Category: Currencies

  • Dollar Firms as Yields Creep Higher – Tuesday, 28 April

    Where we are: The DXY is currently trading at 98.58, up 0.30% on the day, having tested a high of 98.72. This represents a near three-week high for the index, exceeding yesterday’s close. The move is occurring amid a broad risk-off tone in futures, setting up for a potentially interesting NY session.

    What’s driving it: The dollar’s strength is primarily driven by a recalibration in US yields, particularly at the front end, with the 2Y yield trading at 3.848, up 3.5bp on the day. This move reflects persistent inflation concerns fuelled by rising oil prices and uncertainty surrounding Iran’s plans for the Strait of Hormuz, pushing back expectations for Fed easing. The crowded long positioning in the USD also means any hawkish shift or risk-off bid can trigger outsized moves as shorts cover, which is likely contributing to the current dynamic.

    • US 2Y yield up 3.5bp to 3.848 indicates a front-end driven repricing of rate expectations.
    • CFTC data shows a crowded long USD position (94th percentile), increasing squeeze risk.
    • Rising oil prices, with WTI Crude at $91.06, are contributing to inflationary concerns and supporting the dollar.

    NY session focus: Today’s session will be dominated by the 10:00 ET release of CB Consumer Confidence, with a forecast of 89.0 versus a previous 91.8. A weaker-than-expected print could trigger a temporary pullback in the dollar, though the underlying support from yields should limit the downside. A stronger print will likely fuel further gains, targeting the 99.00 level in the DXY. Keep a close watch on risk sentiment as well, with S&P 500 futures trading down almost 0.6%; sustained risk aversion will provide additional tailwinds for the greenback. The pain trade for the dollar is a surprise dovish signal from a Fed official that forces a re-think of near-term rate expectations.

  • Euro Under Pressure as Rate Cut Bets Persist – Tuesday, 28 April

    Where we are: EUR/USD trades at 1.1692, down 0.26% on the day, after a volatile overnight session between 1.1678 and 1.1727. The Fiber is struggling to hold above intraday lows and is testing the lower end of its recent range. A break below 1.1678 would expose the 1.1650 level, while resistance remains up at 1.1727.

    What’s driving it: The mildly dovish tilt from the ECB continues to weigh on the Euro. Despite holding steady this month, last week’s 25bp cut to 2.50% and the commitment to a meeting-by-meeting approach leave the door open for further easing in June. Disappointing Eurozone economic data continues to build the dovish case, with the ECB’s own survey pointing to tighter lending conditions. Downside pressure has been exacerbated by a stronger dollar, with the DXY currently at 98.58, and rising US yields.

    • The ECB Consumer Expectations Survey for March and April’s bank lending survey both highlighted tightening financial conditions in the Eurozone.
    • German 2-year Schatz yields are up 4bp to 2.629%, a relatively muted response that is failing to provide meaningful support to the Euro.
    • Speculative positioning remains modestly long at +41,324 contracts, but the rise of +15,306 contracts w/w indicates increased vulnerability to a downside surprise, especially if US data prints hot.

    NY session focus: All eyes are on the 10:00 ET release of US CB Consumer Confidence. A stronger-than-expected print could fuel further dollar strength and pressure EUR/USD towards 1.1650. Conversely, a weaker print could offer a temporary reprieve, potentially pushing the pair back towards 1.1727. The US-DE 10Y yield spread, currently at +129bp, continues to act as a major headwind for the Fiber. The trade that’s working is short EUR/USD on bounces. The pain trade is a weak US confidence number alongside dovish ECB comments triggering a short squeeze.

  • Cable Under Pressure as Gilts Lag US Yields – Tuesday, 28 April

    Where we are: GBP/USD is currently trading at 1.3486, down 0.36% on the day, having traded in a range of 1.3463-1.3541. The pair is under pressure, sitting below yesterday’s New York close, as sterling fails to capitalize on any risk-on sentiment visible in pre-market Dow futures.

    What’s driving it: Sterling’s weakness stems from the underperformance of UK gilts relative to US Treasuries. The UK 10-year yield is at 5.007%, up just 2bp on the day, while the US 10-year is up 1.6bp to 4.364%, widening the US-UK yield spread to -64bp. This divergence suggests the market is more confident in the Bank of England’s cautious stance holding rates at 4.50% than the outlook for the Fed. The 8-1 vote split at the last meeting, with Dhingra dissenting for a cut, highlights the potential for a dovish shift if upcoming data disappoints.

    • The widening US-UK 10Y yield spread is exerting downward pressure, as the market prices in a potentially divergent monetary policy path.
    • UK unemployment remains elevated at 4.9%, reinforcing concerns about the strength of the labor market, even after the prior print showed a substantial decline.
    • CFTC data shows net non-commercial GBP positioning at -52,039 contracts, which is moderately short, but not yet at squeeze-inducing levels.

    NY session focus: All eyes will be on the 10:00 ET release of US CB Consumer Confidence, which is expected to show a dip to 89.0 from 91.8. A weaker-than-expected print could weigh on the dollar and provide some relief for GBP/USD, potentially targeting a retest of the 1.3541 intraday high. Conversely, a stronger reading would likely exacerbate the current downside pressure, potentially pushing Cable towards the 1.3450 level. The trade that’s working is fading rallies in GBP/USD. The risk to that trade is a surprise dovish shift in BOE expectations or a hawkish surprise from US data. The pain trade is a sustained rally above 1.36 driven by broad USD weakness.

  • Yen Remains Vulnerable Despite Hawkish Dissent – Tuesday, 28 April

    Where we are: USD/JPY currently trades at 159.57, up 0.14 on the session, having traded in a range of 158.96-159.79 overnight. The pair remains under pressure despite earlier BOJ hawkishness, hovering near recent highs and threatening a break above the 160.00 level. We remain above Friday’s close.

    What’s driving it: Despite some hawkish signals, the BOJ’s decision to hold rates steady at 0.50% is continuing to weigh on the Yen. While the policy statement and outlook report contained hints of future tightening, including three board members dissenting and calling for a hike, the market is focused on the lack of immediate action. This is happening even as JGB yields show little movement; the 2Y is up 1bp to 1.371% while the 10Y is down 1bp at 2.469%. A stronger dollar, evidenced by DXY at 98.58 (+0.30%), is adding to the pressure on USD/JPY, further widening the US-JP 10Y yield spread, now at +190bp.

    • Three BOJ board members dissented, pushing for an immediate rate hike.
    • Finance Minister Katayama reiterated intervention readiness, but the market seems to be testing the MoF’s resolve.
    • Speculative positioning is heavily short JPY, with net non-commercial contracts at -94,460, near the 0th percentile, raising the risk of a short squeeze if sentiment shifts.

    NY session focus: All eyes will be on the 10:00 ET CB Consumer Confidence print. A miss could curb USD strength and provide some relief for the Yen. Key levels to watch include resistance at 160.00 and support around 158.90. The short JPY carry trade remains attractive, but intervention risk is ever-present. A surprise hawkish signal from the BOJ press conference at 15:30 JST could trigger a significant Yen rally, squeezing crowded shorts.

  • Loonie Under Pressure as Oil Rally Fails to Impress – Tuesday, 28 April

    Where we are: USD/CAD is currently trading at 1.3676, up 0.35% on the session, having traded in a range of 1.3613 to 1.3680. The pair is edging towards the upper end of that range, and firmly above yesterday’s NY close, despite a surge in WTI crude prices. The technical picture suggests resistance around 1.3700 with support near the overnight low.

    What’s driving it: Despite a significant surge in WTI crude oil, up 3.43% to $99.78, the Canadian dollar has failed to capitalize. The BoC’s recent hold at 2.75% with Macklem citing tariff uncertainty and softer growth path continues to weigh, keeping easing bias alive and limiting CAD upside. The yield divergence is also working against the Loonie, with the US-CA 10-year spread widening to +83bp.

    • Canada’s 2s10s curve is at +66bp, but US curve steepening is drawing investment away from Canada
    • CFTC data shows net non-commercial CAD positioning is modestly short at -58,834 contracts, suggesting room for further downside.
    • Domestic CPI at 7% isn’t providing enough lift to offset broader sentiment.

    NY session focus: Focus shifts to the US session, with the 10:00 ET release of CB Consumer Confidence being the key event. A weaker-than-expected print could provide a temporary reprieve for the Loonie, but broader dollar strength and BoC’s dovish stance likely to cap gains. Key levels to watch are 1.3700 as resistance and 1.3600 as support. The prevailing trade favors fading CAD rallies. The pain trade is a significant WTI breakout above $102 coupled with hawkish BoC rhetoric unexpectedly surfacing.

  • Aussie Faces Key CPI Test as RBA Hawks Circle – Tuesday, 28 April

    Snapshot: AUD/USD trades at 0.7164, down 0.31% on the session. The market is braced for the 11:30 AEST CPI release, which could unlock a May or July RBA rate hike if trimmed-mean inflation prints softly. Copper prices are also exerting downside pressure, trading at 597.50, down 1.76%.

    • Aussie bulls will be targeting a break above intraday highs of 0.7195 if the CPI beat expectations.
    • Middle East tensions, flagged in the wire news, and OPEC supply uncertainty pose risks as session progresses.

    Bias into NY: Downside pressure remains on the AUDUSD pair until the 11:30 AEST CPI data is released. A weaker-than-expected print could see a test of the 0.7150 level, especially with the DXY firming to 98.58 and US 2Y yields climbing to 3.848.

  • Swiss Franc Under Pressure as SNB Easing Bias Persists – Tuesday, 28 April

    Snapshot: USD/CHF trades at 0.7904, up 0.64% today, driven by the SNB’s active easing stance. Schlegel’s recent comments did not rule out a return to negative rates if disinflation persists, reinforcing the dovish outlook. Today, watch for the 10:00 ET release of US CB Consumer Confidence.

    • CHF strength remains a key concern for the SNB, keeping FX intervention optionality alive.
    • Risk sentiment, as reflected in S&P 500 futures trading down -0.58%, could weigh on CHF.

    Bias into NY: Expect further USD/CHF upside towards 0.7950 as the market prices in continued SNB easing, amplified by the wide US-CH 10Y yield spread of +393bp.

  • Kiwi Slides as RBNZ Easing Bias Remains Firm – Tuesday, 28 April

    Snapshot: NZD/USD is currently at 0.5875, down 0.55% on the day, as the market continues to price in further easing by the Reserve Bank of New Zealand. Governor Breman’s speech at 12:30 NZT will be closely watched for any hints of a shift in policy or reaction to currency weakness.

    • A break below 0.5866, the day’s low, would open the door to further downside.
    • Keep an eye on the 10:00 ET CB Consumer Confidence print; a large deviation could amplify USD moves.

    Bias into NY: Short NZD/USD while the RBNZ’s dovish stance remains the dominant driver, targeting 0.5850. A stronger DXY at 98.58, fuelled by rising US 2Y yields (now at 3.848%), is adding to the downward pressure on the Kiwi.

  • NY Session Tactical Brief – Monday, 27 April

    Today’s market themes:

    • Iran tensions easing: potential peace proposal buoying risk assets, weighing on oil.
    • BOJ hold: yen weakness continues post-policy announcement.
    • Crowded positioning: squeeze risk in USD, JPY, AUD, BTC, and Copper.

    The setup: The market is pricing in reduced geopolitical risk following reports of a potential peace proposal from Iran, triggering a risk-on move. Expect continued USD weakness and commodity pullback near-term. Watch for a breakout above 216.00 in GBP/JPY to confirm bullish momentum. US 10Y at 4.323%.

    Watch list (London time):

    • 13:30 [Medium] USD: CB Consumer Confidence (forecast 97.0, prior 98.7)
    • 15:00 [Low] US: Richmond Manufacturing Index (forecast -5, prior -11)
    • Any BOJ speaker comments regarding future policy adjustments.

    Bias by asset:

    • DXY: Down, risk-on sentiment and unwinding of crowded longs, target 97.80.
    • EUR: Up, weaker dollar and wider US-DE 10Y spread (+130bp), target 1.1800.
    • GBP: Up, risk-on and slightly narrower US-UK 10Y (-63bp), targeting 1.3600.
    • JPY: Down, BOJ inaction fuels yen weakness; US-JP 10Y at +185bp.
    • CAD: Up, weaker dollar, supported by WTI strength.
    • AUD: Up, driven by energy prices and weaker USD.
    • NZD: Up, benefiting from risk-on sentiment, supported by reports of easing tensions.
    • CHF: Down, weaker dollar as DXY falls and risk appetite returns.
    • EUR/GBP, EUR/JPY, GBP/JPY: Neutral, watching cross currents of risk and individual currency drivers.
    • XAU (Gold): Neutral, real yields stable but safe haven demand ebbing.
    • XAG (Silver): Neutral, trading lower with gold; keep an eye on the gold/silver ratio.
    • WTI / Brent: Mixed, Iran headlines offset bullish drivers; watch for $98 WTI break.
    • Copper: Down, concerns over China’s growth trajectory.
    • SPX: Up, supported by risk-on sentiment, targeting 7220.
    • NDX: Up, benefiting from lower rates and mega-cap momentum.
    • US30: Neutral, mixed picture; impacted by rising oil costs and potential peace.
    • UK100: Neutral, struggling due to strength in GBP and commodity sector drag.
    • DAX: Up, driven by easing tensions regarding Iran.
    • Nikkei: Up, technology sector strength and yen weakness persist.
    • BTC: Down, risk-off sentiment in crypto; crowded longs suggest downside risk.

    Positioning watch: CFTC data reveals crowded longs in USD, AUD, Copper, and Bitcoin, increasing squeeze risk on any negative news. JPY and NZD are crowded shorts, vulnerable to positive surprises.

    The pain trade: A surprise hawkish signal from a Fed speaker would crush risk assets, triggering a scramble to cover USD shorts and unwind equity longs.

  • Dollar Under Pressure as US-Iran Talks Eyed – Monday, 27 April

    Where we are: The DXY currently trades at 98.14, down 0.28 after an overnight range of 98.03-98.48. The Greenback is underperforming against most G10 currencies as risk sentiment improves slightly ahead of the New York open. This puts the index well below Friday’s close, continuing the downward trend.

    What’s driving it: The primary driver appears to be renewed optimism surrounding potential US-Iran talks, as highlighted by wire reports. This is weighing on the safe-haven demand for the Dollar. The US 10Y yield is currently at 4.323%, up slightly from its overnight low, but this isn’t providing sufficient support to offset the geopolitical developments. Speculator positioning remains crowded long in the USD, at the 94th percentile, increasing the risk of a squeeze if risk-on sentiment persists.

    • Reuters: “Dollar steady as traders eye US-Iran talks, central banks”
    • Falling US 10Y Real Yield (TIPS): 1.92% is a gold tailwind
    • CFTC data shows speculators are net long USD, at the 94th percentile (52-week), and down -187 contracts w/w.

    NY session focus: With no major US data releases scheduled before the New York open, the focus will remain on developments surrounding US-Iran negotiations. Any signs of progress could trigger a further decline in the Dollar. Watch for a break below the 98.00 level on the DXY; if it breaks this could trigger a sharper move lower given the crowded long positioning. The trade that’s working right now is short USD against risk-on currencies. The trade that’s at risk is long USD and safe-haven currencies. The pain trade for the Dollar is a swift resolution of US-Iran tensions.

  • Euro Attempts Recovery on DXY Weakness – Monday, 27 April

    Where we are: EUR/USD is currently trading at 1.1745, up 0.31% on the session, after printing a day range of 1.1705-1.1755. The pair has recouped some of last week’s losses, finding support near the 1.17 level. This bounce coincides with a broader weakening of the US Dollar, as the DXY trades down -0.29% to 98.14.

    What’s driving it: The primary driver is the broad USD weakness, reflected in the DXY decline. This appears linked to receding concerns about imminent aggressive Fed tightening, evidenced by the stability in US real yields. Simultaneously, the ECB’s survey pointing to a lack of second-round inflation effects has capped Euro upside, with the market factoring in a wait-and-see approach from the ECB on Thursday. The US-German 10-year yield spread sits at +130bp.

    • Reuters wire noting the ECB survey showed scant signs of second round inflation effects.
    • The FT reporting China warning the EU over the ‘Made in Europe’ law.
    • EUR net non-commercial positioning remains modestly long but at the 10th percentile, leaving room for further build.

    NY session focus: Expect volatility around the US data releases this morning, but the focus will quickly shift towards end-of-day flows. Watch for a break above 1.1755 to target 1.1800. Below, a retest of 1.1700 is likely. The EUR/USD trade continues to be dominated by swings in the DXY, making DXY levels critical indicators. The pain trade for EUR would be a resurgence in USD strength fueled by hawkish Fed commentary or geopolitical escalation.

  • Pound Breaks Higher on Dollar Weakness – Monday, 27 April

    Where we are: GBP/USD is currently trading at 1.3547, up 0.27% on the day, having printed a range of 1.3511 to 1.3576 so far. Cable is extending its gains from the Asia session, pushing through initial resistance at 1.3520. The move higher has been supported by broad dollar weakness as the DXY dips below 98.20. This morning’s move builds on the steadied performance near 1.35 after touching two-week lows.

    What’s driving it: The primary driver is a weaker dollar, with the DXY losing ground as US 10-year real rates remain anchored and the 10-year breakeven inflation rate holds steady at 2.42%. The US-UK 10-year yield spread remains deeply negative at -63bp, favouring GBP. There’s also lingering concern surrounding the impact of the Iran war, keeping the Bank of England on hold, reducing the risk of immediate dovish surprises. CFTC data shows a moderately short positioning in GBP, suggesting room for further upside.

    • Bloomberg headline: “Traders Buy Pound Protection on Policy, Election and War Risks” reflects the underlying uncertainty that could fuel a squeeze.
    • Reuters headline: “Bank of England to keep rates on hold while it gauges impact of Iran war” reduces hawkish pressure on the Pound.
    • The moderately short GBP positioning (-52,039 contracts) leaves room for a potential squeeze if the current risk-on sentiment persists, particularly if coupled with hawkish UK data later this week.

    NY session focus: The key level to watch is 1.3575, a break above which could trigger further short covering towards 1.3600. US data will be the main focus. The trade that’s working is buying GBP on dips against the EUR as the UK inflation outlook remains stronger. Risk-on is prevailing but traders should remain wary of geopolitical headlines, which could quickly reverse the current trend. The pain trade would be a hawkish surprise from the Fed, sparking a dollar resurgence and pushing Cable back below 1.3500.

  • Yen Bears Unbowed Despite Mild BOJ Disappointment – Monday, 27 April

    Where we are: USD/JPY currently trades at 159.22, down 0.35 from Friday’s close, after a volatile overnight session that saw a range of 159.10 to 159.60. The pair initially spiked higher following the BOJ decision before retracing to current levels. Despite the mild dip, we are still holding above the psychologically important 159.00 handle, indicating underlying buying pressure remains intact.

    What’s driving it: The BOJ’s decision to hold rates steady, coupled with a lack of any hawkish forward guidance in the Monetary Policy Statement and Outlook Report, is the primary driver behind the recent Yen weakness. While the FT previewed a potentially hawkish tone from the BOJ, the reality was far more dovish, perpetuating the carry trade dynamic. Rising US 10Y yields, now at 4.323%, widening the US-JP 10Y yield spread to +185bp, is further fueling the upside in USD/JPY.

    • Bloomberg wire headline “BOJ Seen Holding Rates in Messaging Risk for Ueda as Yen Teeters” underscores the market’s skepticism regarding the BOJ’s commitment to policy normalization.
    • US 10Y yield pushing to 4.323%, providing a constant bid for USD/JPY.
    • CFTC data reveals a heavily crowded short Yen position, with net non-commercial contracts at -94,460, sitting at the 0th percentile. This extreme positioning increases the risk of a sharp short squeeze on any positive Yen catalyst.

    NY session focus: With no major US data releases scheduled, the focus will remain on risk sentiment and any further comments from BOJ officials. Watch for potential intervention cues from Japanese authorities; Finance Minister Katayama has already stressed a readiness to take “decisive” action. A break above 159.60 would open the door to a test of 160.00. On the downside, initial support sits at 159.10, followed by 158.50. The current trade is long USD/JPY given the carry advantage and BOJ inaction. The risk trade is short JPY. The pain trade remains a significant BOJ policy shift that forces a massive short covering rally.

  • Loonie Breaks Lower as USD Momentum Resumes – Monday, 27 April

    Where we are: USD/CAD is currently trading at 1.3603, down 0.56% on the day. The pair broke lower in European morning trade after consolidating in a narrow range overnight, supported by the bottom end of the day’s range at 1.3598. This move erases Friday’s gains and puts USDCAD back near the week’s lows.

    What’s driving it: Dollar weakness is the primary driver, with the DXY shedding 0.29% to trade at 98.14. This is compounded by a modest bid in risk assets, as seen in futures markets. The US 10-year yield, while slightly higher at 4.323%, isn’t providing significant support to the greenback, and the US-Canada 10-year yield spread remains wide at +83bp, giving little incentive for CAD strength. Speculative positioning in CAD remains modestly short, although the recent increase in net shorts suggests a degree of capitulation, leaving some squeeze potential.

    • USD broad index down -0.24% as of last week Friday.
    • US 10Y real yield (TIPS) is falling, which is a tailwind for gold and a headwind for the USD.
    • Nikkei outperformance is broad-based, hitting its best levels in weeks.

    NY session focus: All eyes are on US data later this week, but today’s session will be driven by risk sentiment and dollar flows. Watch for any break of the 1.3598 level, which could open the door for a move towards 1.3550. On the upside, a sustained move above 1.3650 would negate the bearish momentum. The trade that’s working is short USDCAD on dips, targeting a move towards 1.3550. The trade at risk is being long USDCAD, especially if equity futures continue to grind higher. The pain trade for USDCAD is a sharp reversal in the DXY, pushing the pair back above 1.3700.

  • Aussie Bids on Energy Inflation and RBA Hawks – Monday, 27 April

    Snapshot: AUD/USD is trading at 0.7188, up 0.65% on the session, driven by surging energy prices and expectations of further RBA rate hikes. The US-AU 10Y yield spread sits at -65bp, widening slightly in favor of the Aussie as US yields remain relatively contained.

    • Watch for resistance around 0.7200, a break of which could trigger further upside.
    • The crowded long positioning presents a risk of a sharp correction if the upcoming Australian CPI data disappoints.

    Bias into NY: We favor further upside in AUD/USD, targeting 0.7220, supported by the hawkish RBA expectations and continued weakness in the DXY which trades near session lows at 98.14.