Bearish on AUD/USD. The RBA’s reluctance to signal a clear rate-cutting path, coupled with a crowded long positioning and a rising USD (DXY near 119.28), suggests further weakness towards $0.7050 is possible.

  • CHF Set for Further Weakness; SNB Easing Bias Firm – Tuesday, 19 May

    Snapshot: USD/CHF sits at 0.7878, up 0.44% on the session. The Swiss National Bank’s active easing posture, highlighted by the recent 25bp rate cut and ongoing readiness for FX intervention, continues to weigh on the Swiss Franc. Focus shifts to 10:00 ET US Pending Home Sales.

    • Watch for any signals of increased SNB intervention to defend against excessive CHF strength.
    • Risk: any hawkish surprises from US data that could trigger a broader USD rally.

    Bias into NY: Expect continued USD/CHF upside targeting 0.7900 as the SNB’s easing bias contrasts with the stickiness of US inflation and consequent repricing of Fed cuts. The rise in US 2Y and 10Y yields further supports this view.

  • Kiwi Vulnerable as RBNZ Easing Cycle Gathers Steam – Tuesday, 19 May

    Snapshot: NZDUSD is hovering around $0.584, pressured by a firmly entrenched RBNZ easing bias. The central bank cut rates by 25bp at its last meeting on April 9th, signalling further easing contingent on disinflation and labour market slack. Today’s US Pending Home Sales at 10:00 ET poses a moderate risk event.

    • Watch for a break below $0.5830, which would open the door to further downside towards $0.5800.
    • A surprise hawkish shift priced into the RBNZ outlook due to imported inflation remains a risk.

    Bias into NY: Bearish on the Kiwi. The RBNZ’s dovish stance will likely keep downward pressure on NZDUSD, with any upside capped by a firming US dollar, currently supported by rising US 2Y yields at 4.09%.

  • NY Session Tactical Brief – Monday, 18 May

    Regime: Risk-off, driven by rising real yields as 10Y TIPS push above 2% and oil climbs to $105, pressuring equities.

    Today’s market themes:

    • Real-yield repricing and inflation fears weighing on risk assets.
    • Geopolitical tensions in Middle East adding to oil supply concerns.
    • Watch for signs of USD/JPY intervention as pair tests 159.

    The setup: Rising real yields are the dominant driver, pressuring risk assets. Focus on the US 10Y TIPS yield, currently at 2%, as it sets the tone. A break above 2.1% could trigger further equity sell-off and dollar strength. Trade: short SPX futures, stop above 5300. Risk: surprising dovish Fed commentary.

    Watch list (native time per event):

    • 08:30 ET US Retail Sales (m/m) Forecast: 0.4%, Prior: 0.7%
    • 10:00 ET US NAHB Housing Market Index Prior: 51
    • 11:00 CET ECB President Lagarde Speaks

    Bias by asset:

    • DXY:
      • Direction: Bullish
      • Domestic (US): Hawkish Fed rhetoric, rising US yields
      • Cross: Risk-off sentiment, safe-haven demand
      • Levels: Support 117.80 / Resistance 118.30
    • EUR/USD:
      • Direction: Bearish
      • Domestic (EU): Weak German data, dovish ECB comments
      • Cross: Stronger DXY, widening US-DE 10Y yield spread
      • Levels: Support 1.0800 / Resistance 1.0850
    • GBP/USD (Cable):
      • Direction: Bearish
      • Domestic (UK): Cautious BoE stance, weak data prints
      • Cross: Stronger DXY, risk-off flows
      • Levels: Support 1.2550 / Resistance 1.2620
    • USD/JPY:
      • Direction: Bullish
      • Domestic (JP): BoJ dovish, rising JGB yields, intervention watch
      • Cross: Rising US 10Y, DXY strength, risk-off
      • Levels: Support 158.50 / Resistance 159.00
    • USD/CAD (Loonie):
      • Direction: Bullish
      • Domestic (CA): BoC holds, CPI is soft, rangebound
      • Cross: Stronger DXY, US-CA 10Y spread widening
      • Levels: Support 1.3650 / Resistance 1.3700
    • AUD/USD (Aussie):
      • Direction: Bearish
      • Domestic (AU): Hawkish RBA stance but crowded long positioning
      • Cross: Stronger DXY, weaker China growth, US-AU spread
      • Levels: Support 0.7050 / Resistance 0.7120
    • NZD/USD (Kiwi):
      • Direction: Bearish
      • Domestic (NZ): RBNZ easing bias, weakening economic momentum
      • Cross: Stronger DXY, risk aversion, US-NZ yield divergence
      • Levels: Support 0.5800 / Resistance 0.5850
    • USD/CHF (Swissy):
      • Direction: Bullish
      • Domestic (CH): SNB neutral, CPI contained
      • Cross: DXY strength, safe-haven unwinding
      • Levels: Support 0.7800 / Resistance 0.7850
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP Neutral, EUR/JPY Bearish, GBP/JPY Neutral
      • Domestic: Diverging central bank policies, relative yield spreads
      • Cross: DXY strength, risk regime dynamics
      • Levels: EUR/GBP 0.8500-0.8550, EUR/JPY 169.50-170.50, GBP/JPY 192.00-193.00
    • XAU (Gold):
      • Direction: Bearish
      • Domestic (asset-specific): Rising real yields, soft CB demand
      • Cross: Stronger DXY, risk-off environment
      • Levels: Support $4,500 / Resistance $4,550
    • XAG (Silver):
      • Direction: Bearish
      • Domestic (asset-specific): Weaker industrial demand, high Gold-Silver ratio
      • Cross: Stronger DXY, risk aversion
      • Levels: Support $30.00 / Resistance $31.00
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): Tight supply, geopolitics, rising demand
      • Cross: Risk-off, inflation hedge
      • Levels: WTI Support $100 / Resistance $105
    • Copper:
      • Direction: Bearish
      • Domestic (asset-specific): Weak China, rising LME stocks
      • Cross: DXY strength, global growth concerns
      • Levels: Support $5.00 / Resistance $5.10
    • SPX:
      • Direction: Bearish
      • Domestic (US): Rising yields, Fed outlook
      • Cross: VIX elevated, global risk-off
      • Levels: Futures 5285, support 5250, resistance 5300 cash
    • NDX:
      • Direction: Bearish
      • Domestic (US): Real yields pressure valuations
      • Cross: Rates sensitivity, VIX
      • Levels: Support 18,100 / Resistance 18,300
    • US30 (Dow):
      • Direction: Bearish
      • Domestic (US): Earnings cyclical concerns, yields
      • Cross: Bond-yield reaction
      • Levels: Support 39,700 / Resistance 40,000
    • UK100 (FTSE):
      • Direction: Neutral
      • Domestic (UK): Mixed data, Gilt yields
      • Cross: Global risk, US tone
      • Levels: Support 8,400 / Resistance 8,450
    • DAX:
      • Direction: Bearish
      • Domestic (DE): Weak German data, rising Bund yields
      • Cross: US tech, DXY, risk regime
      • Levels: Support 23,600 / Resistance 23,800
    • Nikkei:
      • Direction: Bearish
      • Domestic (JP): Strong JPY, rising JGB yields, BoJ stance
      • Cross: US tech, risk regime
      • Levels: Support 60,500 / Resistance 61,000
    • BTC:
      • Direction: Bearish
      • Domestic (asset-specific): ETF outflows
      • Cross: DXY, risk regime, Nasdaq correlation
      • Levels: Support $60,000 / Resistance $62,000

    Positioning watch: AUD and Copper are crowded long at >98th percentile, creating significant squeeze risk if US data surprises to the upside or China stimulus disappoints. Nasdaq is crowded short at the 0th percentile, vulnerable to a rally.

    The pain trade: A dovish surprise from a Fed speaker would ignite a risk rally, squeezing crowded short positions in Nasdaq and causing dollar weakness.

  • Dollar Struggles to Find Footing Amidst Yield Volatility – Monday, 18 May

    Where we are: The Dollar Index (DXY) is currently trading around 118.05, marginally higher after oscillating in a tight range overnight. Key technical levels to watch are 117.80 as support and 118.30 as resistance. The DXY remains near levels last seen in early May but is struggling to gain significant traction above that recent high.

    What’s driving it: The primary driver is the uncertainty surrounding the Fed’s future policy path. Despite the dot plot indicating two cuts in 2026, the market remains unconvinced, particularly with sticky core CPI and firm payroll data. This uncertainty is being reflected in the volatility of US Treasury yields, with the 2-year yield at 4% and the 10-year at 4.47%. Rising oil prices are adding further pressure to global inflation, complicating the Fed’s task of balancing inflation control with economic growth.

    • The Fed’s reaffirmed data-dependent stance provides little clarity, making each data release a potential market mover.
    • Rising 10-year real yields (currently at 2%) are providing a headwind for gold and a tailwind for the dollar, but the effect is muted.
    • Speculator positioning remains crowded long in the dollar (+3,187 contracts, 85th percentile), increasing the risk of a squeeze if upcoming data disappoints.

    NY session focus: The market will closely watch bond-market activity, with some analysts predicting a peak in Treasury yields near 5%, a level that could trigger a risk-on rally in stocks and bonds. Keep an eye on the 2s10s spread, currently at 0.5%, for clues about the market’s growth expectations. The trade that’s working is riding the yield curve steepening, but that’s at risk if inflation data surprises to the upside. The pain trade for the dollar is a dovish pivot from the Fed, fueled by a significant slowdown in the labor market and a sharp drop in inflation.

  • EUR/USD Remains Under Pressure as ECB Rate Cut Looms – Monday, 18 May

    Where we are: EUR/USD is currently trading around 1.1595, testing the lower end of its recent range. Overnight, the pair traded between 1.1585 and 1.1620. This level sits slightly below Friday’s New York close near 1.1610, signaling ongoing bearish pressure. A break below 1.1580 could open the door for further declines.

    What’s driving it: The dominant driver for EUR/USD remains the diverging monetary policy outlook between the ECB and the Federal Reserve, amplified by anxieties around the ongoing Middle East conflict. The ECB’s recent 25bp rate cut to 2.50% on April 17th and its mild easing bias are weighing on the Euro, especially as wage trackers soften and services HICP remains near 3%, reinforcing the case for a follow-up cut in June. This dovish stance is in contrast to a still-hawkish Fed, keeping upward pressure on the dollar. Rising mortgage costs in North America and Europe, partially attributable to the Middle East conflict, are also adding to the headwinds for Eurozone growth.

    • The ECB’s explicit mild easing bias, highlighted by the meeting-by-meeting language, keeps markets primed for further rate cuts.
    • Eurozone inflation, although still above the ECB’s 2% target at 3% in April, has shown signs of slowing, with both headline and core HICP figures declining in the latest print.
    • Speculator positioning in the Euro is modestly long, with net non-commercial positions at +40,200 contracts, representing 4.8% of open interest. This level is only in the 13th percentile, meaning there is relatively little risk of a major squeeze.

    NY session focus: All eyes will be on incoming US data releases throughout the NY session, though no specific high-impact figures are scheduled for 08:30 ET. Traders will be closely monitoring US Treasury yields and the broad dollar index for further directional cues. Key support for EUR/USD lies around 1.1550, with resistance near 1.1630. The trade that has been working is selling rallies into resistance, and that should continue until a clear shift in ECB rhetoric. The pain trade would be a surprise hawkish tilt from an ECB member, triggering a short squeeze and rapid re-pricing of ECB expectations.

  • Cable Under Pressure as Political Risk Weighs – Monday, 18 May

    Where we are: GBP/USD is currently trading around 1.2585, testing the lower end of its recent range. Cable has traded in a tight overnight range of 1.2570-1.2610, and remains below Friday’s New York close of 1.2630. The pair is struggling to gain traction as political uncertainty and the potential for a less market-friendly government weigh on sentiment.

    What’s driving it: Sterling is under pressure due to rising political uncertainty surrounding the potential entry of Andy Burnham into the leadership race. The prospect of Burnham, perceived as less aligned with bond market interests, is fueling concerns among investors. Adding to the negative sentiment, gilt yields remain elevated, reflecting the market’s anxiety over future fiscal policy. The current cautious stance of the Bank of England, evidenced by the 8-1 vote to hold rates at 4.50% and the MPC’s data-dependent approach, provides little support for the Pound.

    • The potential leadership challenge from Andy Burnham is stoking fears of less market-friendly fiscal policies.
    • The Bank of England’s cautious stance, with one MPC member dissenting for a rate cut, is keeping a lid on Sterling gains.
    • CFTC data shows that net non-commercial GBP positioning is moderately short at -43,059 contracts, representing -15.2% of open interest — leaving Cable exposed to further downside.

    NY session focus: Traders will be closely monitoring any further developments in the UK political landscape for potential catalysts to push Sterling lower. Keep an eye on the US 2-year yield, currently at 4%, for signals of a broader risk-off move that could exacerbate GBP weakness. Support lies at 1.2550, with a break below opening the door to 1.2500. Resistance is at 1.2630, the prior NY close. The trade that’s working is fading Cable rallies. The trade at risk is chasing Cable lower without accounting for short positioning and potential for a squeeze. The pain trade is a coordinated global rates rally that catches GBP shorts off guard.

  • Yen Vulnerable as Ueda’s Hawkish Rhetoric Fades – Monday, 18 May

    Where we are: USD/JPY is currently trading around 158.90, having tested the 159.00 level overnight. This marks a continued grind higher, with the pair pushing towards the intervention zone around 160.00. The overnight range has been relatively contained, and the current level is slightly above Friday’s New York close.

    What’s driving it: The primary driver remains the divergence between the BoJ’s slow normalisation and expectations for continued Fed tightening. Despite Governor Ueda flagging a willingness to hike further if the outlook tracks projections, the market appears to be pricing in a very gradual approach. The lack of imminent domestic catalysts, particularly with CPI data still unscheduled, leaves the Yen vulnerable to broader dollar strength and risk sentiment. The relatively hawkish repricing of the Fed has amplified this dynamic, pushing US yields higher and further widening the rate differential.

    • BoJ’s Kazuyuki Masu delivered a speech on May 14, focusing on economic activity, prices, and monetary policy, but failed to offer fresh hawkish signals to support the Yen.
    • Net non-commercial Yen positioning remains heavily short at -75,102 contracts, near the 8th percentile, suggesting a squeeze is possible if the narrative shifts.
    • The rise in US 10Y Real Yields to 2% is a headwind for Gold, and a tailwind for USD generally, adding further pressure on the Yen.

    NY session focus: The main focus for the NY session will be watching how USD/JPY behaves around the 159.00 level and the psychological barrier at 160.00, where intervention risks increase materially. Keep an eye on any headlines regarding US-Iran talks and the situation in the Middle East, as energy price shocks are exacerbating US inflation concerns. Although there is no major US data releases today, comments from Fed speakers will be closely monitored for clues about the path of interest rates. The trade that’s working is fading any dips in USD/JPY. The trade that’s at risk is adding to Yen shorts at these levels given intervention risk. The pain trade for USD/JPY would be a coordinated intervention or a significant shift in BoJ rhetoric towards a more aggressive tightening path.

  • Loonie Remains Stuck Below 1.37 Amid Rate Uncertainty – Monday, 18 May

    Where we are: USDCAD is trading at 1.3690, consolidating within a narrow range after a muted overnight session. The pair is hovering near the upper end of its recent range, still unable to decisively break above the 1.37 level. This is slightly weaker than Friday’s NY close, suggesting some mild profit-taking ahead of US data.

    What’s driving it: The Canadian dollar is struggling to find a clear direction as markets grapple with the Bank of Canada’s (BoC) monetary policy outlook. Macklem’s recent hold at 2.75% cited tariff uncertainty and a softer growth path, keeping an easing bias alive, albeit a data-contingent one. The conflicting signals of sticky inflation (7.1% YoY) and robust GDP growth (2.6% MoM) are creating uncertainty around the timing of any future rate cuts. Firmer oil prices are providing some underlying support for the CAD, preventing a deeper slide but not enough to trigger a sustained rally.

    • Macklem’s cautious stance is reinforced by the below-target headline CPI, creating space for potential easing if economic conditions deteriorate.
    • However, the latest CPI print remains well above the BoC’s target, limiting the scope for aggressive rate cuts and highlighting the risk of tariff pass-through.
    • Speculative positioning in the Canadian dollar remains modestly short, with net non-commercial positions at -16,242 contracts, suggesting limited potential for a major short squeeze despite positioning not being at an extreme (79th percentile).

    NY session focus: The focus for the New York session will be on broader risk sentiment and any further clues regarding the Federal Reserve’s rate path. While there is no specific Canadian data release scheduled, any significant moves in WTI crude oil prices will likely impact the Loonie. Key levels to watch are 1.3650 as immediate support and 1.3730 as initial resistance. A sustained break above 1.3730 could open the door for a test of 1.38. The trade that’s working is a range-bound strategy, selling rallies near 1.37 and buying dips toward 1.3650. The risk to that trade is a sharp spike in oil prices or a significant risk-on move triggered by unexpected dovish signals from the Fed. The pain trade would be a sustained break above 1.38, forcing shorts to cover aggressively.

  • Aussie Under Pressure as RBA Remains Cautious – Monday, 18 May

    Snapshot: AUD/USD trades heavy near 0.7100, pressured by a hawkish RBA stance and crowded long positioning. Despite holding rates at 4.10% at their last meeting, Bullock’s comments that inflation progress remains ‘uneven’ keeps traders cautious and unwilling to aggressively price in cuts. The lack of a firm commitment to a cut path is weighing on the Aussie.

    • Watch for any intraday move above 0.7120, which could trigger a short squeeze given the crowded long positioning.
    • Risk of further downside if the US dollar catches a bid amid risk aversion, exacerbating the pressure on AUD/USD.

    Bias into NY: Bearish on AUD/USD as the RBA’s hawkish stance continues to support the pair, targeting a move towards 0.7075 if the 0.7100 level breaks convincingly; USD strength may amplify this move.