Marc to Market

Week Ahead: US CPI, China's Q2 GDP, and Bank of Canada Meeting Featured

noreply@blogger.com (Marc Chandler) — Sat, 11 Jul 2026 07:00:00 -0400

The US dollar was mixed last week. The combination of strong data and the central bank's hawkish hike lifted the New Zealand dollar to the top of the G10 currencies. The roughly 4.5% rally in Brent oil, the first weekly gain in five weeks, seemed to help the Norwegian krone came in a close second. The low yielding Swiss franc and Japanese yen fell last week. The dollar rose against the Swiss franc for the fifth week in the past six. The yen's loss was pared ahead of the weekend after Japan's finance minister urged the nation's pension funds to boost domestic allocation. The impact was short-lived and the dollar settled near the middle of session's range. The Ministry of Finance weekly report show Japanese investors have been net sellers of foreign stocks and bonds this year through early July.

President Trump has declared the ceasefire with Iran is over, but that talks continue. The situation is precarious to say the least. After the midweek spike, oil prices stabilized in the last two sessions. Given that neither the US nor Iran seem to want to return to the situation earlier in the conflict, investors recognize the heightened risks will not getting carried away. The conflict remains in the background. The week ahead could feature the first decline in US headline inflation in the war began. China is expected to report that growth slowed in Q2, and the June details look poor. The Bank of Canada meets but the market is confident it will not change the 2.25% rate target.

Drivers: Fed Chair Warsh may not be a big fan of forward guidance, yet the market understood last month's FOMC meeting to have delivered a hawkish hold. It also understood Warsh's comments in Sintra, where he noted that inflation expectations had eased and that he was optimistic that AI could help deliver non-inflationary growth. The new Fed chair testifies before Congress Tuesday and Wednesday.

Data: There is little chance of a Fed hike later this month, October seems a likely time frame. It is a way Chair Warsh can dilute the significance of the Summary of Economic Projections, which will be updated in September. There is also a sense that he may not want to raise rates in his first few meetings. That will show the White House that he made a considered decision and can be trusted to "tap on the brakes" as Treasury Secretary Bessent suggested was possible. The problem with the October meeting is that it is week before the midterm elections. Still, it means that this week's data, June CPI, PPI, retail sales, and industrial production will not be decisive. The Atlanta Fed GDP Now tracker for Q2 has fallen from a little above 3% at the end of May to 1.3% now. The data highlight in the week ahead is the June CPI, which is expected to have pulled back to 3.8% from 4.2% (and 2.8% from 2.9% core rate). Retail sales may be flattered by the rise in auto sales. Still the measure that excludes autos, gasoline, food services and building materials may have slowed to a still firm pace of 0.4% (from 0.7%). June Industrial output and manufacturing likely edged higher. A word about the TIC data (due July 14). Despite the buzz, there was never really a "sell America" moment last year. The TIC data showed that in H1 25 foreigner investors snapped up $102.5 bln of US financial assets a month. It was on the second six-month period of over $100 bln a month since H1 23. The US runs a large current account deficit, and foreign investors have little choice but to accumulate US assets. The only issue is which asset and at what price. Meanwhile, the US earnings season kicks off with reports by the six largest banks on Tuesday and Wednesday.

Prices: The Dollar Index tested a six-day low ahead of the weekend near 100.60 but recovered toward 101.00. A trendline off the late June and July 1 highs begins the new week near 101.25 and finishes the week near 101.10. A convincing move above it targets the high for the year recorded on June 24 (~101.80). Support has been forged near 100.50.

EMU

Drivers: Changes in the euro remain highly correlated with changes in the US two-year yield (~-0.70 for the past 30 and 60 days). Counter-intuitively, the euro is also inversely correlated with changes in Germany’s two-year yield, but less so (~-0.20 for the past 30 days and ~-0.40 for the past 60 days). The correlation of the changes in the euro and changes in the US-German two-year yield differential is about -0.50 and -0.23 for the 30- and 60-day correlations, respectively.

Data: The eurozone report May industrial output and external account in the coming days. Industrial output fell by a cumulative 0.3% in Q1 26, which offset the gain of a similar magnitude in Q4 25. The manufacturing PMI gives one little reason to be hopeful. It slowed in May to 51.6 from 52.2 in April. Industrial output rose by 0.1% in April. The aggregate economy contracted by 0.2% in Q2 and is expected to have grown by 0.2% in Q2 mostly on the back of increased investment and stronger exports. The eurozone recorded an average monthly trade surplus of 4.6 bln euros in Q1 26. It was the lowest quarterly average since Q2 23. In order to do better in Q2, after April's one-billion-euro deficit is to average about 7 bln euro surplus a month in May and June. Still, the ECB's staff projects that the aggregate current account surplus this year will fall to 1.3% of GDP from 1.7% in 2025.

Prices: The euro recorded last week's high before the weekend, near $1.1460. It was unable to sustain the push above the 20-day moving average (~$1.1440) and settled around $1.1415. Last week's low was around $1.1390. All last week, the euro traded within the range set on July 2, the US jobs day ($1.1375-$1.1475).

PRC

Drivers: While managing the exchange rate, Chinese officials seem to keep an eye on the dollar's broader movement. The correlation of the dollar's changes against the Chinese yuan (CNY) is correlated with changes in the Dollar Index (~0.60) in the past 30 and 60 days. The RMB does not appear sensitive to changes in China's short-term interest rates. The 30-day correlation of changes in the dollar against the yuan and China's two-year yield has not been above 0.10 since the end of January and has spent more time since with inverse correlations. The 30-day correlation of the changes in the dollar against the yuan and the US two-year yield peaked slightly above 0.50 in early June, which was the highest since Q3 24. It is now near 0.20.

Data: It is a big week for Chinese data, which will all come together for the first large country's estimate of Q2 GDP. The data that have been reported in recent months suggests the economy has slowed from the 5% year-over-year pace reported for Q1. The quarter seemed to have ended on a soft note, even though year-over-year retail sales are expected to have recovered after contracting by 0.6% in May. Beijing is fighting on two fronts. House prices are expected to have continued to decline and the campaign against "involution" appears to have spurred a contraction in investment. Lastly, China's CXMT, an important memory chip company is expected to launch its IPO in the coming days (estimated valuation at ~$4.3 bln). Reports indicate revenues surged seven-fold in the first half.

Prices: The dollar settled on a weekly basis below its 20-day moving average (~CNH6.79) for the first time in a month. Initial support is seen around CNH6.7730. The three-year low was record in mid-June near CNH6.7540. Ahead of the weekend, the PBOC set the dollar's reference rate below CNY6.80 for the first time in three-years, which seemingly signals official willingness to accept a continued gradual appreciation of the yuan.

Japan

Drivers: The US 10-year premium over Japan fell to about 165 basis points earlier this month, the lowest since Q1 22. The year's high was above 210 basis points in late March. Following the finance minister’s comment that Japanese pension funds should boost domestic allocation saw the 10-year JGB yield snap a nine-day advance and the 10-year differential jumped by 17 bp to 185 bp. The 30-day correlation of changes in the dollar-yen exchange rate and the 10-year differential peaked this year near 0.65 in May and fell below 0.20 by the end of June. It is now below 0.10. The 60-day correlation is around 0.35. The 30-day correlation between the exchange rate and US 10-year yields has weakened to around 0.22 from the year high on June 17 (FOMC meeting) near 0.65. The 60-day correlation peaked in mid-May near 0.60 and is now a little below 0.45.

Data: The Japanese economy may be doing better than economists suspect. The median forecast for Q2 GDP is 0.2% (annualized) after 1.8% in Q1 26. May's industrial output was initially estimated at 0.5%, the same as April. It is subject to revision this week. In Q1 it rose by a cumulative 1.6%. Services (tertiary industry activity) may be stronger. After rising by a cumulative 0.7% in Q1 26, it jumped 1.3% in April. The May reading is early Thursday.

Prices: In the middle of last week, the US dollar approached the 40-year high recorded on July 1 near JPY162.85. Last week's high was about JPY162.70. The comments by Finance Minister Katayama urging Japanese pension funds to purchase for domestic assets gave the yen a bigger boost that the threats of intervention. The dollar fell to about JPY161.30 before the weekend and recovered to around JPY161.85. The greenback settled slightly above the 20-day moving average (JPY161.65) but strung together the first back-to-back losing sessions since early April.

Drivers: Although the changes in sterling are still highly correlated with changes in the euro (~0.85 for the past 30 and 60 sessions), sterling is faring better than the euro. Indeed, the euro has been sold to new one-year lows against sterling in recent days. The euro appears to have forged a large head and shoulders top pattern against the sterling. It has gone through the neckline and against the euro, and there is scope for another 1.25%, which suggests sterling can continue to outperform the euro. It is a source of sterling demand. Andrew Burnham received a formal nomination from 322 (of 403) Labour MPs, technically one vote shy of the number needed to avoid a formal contest. This will likely be confirmed at the start of the new week, and Burnham will most likely become prime minister on July 20.

Data: On Thursday, the UK reports the May monthly GDP and the details. Recall that the economy contracted by 0.1% in April, the first monthly contraction since last August. The strength of May retail sales (1.2% vs. 0.5% median forecast in Bloomberg's survey) may have tilted the balance toward expecting a return to growth in May. Still after outsized growth of 0.6% quarter-over-quarter in Q1 26, GDP is seen returning to the H2 25 quarterly pace of 0.1%.

Prices: Sterling rose to $1.3450 before the weekend, its best level since June 15. However, it slipped back to settle slightly above $1.34, where the 200-day moving average is also found. Sterling has rallied in 11 of the past 12 sessions and may be getting stretched. A move above $1.3460, the (61.8%) retracement of sterling's losses from the May 1 high ($1.3660), improves the technical tone. The next target is the $1.3485-$1.3500 area. A break of $1.3360-80 area would boost the odds that a high is in place.

Canada

Drivers: While US two-year yields are firm, the US premium over Canada has narrowed and the sustained rise in May and June has begun stabilizing. This appears to have helped lift the Canadian dollar. Canada's May trade surplus, the largest in four years, bolstered by energy, metals, and minerals, suggests a positive terms of trade shock. Exports rose to a record in May and the surplus with the US reached its highest since January 2025. The June employment data before the weekend was a little better than expected with the unemployment rate slipping to 6.5% (from 6.6%), while the participation rate remained constant (65.0%). Still when everything was said and done, the swap market was little changed over the course of the week, with about 15 bp of tightening discounted this year.

Data: StatCan will report June existing home sales and May manufacturing and wholesale sales on Wednesday ahead of the week's highlight, the outcome of the Bank of Canada meeting. The policy dilemma sketched by Governor Macklem at the last meeting has not significantly changed, and this will keep the central bank on the sidelines.

Prices: The Canadian dollar snapped five-week slide with its first higher weekly close since the end of May. The greenback was sold to almost CAD1.4135 on Friday but recovered back toward the session high (~CAD1.4175) despite the better-than-expected jobs data. However, reflecting what we suspect may be a change in psychology, the US dollar fell to a new session low, slightly above CAD1.4115 in the NY afternoon. The greenback recovered in late turnover and settled above CAD1.4150 but below the 20-day moving average (~CAD1.4165) for the first time in nearly two months. The next support area is near CAD1.41 and a convincing break of CAD1.4080 could target CAD1.3980.

Australia

Drivers: The Australian dollar is sensitive to the US dollar's overall direction. The inverse correlation with the Dollar Index is near -0.65 (30 days) and -0.73 (60 days). The Aussie remains the closest thing to a proxy for gold among the G10 currencies (30-day correlation ~0.70 and the 60-day correlation ~0.73). It is sensitive to changes in the US two-year yield (-0.50 and -0.66 for 30- and 60-day correlation, respectively).

Data: Australia's economic calendar features a couple of bank surveys and the Melbourne Institute's July consumer inflation expectations (symmetrical trimmed mean). It peaked at 5.9% in April. The central bank hiked the cash target rate in each of the first three meetings of the year (now 4.35%). The Melbourne Institute's measure fell in May and June, but at 5.5% the central bank is looking for more progress. The central bank meets on August 11, and barring a significant surprise, it is likely to monitor developments until Q4.

Prices: The Australian dollar reached two-and-a-half week highs before the weekend (~$0.6970). It traded above the 20-day moving average (~$0.6955) for the first time in a little more than a month. Yet, the momentum was not sustained and the Aussie pulled back to around $0.6940 and spent most of the North American session chopping within less than 10 ticks of $0.6950. The momentum indicators are more encouraging than the price action.

Mexico

Drivers: The dollar's movement against the Mexican peso is correlated with the changes in the Dollar Index (~0.74 and 0.67 for 30 and 60 days, respectively). However, the peso is an even stronger proxy for the JP Morgan Emerging Market Currency Index (-0.78 and -0.82 correlation for 30 and 60 days, respectively).

Data: Mexico's economic diary does not have market moving data in the coming days.

Prices: The dollar bottomed early last week near MXN17.3750 and jumped about 1.5% Tuesday-Wednesday before consolidating Thursday and Friday. The greenback posted its third weekly gain in the past four weeks, albeit only by a couple of ticks. It appears to have moved to the upper end of a three-month trading range. Recall that the dollar reached MXN17.6765 on June 24, its highest level since early April. The five- and 20-day moving averages are rising, though the momentum indicators are not generating robust signals. One-month implied volatility peaked in late March, near 14.8%. It is now in the lower end of its two-month range, a little below 8%.

Disclaimer

JGB Yields Fall for the First Time in Two Weeks and Yen Bounces as Fin Min Calls on Nation's Pension Funds to Boost Domestic Allocation

noreply@blogger.com (Marc Chandler) — Fri, 10 Jul 2026 06:46:07 -0400

The US dollar is softer against most currencies today. The main feature is the recovery of the yen, not in response to material intervention but on the call from the finance minister for Japanese pension funds to invest more in domestic assets. The Nikkei rallied 1.2% and the 10-year JGB yield fell for the first time in two weeks. The 13 basis point decline was the largest single day decline this year. The dollar, which had been near JPY162.40, fell to JPY161.30 before finding new bids. Separately, the PBOC set the dollar’s reference rate below CNY6.80 for the first time in three years.

Federal Reserve Chair Warsh named key personnel for the new task forces. They appear highly respected and credible, with some diversity of experiences and political perspectives. It seems like a healthy exercise to examine first principles from time-to-time. Meanwhile, technical talks between the US and Iran reportedly are continuing and August WTI, which peaked on Wednesday slightly above $76, approached $71 today and is near $72 ahead of the start of the North American session.

Prices

G10

• The euro traded in a $1.1375-$1.1475 range on July 2 and remained within it this week. The euro managed to push above the 20-day moving average (~$1.1440 today) and rose to $1.1460 before it reversed lower in Europe and fell to new session lows near $1.1425. It has not settled above it since the eve of the June 17 hawkish hold announced by the FOMC. Yesterday’s low was around $1.1415 and a close below it weakens the technical tone. That said, there are 2.6 bln euro in options that expire today in between $1.1400 and $1.1405.

• Despite reporting a record current account surplus earlier in the week and yesterday’s Ministry of Finance weekly data that showed Japanese investors continued to sell foreign stocks and bonds last week, the yen found little traction. However, the yen has come back bid today on the back of a firm PPI and the call by Finance Minister Katayama to encourage the national pension funds to increase their investment in domestic assets. The dollar was sold to JPY161.30, slightly ahead of the week’s low set Monday, closer to JPY161.20. The greenback has recovered to about JPY161.85 in the European morning. The intraday momentum indicators suggest there may be scope for additional USD gains, with the JPY162 posting the initial hurdle.

• Sterling continues to trade impressively and rose yesterday for the tenth session in the past 11. The daily momentum indicators are not overextended. The next target is around the June 15 high, $1.3460, which also corresponds to the (61.8%) retracement of sterling’s losses since the May Day high (~$1.3660). It reached slightly above $1.3450 in the Asia Pacific session before stalling. It eased back to almost $1.3410 in Europe. Support is seen in the $1.3380-$1.3400 area. There are options for GBP1.37 bln in that band that expire today.

• The Canadian dollar edged slightly higher yesterday, but it was not convincing. Perhaps some were deterred by anticipation of today’s labor market report, which will be hard pressed to be better than last month’s (154k jump in full-time employment and a drop in the unemployment rate to 6.6% from 6.9% on a steady participation rate). The greenback frayed the 20-day moving average (~CAD1.4165 today) for the first time in nearly two months but it settled above it and held above the CAD1.4150 support. Follow through US dollar selling today saw it fall to almost CAD1.4135 today, its lowest level since June 19. However, the greenback recovered from Asia Pacific low and returned to the CAD1.4170 area in the European morning. The intraday momentum indicators suggest this may be the extent of the US dollar’s recovery.

• The Australian dollar was stuck in a quarter-cent range yesterday above $0.6925. The week’s high had been near $0.6960 but it reached $0.6970 today. It stalled and slipped back to almost $0.6940 where it was bought in Europe. The intraday momentum indicators are constructive.

• Mexico reported that headline price pressures subsided to their mildest in five years last month. Given the better risk environment yesterday and pullback in the US dollar more broadly, one might be forgiven for expecting the peso to have recovered more of Wednesday’s losses. The US dollar traded to about MXN17.5275, which is a little below Tuesday’s high (~MXN17.5450). Today, the Mexican peso enjoys a slightly firmer today. The US dollar found support near MXN17.50. The Colombian peso extended its post-election surge. Its nearly 1.5% surge yesterday, half of the week’s rally coming into today, led the emerging market complex higher. It has appreciated by about 12% since the end of May presidential election.

• In line with its broadly heavier tone yesterday, the greenback slipped against the yuan. It had reached CNH6.81 on Wednesday and found bids near CNH6.7935 yesterday. However, encouraged by a new three-year low dollar fix, the offshore yuan reached its best level in about two-and-a-half weeks (~CNH6.7785). The dollar can finish below the 20-day moving average (~CNH6.7895) for the first time since the FOMC’s hawkish hold last month. The PBOC set the dollar’s reference rate at a fractionally new three year low today (CNY6.7989 vs. CNY6.8036 yesterday and CNY6.8047 a week ago).

• The Indian rupee edged up today. After falling in the middle of the week, the rupee spent yesterday and today consolidating with a slightly positive bias. The dollar reached INR95.6085 on Wednesday and saw INR95.2250 today.

Other Markets

• With a few exceptions, the large equity markets recovered yesterday from the midweek air pocket. Investors seem to have concluded that given the nature of the two regimes, a wider berth must be given the Middle East “ceasefire”, while recognizing the unknown breaking point. The large equity market Asia Pacific rallied today, with the notable exception of China and Taiwan. South Korea’s Kospi’s 2.5% gain led the region, Europe’s Stoxx 600 fell in the first three sessions of the week. It recovered yesterday and is slightly firmer near midday in Europe today. US index futures are narrowly mixed.

• Benchmark 10-year yields fell 4-7 bp in Europe yesterday and 4-5 bp in the US and Canada. It helped peripheral premiums, and in this case including France, narrowed. Yields are lower today, led by a 13 bp drop in Japan’s 10-year yield. European rates are mostly 2-3 bp lower and again peripheral premiums are narrowing. The 10-year US Treasury yield is off a couple of basis points to 4.53%, a three-day low.

• Gold settled firmly yesterday and snapped a three-session slide that followed a three-session rally at the end of last week. It stalled today and slipped back below $4100. A close above the $4135 area would end the week on a firm note even if below last week’s close (~$4177). Silver also snapped three-day slide, which followed a four-day rally last week. It has struggled to find much buying interest above $60 in recent sessions after it settled last week a few pennies below $62.50. It rose to about $60.75 earlier today but met sellers that pushed it back to $59.50.

• August WTI recorded yesterday’s session lows late in the NY afternoon near $71.40. Wednesday’s low was $71.75. It reached a three-day low today near $71.15. It is not a return to the status quo ante, but it does seem to be consistent with the idea that perhaps because neither side wants escalation that the ceasefire can be more resilient than one would have suspected.

Data

• Canada’s June employment report is the main feature of today’s North American session. It is difficult to envisage a better report than May’s, which saw a 154k increase in full-time employment and fall in the unemployment rate to 6.6% from 6.9% and a steady participation rate (65%). Still, after contracting in Q4 25 and Q1 26, the Canadian economy appears to have returned to growth in Q2.

• Yesterday, Mexico confirmed consumer price pressures are moderating. At 3.37% in June, the headline pace is the lowest in five years. The core rate fell for the fifth consecutive month and at 4.03%, it is the lowest since April 2025. Today, data may show the economic recovery is uneven. May’s industrial output is expected to have contracted by 0.7% after the 2.1% surge in April. That would be sufficient to push the year-over-year rate back below zero, which, with a few (4) exceptions, has generally been shrinking since mid-2024.

• Japan reported a 0.4% rise in June’s PPI, which lifted the year-over-year rate to 7.1% from a revised 6.6% in May (initially 6.3%). It is the fourth consecutive increase in the year-over-year rate and the highest since early 2023. Meanwhile, the chip and AI frenzy has seen Japanese machine tool orders soar. They rose 52.8% year-over-year in June after a 37.5% jump in May and a 45.1% increase in April. Japanese machine tool orders ae the strongest since late 2021 and early 2022.

Disclaimer

The US Dollar Consolidates with a Softer Bias as Oil Steadies

noreply@blogger.com (Marc Chandler) — Thu, 9 Jul 2026 06:45:27 -0400

With the fog of war still shrouding the near-term outlook, the US dollar is mostly consolidating with a softer bias against the G10 currencies. Outside of the New Zealand dollar that is still basking in yesterday's rate hike, and the Canadian dollar, which is slightly softer, the other G10 currencies are up less than 0.15% ahead of the North American open. August WTI and September Brent are trading within yesterday’s ranges.

The FOMC minutes released yesterday failed to tell the market anything it did not already know. Fed officials are divided, which had already been revealed in the “dot plot” that saw nine of the 18 members indicate that they thought at least one hike this year would be appropriate. The UK’s Labour leadership contest formally begins today, though there seems to be little doubt of the outcome. French politics are also in flux after Le Pen says she will run for president next year. Lastly, undeterred by slightly slower consumer inflation, the PBOC set the dollar’s reference rate at a new three-year low.

Prices

G10

• The euro fell to a four-day low in North America yesterday (~$1.1390) but recovered in the North American afternoon to new session highs, slightly above $1.1430. It has risen to almost $1.1450 today but continues to consolidate in the range set last Thursday, when the US employment report was released. That range was about: $1.1375-$1.1475. The 20-day moving average is about $1.1445, and the single currency has not settled above it since the day before the June 17 FOMC outcome.

• The yen is consolidating near the 40-year low set last week. The US dollar reached almost JPY162.85 on July 1 and backed off after the employment data. And with a running start, the greenback reached almost JPY162.70 yesterday. It is trading mostly below JPY162.60 today. Options for almost $2 bln at JPY163 expire today. The US 10-year premium over JGBs narrowed to new low since March 2022 around 162 bp on Monday and has stabilized in recent days. It was nearly 200 bp as recently as late March.

• Sterling seemed unusually well bid yesterday and reached new session highs in the early NY afternoon (~$1.3410) but settled slightly below $1.3390. Quietly, sterling has advanced in nine of the past 10 sessions. It reached $1.3430 today, its best level June 17 (Fed’s hawkish hold). It has pushed above the 200-day moving average ($1.3400). It has not closed above it since June 16. Nearby resistance is seen in the $1.3440-60 area. Sterling is also outperforming the euro there may be scope toward GBP0.84 initially (~1.5%). Sterling has shown little interest in Labour’s leadership contest that formally starts today.

• For the first time in a couple of months, the Canadian dollar is showing some life. From early May through late June, it fell by about 5.2% against the US dollar. The greenback reached almost CAD1.4250, which it tried twice to overcome and has been rebuffed. It posted its lowest close in nearly two-and-a-half weeks yesterday. The CAD1.4150 area, which was approached yesterday and is holding. It is fraying the 20-day moving average (~CAD1.4155 today). The US dollar has not settled below it since May 7. Below there, the CAD1.4100-10 area may be the next area of chart support.

• The Australian dollar broke down to a four-day low yesterday, a little above $0.6905. It recovered and reached almost $0.6940 in the North American afternoon. It has edged a little higher today. Initial resistance is seen near this week’s high (~$0.6960) and the 20-day moving average is a couple of hundredths of a cent lower. It has not settled above it since the end of May. The $0.7000 may offer the next important target.

• The Mexican peso has fallen by about 1.15% against the dollar in the past two sessions. That is almost half of the year’s carry (one-year rate differential is around 280 bp). The dollar settled near MXN17.39 on Monday and reached almost MXN17.6450 yesterday amid the risk-off mood. It pulled back but posted its highest settlement since June 24, which was also above last week’s intraday high. The greenback is consolidating between MXN17.5280-MXN17.5835 today. Support is pegged in the MXN17.4750-MXN17.50 area.

• The dollar briefly pushed above CNH6.81 against the offshore yuan yesterday, a new high in nearly two weeks. Last month’s high was almost CNH6.82. The dollar has pulled back to about CNH6.7970 today. The PBOC set the dollar’s reference rate a little lower today but at CNY6.0836, (from CNY6.0877 yesterday), it was sufficient to mark a new three-year low.

• After falling by around 0.6% yesterday, the Indian rupee steadied today and recovered above a third of yesterday’s decline. The new facility launched last month to attract foreign deposits reportedly has raised $1.5 bln. The program offers high interest rates (~7.5% in some cases) as the central bank is subsidizing the program. After peaking near INR95.6085 yesterday, the dollar eased to about INR95.2815 today.

Other Markets

• The recovery of the Nasdaq yesterday from early losses of more than 1% may have been seen as a signal by bargain hunters in some of the beaten-up Asia equity names. Most of the large Asian bourses advanced today. Hong Kong, Taiwan, and Australia were notable exceptions. China’s CSI 300 led with a 2.5% gain. Europe’s Stoxx 600 is trying to snap a three-day slide. It is up about 0.2% in late European morning turnover. The S&P and Nasdaq futures are firmer.

• The US 10-year yield spent most of the last few sessions of June below 4.40% and yesterday approached 4.60%. It is back to late May levels, when it peaked so far for the year a little below 4.70%. The yield is near 4.57% now. Yesterday’s surge in European bond yields seemed overdone. Yields are 2-4 bp lower today. However, there is a drama playing out in France on two fronts, the current budget projections, and the next year’s presidential contest. The French premium, reached around 85 bp, is the highest in nearly nine months, but it slightly below 80 bp now.

• Gold recovered from a brief drip below $4022 near midday in NY yesterday but stalled a little below $4090. It is trading with a firmer bias today and reached almost $4118. The five- and 20-day moving averages are converging in the $4125-35 area. Silver was sold to almost $57.20 yesterday and its rebound held below $59. It also enjoys a firmer tone but has held below $60.

• August WTI has rallied more than 10% in the past two sessions. It reached almost $76.10 yesterday, roughly a two-week high. It traded above the 20-day moving average (~$75) for the first time since June 11. It is consolidating today, awaiting fresh developments, between about $72.35 and $75.15. Speculators in the futures market had amassed their large gross short crude oil futures contracts since 2017 in mid-June (~236.5k contracts, 1k barrels per) and had already shaved in in the past two reporting weeks through June 30, but it was still large before the recent escalation.

Data

• US existing home sales may have risen for the third consecutive month in June and may have risen by a cumulative 5% in Q2 after falling by about 6% in Q1. If the median forecast in Bloomberg’s survey is fair, that 4.20 mln seasonally adjusted annual pace would still be lower than the 4.27mln pace in December 2025. Still, the monthly average in H1 looks to be about 4.10 mln unit pace, which is slightly better than the H1 25 pace (4.05 mln). Weekly jobless claims are also due and may be skewed by last week’s holiday. The four-week average is about 222k after falling from the H1 26 high of 224.5k the previous week.

• Mexico is expected to report slight declines in the year-over-year CPI measures today. The headline rate is projected to fall toward 3.50% from 3.94% in May. Last year’s low print was 3.51% in July. Mexico’s inflation has not been below 3.50% since the end of 2020. The core rate is stickier. The median forecast in Bloomberg’s survey is for a slight softening to 4.10% from 4.19% in May. Banxico will also release the minutes from its recent meeting when the key rate was left unchanged at 6.5%.

• Germany reported a larger than expected May trade surplus of 19.1 bln on adjusted basis. The median forecast in Bloomberg’s survey was for a 14.8 bln euro surplus. Exports were stronger than anticipated. They increased by 0.9%. But it was the 2.5% drop in imports that was responsible for the bulk of widening of the surplus. The monthly surplus averaged about 17.7 bln euros this year, down slightly from 17.9 bln average in the first five months of 2025. The Bundesbank forecasts that the current account surplus will ease to 4.1% of GDP this year from 4.5% in 2025.

• China’s June inflation gauges were little changed. Producer prices, which emerged from a 3.5-year deflationary period in March, have now risen 4.1% year-over-year, the highest since July 2022. The consumer price index ticked down to 1.0% from 1.2% year-over-year, while the core rate was steady at 1.1%. China’s consumer prices fell for the second consecutive month (-0.3% after -0.1% in May). While no doubt demand can be stronger, the biggest drag comes from food prices. They are off 1.6% year-over-year. Non-food prices have risen by 1.5%. The core measure is up 1%.

Disclaimer

Renewed War Roils Markets

noreply@blogger.com (Marc Chandler) — Wed, 8 Jul 2026 06:43:46 -0400

There is one overreaching development that is driving the capital markets today. War. Hostilities between the US and Iran have intensified. At the NATO summit in Türkiye, President Trump has said the ceasefire is over. Oil prices have jumped. Benchmark bond yields have risen and stocks sold. The dollar itself is mixed in the G10 but is mostly stronger against emerging market currencies.

As widely anticipated, the Reserve Bank of New Zealand hiked its overnight cash rate target 25 bp to 2.50%. The New Zealand dollar is the strongest among the major currencies (~0.35%) followed closely by the oil-sensitive Norwegian krone. The Japanese yen is the weakest, off about 0.2% to approach last week’s 40-year high. President Trump told expressed frustration with NATO members over not supporting his desire for Greenland and renewed his call to end trade with Spain for its lack of sufficient military spending and its lack of support for the war on Iran. The US runs a trade surplus with Spain.

Prices

G10

• The euro ground lower in yesterday’s North American session and slipped below to Monday’s low near $1.1410. It slipped slightly below $1.14 in the European turnover after recovering to a little more than $1.1430. The single currency remains within the range recorded on July 3 when the US June employment data were released (~$1.1375-$1.1475) but still looks vulnerable. There are ~2.2 bln euros in options struck at $1.14 that expire today.

• After jumping almost 0.5% against the yen on Monday, the most since the end of April, the dollar recorded an inside day yesterday, confined to about a JPY161.65-JPY162.20 range. The greenback only briefly traded above JPY162 in North America. The upside has been extended to about JPY162.55 today. The 40-year high set earlier this month was near JPY162.85.

• Sterling poked above $1.34 yesterday in the Asia-Pacific session for the first time since June 17, when the FOMC meeting concluded. However, it trended lower and reached $1.3350, where options for GBP1.37 bln expire today. It has been sold to a four-day low today, just ahead of $1.3320 in early European turnover and bounced to around $1.3350. A break of the $1.3270-$1.3300 area weakens the technical tone.

• Despite the risk-off moment, which tends to weigh on the Canadian dollar, it has come back bid today. It is the third session that the greenback is recording lower highs and lower lows. Monday’s high was about CAD1.4240, and today, the US dollar returned to CAD1.4155, last week’s low. Many will cite the jump in oil prices, but the rolling 60-day correlation is practically flat. Market positioning may help explain the Canadian dollar’s outperformance today.

• The Australian dollar reached a two-week high yesterday near $0.6960 but could not sustain the momentum. It was sold back to about $0.6920 yesterday, where it bottomed on Monday. It slipped below $0.6910 today but reached almost $0.6925 as the European morning progressed. A break of the $0.6900 area, where A$480 mln options expire today and another stack of almost A$575 mln expire Friday, weakens the technical tone.

• The Mexican peso sold off yesterday and its nearly 0.85% loss was the largest in almost two weeks. The peso was the weakest of the emerging market currencies yesterday. The Colombian peso’s nearly 0.80% gain made it the best performing currency in the region. The dollar settled slightly above MXN17.50 and the gains have been extended to MXN17.6250 today. Options for $605 mln, struck at MXN17.60 expire today. The high from late June was near MXN17.6765, its best level since early April.

• The offshore yuan softened a little yesterday. The dollar settled above CNH6.80 for the first time since June 26. It crept up to almost CNH6.8075 today. Initial resistance is around CNH6.81, while last month’s high was almost CNH6.82. The PBOC set the dollar’s reference rate CNY6.8077 today (CNY6.8054 yesterday).

• The Indian rupee saw yesterday’s gains, the most in two weeks, reversed today. Foreign investors are taking a more positive perspective on Indian stocks and bond in recent weeks but the impact om the currency seems marginal. And foreign investors turned sellers today. The rupee rose by about 0.35% last month, the first monthly gain since February. With today’s losses, it is off around 0.95% this month, making it the weakest in the region. The greenback reached almost INR95.6090 today, its highest level in nearly a month.

Other Markets

• Equities are off sharply today. The MSCI Asia Pacific Index fell 1.6% yesterday and all the large equity markets in the region but Hong Kong, Taiwan, and Singapore fell today. South Korea’s Kospi led the sell-off with a 5.35% slide, the Nikkei 225 was off 2.1% and India’s indices fell about 2%. Europe’s Stoxx 600 was off about 1% over the past two sessions and is tumbling around 1.8% through the morning. If sustained, it will be the largest loss since mid-March. US index futures are 1.0%-1.5% lower.

• Benchmark 10-year yields jumped mostly 4-5 bp in Europe yesterday and are 8-11 bp higher today. The US 10-year yield rose in each of last week’s four sessions for a 12 bp gain. It slipped by a little more than one basis point on Monday and jumped by about 8 bp yesterday and settled slightly above 4.55%, its highest close since June 10. It is approached 4.58% today. Some pressure may have come from investors hedging the corporate bond issuance, which featured Amazon’s at least $25 bln offering ($62 bln in bids, according to reports), but today’s story is oil and the renewed hostilities in the Middle East.

• Despite news yesterday that the PBOC bought the most gold last month since October 2023 (~15 tons), it failed to inspire buying. The price of gold fell by around 1.4% yesterday and is off 1.7% this week coming into today. Support around $4100 yielded to the pressure, but gold recovered and settled a little below $4115. Follow-through selling today has tarnished the yellow metal further, driving it to about $4040, a four-day low. The low for the year was recorded in late June, near $3944. Silver was turned back Monday from almost $63.30 and was pushed slightly through $59.50 yesterday. It settled slightly below $60 and traded below $58.20 today. Its low for the year was recorded on June 24 around $55.60.

• The attack on the four ships yesterday in the Strait of Hormuz risked retaliation from the US and this helped lift oil prices. Late in the North American session, the US Treasury revoked the June 21 waiver on Iranian oil products and indicated it was engaged in strikes 4-5x greater in scope and power than the last strike ten days ago. August WTI, which bottomed last Friday, nearly $67 a barrel and reached about $72.50 yesterday and $75.30 today. The 20-day moving average is slightly above $75. It traded above it for the first time since June 11.

Data

• The FOMC minutes from Chair Warsh’s first meeting will draw attention later this afternoon. Just as the statement was terse, the risk is the new chair put its mark on the minutes as well. The market impact may be negligible as participants continue to get the measure of the Warsh as chair. Despite seemingly trying to avoid forward guidance, the Warsh is not opaque. The market took a hawkish tilt away from last month’s FOMC meeting and took a less hawkish signal from Warsh last week when he told the Sintra audience inflation expectations had eased and AI may indeed boost productivity and non-inflationary growth. With US consumption rising faster than income, how are American households doing it? In addition to drawing down savings, American are borrowing more. May consumer credit will be reported later today. It rose by $53.7 bln in the first four months of the year compared with about $32.3 in Jan-April 2025.

• As widely expected, the Reserve Bank of New Zealand raised official cash rate target by 25 bp to 2.50% earlier today. It is the first increase since May 2023. In 2024 and 2025, the RBNZ halved its target rate to 2.25%. The swaps market is pricing in another hike fully for the late October meeting and leans toward a third hike before the end of the year.

• Japan’s current account surplus widened a little in May (JPY3.97 trillion vs JPY3.91 trillion in April), even though the trade balance surplus narrowed (JPY6.9 bln vs JPY396 bln). Japan’s current account surplus reached a record 4.9% of GDP last year, while on balance-of-payments terms, it recorded a trade deficit of almost JPY570 bln.

Disclaimer

Struck Qatari Ship Underpins Oil and Gas Prices, While Strong Samsung Earnings Fail to Stem Chip and AI Profit-Taking

noreply@blogger.com (Marc Chandler) — Tue, 7 Jul 2026 06:49:02 -0400

The fragility of the ceasefire in the Middle East was driven home today by the strike on a Qatari LNG ship in the Strait of Hormuz today. Oil and gas prices are higher. Samsung earnings failed to deter profit-taking, which weighed on chip and AI equity names. Still, the South Korean wan jumped 1% to a two-week high as SK Hynix prepares to sell American depository receipts (~$28 bln). The company has said it intends to repatriate some of the funds raised. Japan’s 30-year bond auction drew the highest demand in seven years, though yields recovered from the initial decline. Hong Kong launched a gold clearing and settlement facility today.

The US dollar is firmer against the G10 currencies but the Japanese yen. It is straddling the JPY162 level in the European morning, where options for $2.2 bln expire later today. Germany reported a 0.9% rise in May industrial output, which was well above expectations and matches the largest increase since March 2025. Still the euro is trading quietly lower. The NATO conference in Türkiye will attract attention. Meanwhile, the market awaits word from the French court whether Le Pen can run in next year's presidential contest. And the $119 bln coupon auctions this week by the US Treasury kick-off with the $58 bln sale of three-year notes today.

Prices

G10

• The euro made marginal new session low in North America yesterday, slightly below $1.1410. Important chart support is seen in the $1.1400-05 area. It retested the session high in the North American afternoon, near $1.1450. Last week’s high was near $1.1475, which also corresponds to the 20-day moving average, which is now found slightly above $1.1460. So far today, the euro is in about a quarter-cent range below $1.1450.

• The yen traded in a narrow range in North America yesterday. The US dollar drifted lower most of the North American session and approached JPY162.00 in late dealings. It peaked today slightly below JPY162.20 and found support a little below JPY161.70. The record intervention in April/May sent the greenback down almost six yen. The 2024 intervention, which was around half of the size of this year’s operation, drove the dollar down about 22 yen. There are $2.2 bln of JPY162 options that expire today and about $820 mln at JPY162.50.

• Sterling posted an ostensibly bullish outside day by trading on both sides of yesterday’s range and settled above it high. It poked above $1.3400 briefly today where sellers lurked and pushed it to $1.3375. Options for about GBP435 mln at $1.3360 expire today. Sterling needs to convincingly overcome resistance in the $1.3400-20 area to signal a move toward $1.3500 next.

• The Canadian dollar approached last week’s low, but it held, but it still looks vulnerable. In late June, the US dollar tested the CAD1.4250 area. Yesterday’s high was almost CAD1.4240. and the US dollar pulled back to around CAD1.4200 in late dealings. It has been confined to a roughly CAD1.4200-CAD1.4220 range. It will take a break of CAD1.4150 to provide some technical evidence that a top may be in place.

• For the fourth consecutive session, the Australian dollar is recording higher lows and higher highs. It pushed above resistance near $0.6950 in the North American afternoon and reached $0.6960 today before pulling back to around $0.6935. Sustaining the break targets the $0.7000 area next. The 20-day moving average is nearly $0.6970. The Aussie has not closed above the 20-day moving average since mid-May.

• The Brazilian real and Mexican peso were the strongest emerging market currencies yesterday. The Brazilian real was the strongest. It rose by about 0.75% and reached a two-week high. The dollar slipped through BRL5.1300 and settled below the 20-day moving average (~BRL5.15 today) for the first time since June 15. The greenback was turned away from MXN17.50 and was sold through last week’s low seen before the weekend, near MXN17.4180, to approach MXN17.3750. It traded on both sides of last Friday’s range and settled below it low. It closed below the 20-day moving average (~MXN17.4065 today) for the first time since June 17 (FOMC meeting). However, there has been no follow-through, and the US dollar is back above the 20-day moving average. Nearby resistance is in the MXN17.46-MXN17.50 area.

• The dollar’s advance against the offshore yuan recouped the losses recorded in the previous two sessions. It approached CNH6.80 yesterday and reached CNH6.8030 today. It stalled in front of CNH6.8050 resistance. The PBOC set the dollar’s reference rate slightly above last week’s three-year low today (CNY6.8054 vs. CNY6.8066 yesterday and CNY6.8047 at the end of last week).

• The Indian rupee is firmer today despite the rise in oil prices and weaker equities. today. It has fallen in five of the past six sessions. Today’s 0.45% gain is the largest since June 12. The dollar was sold to a three-day low near INR94.9660, slightly the 20-day moving average (~INR94.8950). At the end of week, the central bank will report the latest weekly reserve figures. In June reserves fell for the second consecutive month a total of about $31.5 bln.

Other Markets

• The large equity markets in the Asia Pacific region were sold today. Singapore was the main exception (+1.5%). Strong Samsung earnings failed to inspire and South Korea’s Kospi was tagged for nearly 5%. Taiwan’s Taiex and Japan’s Nikkei 225 fell by more than 2%. Europe’s Stoxx is nursing a small loss in late morning trade after falling 0.35% yesterday. The US S&P and Nasdaq composite approached last and week’s high yesterday, but they held. The Nasdaq futures are off almost 0.90% and the S&P 500 futures a little softer.

• Benchmark 10-year yields mostly edged up yesterday and are higher today. The 10-year US Treasury yield was an exception yesterday and was fractionally lower. Today, it is up a couple of basis points to almost 4.49%. The 10-year JGB yield is up 2.5 bp today after jumping about 4.5 bp yesterday. The yield is up about 78 bp this year, more than twice the increase in the US 10-year yield. European yields are mostly around two basis points higher today.

• Gold initially rose a little above the pre-weekend high yesterday to reach almost $4203 in the Asia Pacific session before retreating a little below $4130 in North America. It fell slightly below $4117 today before stabilizing. Separately, note that Hong Kong launched its gold clearing and settlement system today. The Monetary Authority of Singapore is expected to offer gold vaulting services later this year (October). Silver traded pennies through the 20-day moving average (~$63.20) for the first time in over a month yesterday. But it was greeted by sellers who pushed to back to almost $61.35. It fell about $1 today before bids emerged.

• August WTI traded between about $67.80 and $69.25 yesterday. The 200-day moving average is slightly below $70.30 and the contract has not settled above it for the past four sessions coming into today. Last week’s low was record before the weekend (~$67) and before the Middle East war began, it settled at $65.70. The attack on a ship today as it was exiting the Strait of Hormuz helped lift the August WTI contract to almost $69.75 today. Meanwhile, Saudi Arabia cut its main crude price for Asia next month and will sell at a discount for the first time since 2020. The $11 a barrel cut will bring the price to $1.50 below the regional benchmark. The move is thought to reflect the speed at which oil producers in the Gulf have boosted flows.

Data

• The US May trade deficit is set to widen sharply. The preliminary goods deficit rose to $105.8 bln from $83 bln in April. The overall trade deficit is seen widening to $78.5 bln from almost $56 bln. Although one would not know it from much of the political discourse, the US runs a large and persistent trade surplus in services. In any event, the imports likely rose around 2%, like they did in April. Exports are expected to have fallen by the most in seven months. The NY Fed’s inflation survey may draw more attention than usual after Fed Chair Warsh, who eschews forward guidance, told the Sintra audience that inflation expectations have fallen recently. In May, the one-year expectation slipped 0.1% to 3.5% and the three-year and five-year projections were unchanged at 3.0% and at 3.1%, respectively. The one-year breakeven, the difference between the inflation-linked security and the conventional security is near 1.32%. It peaked in late March near 5.43% and was above 2.5% a month ago. The five-year breakeven is about 2.25%. It peaked in mid-March, near 2.78%. It was slipping through 2.50% a month ago.

• Canada reports May goods trade balance today. April’s C$2.7 bln surplus was the largest since January 2025. The average monthly deficit in the first four months of the year is about C$920 mln compared with an average shortfall of C$1.8 bln in Jan-Apr 2025. The IVEY PMI will also be reported. It typically runs hotter than the S&P iteration. The highlight of the week is the June employment data on Friday, which is unlikely to match May’s nearly 88k increase in employment, the increase of 154k full-time positions and drop in the unemployment rate to 6.6% from 6.9% (steady participation rate, unlike in the US).

• Mexico reports June auto output and exports today. The market does not appear sensitive to the data. Still, it is interesting to note that Mexico exported almost 90% of its auto output in May.

• Germany reported a 0.9% jump industrial output figures today after a larger than expected jump in orders yesterday. The median forecast in Bloomberg’s survey anticipated a 0.1% increase. April’s 0.4% increase was halved to 0.2% increase. On a workday adjusted basis, it was flat year-over-year. After posting 0.3% growth in Q1 26, Europe’s largest economy may have stagnated in the quarter that just ended.

• France’s “twin deficits” are in the news. Today it reported a 6.9 bln euro May trade deficit. The deficit in the first five months of the year averaged 5.27 bln euros down from a 6.5 bln average in Jan-May 2025. Weak growth in France is adding to its fiscal challenges and may see it overshoot its 5% deficit target (5.1% 2025) this year. Meanwhile, a Frenc appeals court is expected to rule today whether Marine Le Pen’s embezzlement case prevents here from running in next year’s presidential contest, which ECB President Lagarde may also be interested in entering.

• We continue to be struck by the contrast between rising labor earnings in Japan and the continued weak household spending. Reported earlier today, Japan’s labor cash earnings rose 3.2% year-over-year in May and 1.4% when adjusted for inflation. Yet, household spending contracted by 0.4% year-over-year in May (-0.5% in April). It has not risen on a year-over-year basis since last November. Japan reports May current account balance tomorrow. The surplus is expected to have edged up even though the trade balance (BOP basis) is likely to have swung back into deficit after being in surplus Feb-April.

Disclaimer

Yen Remains Under Pressure

noreply@blogger.com (Marc Chandler) — Mon, 6 Jul 2026 06:42:58 -0400

The dollar begins the new week on a firm note despite the disappointing employment report last week, but except against the yen, it remains within recent ranges. Japanese official rhetoric has not increased and the sell-off in JGBs seemed to add to the weight on the yen. The dollar rose to JPY162.40, a yen higher than it settled before the weekend. The yen is off about 0.6% late in the European morning. Of the G10 currencies, the New Zealand dollar is off almost as much even though its central bank is likely to hike its key rate in the middle of the week.

OPEC+ agreed to boost output and oil prices are a little softer. Yet, the Norwegian krone is only G10 currency that is not falling against the US dollar today. French budget problems saw its 10-year premium over Germany widen to nine-month highs last week (~80 bp) but is flat today. ECB President Lagarde apparently is mulling re-entering French politics, where the National Front candidates are running ahead on the pols for next year’s contest. After the US jobs data last week, the Fed funds futures are now pricing in a Fed hike at end of the year rather than in October.

Prices

G10

• With US markets closed before the weekend, the euro consolidated the gains scored in the wake of the disappointing US jobs data on July 2. On Friday, it held above $1.1420 but could not rechallenge the $1.1475 area that had capped it the day before. The 20-day moving average is near $1.1465 today and the single currency has not settled above it since June 16, the day before the Fed delivered its hawkish hold. The euro is trading with a heavier bias, and it has held below $1.1450 where options for 1.25 bln euros expire today. Support is seen near $1.1400 were options for almost 1.8 bln euros expire today.

• The dollar slipped through Thursday’s low briefly before the weekend and traded a tick below JPY160.50, its lowest level since the day after the FOMC meeting. Still, it rebounded and settled near JPY161.30. The greenback has bounced back to around JPY162.30 today. Recall that last week’s high was near JPY162.85. Options for $1.8 bln at JPY162 expire tomorrow. Despite the BOJ’s regular bond buying operation today, the 10-year JGB reached a new 30-year high near 2.82%.

• Sterling did not see follow-through buying ahead of the weekend, after reaching $1.3385 after the US employment report last Thursday. The $1.3400 area holds the 200-day moving average and the (50%) retracement objective of the decline since the May 1 high (~$1.3660). The 5-day moving average has crossed above the 20-day moving average today for the first time since mid-May. But sterling is trading with a slightly heavier bias as it holds in the upper end of last Thursday’s range. Initial support is now seen around $1.3320.

• The Canadian dollar spent Friday trading within the range set the previous session. However, the consolidation still looks constructive for the greenback, which settled above CAD1.4200. The US dollar is pushing near CAD1.4230 in the European morning. There have been two highs recently, just shy of CAD1.4250. A move above there could spur the next leg up toward CAD1.4300.

• The Australian dollar snapped a four-week slide with a gain of almost 0.60% last week. It reached $0.6950 before the weekend, its best level in eight sessions, and the (38.2%) retracement of the losses since mid-June. It is consolidating quietly today between about $0.6920 and $0.6950. The next retracement and the 20-day moving average are around $0.6975.

• After falling to nearly MXN17.4180 before the weekend, the greenback recovered to around MXN17.49 in subdued turnover. The Mexican peso reached its best level since June 24. It is not clear if the consolidative phase is complete. For that, the dollar must fall below the MXN17.35-MXN17.40 area. The greenback is consolidating between MXN17.46 and MXN17.4930 so far today.

• The dollar fell to a new low for the week against the offshore yuan, near CNH6.7810 ahead of the weekend. But the dollar is better bid today and it is approaching CNH6.80 in Europe. Initial resistance is seen in the CNH6.8050 area. Before the weekend, the PBOC set the dollar’s fix at CNY6.8047, a new three-year low. Today’s fix was set at CNY6.8066.

• The Indian rupee snapped a four-day slide ahead of the weekend. The dollar reached nearly a three-week high before the US jobs data (~INR95.3960) and eased to about INR95.1640 before the weekend. The rupee came under new pressure today and the dollar reached almost INR95.4840, the highest since June 11.

Other Markets

• Equities finished last week on a strong note. All of the large Asia Pacific markets rallied on Friday, with South Korea’s Kospi leading with a 5.75% gain. Japan, Hong Kong, and Australia’s main indices gained more than 1%. Europe’s Stoxx 600 edged up by about 0.65% to bring the fourth consecutive weekly rise to about 2.65%. US S&P and Nasdaq futures traded higher before the weekend. Today is a different story. Japan, Hong Kong, and Indian stocks advanced but most of the large bourses in the region did not and South Korea’s Kospi could not hold its early gains. The Stoxx 600 is nursing a small loss. US index futures are trading firmly.

• Benchmark 10-year yields rose on Friday and extended last week’s rise. The 10-year JGB rose by 14 bp (to 2.77%), while most European yield increased by 7-12 bp, with Italian rates rising the most. The 10-year US Treasury yield rose 11 bp to 4.48%. Outside of the jump in JGB yields, benchmark rates are mostly softer today. We note that China’s two-year yield slipped a couple of basis points to 1.22%, the lowest since February 2025. The US 10-year yield is off a little more than two basis points to almost 4.45%. The US Treasury will sell $119 bln of coupons this week.

• Before the weekend, gold settled above its 20-day moving average (~$4156) for the first time since mid-May. The yellow metal reached a new two-week high today, near $4203 before reversing lower. It fell slightly through $4137. Nearby support is seen around $4120. Silver has a four-day rally into tow as it entered today’s activity. It rose by more than 2.5% in each of the last two sessions. The pre-weekend high was slightly shy of $62.90, its best level since June 23. It tested the 20-day moving average today, around $63.25, but was turned back. Silver has not settled above the 20-day moving average since May 25. Support now may be seen around $60.60.

• August WTI was little changed before the weekend. It fell to almost $67 on July 2. It settled on its highs and follow-through buying on July 3 and lifted it to about $69.25, the five-day moving average. The 200-day moving average is near $70.35, and since breaking below it last Tuesday, the August WTI contract has settled above it. It is trading between about $67.80 and $69.25 today.

Data

• The final US June services and composite PMI hold little new news. The June ISM services survey will draw more attention. Activity is expected to edge lower and prices paid are expected to have eased. New orders likely remained strong.

• Canada sees its services and composite June PMI. In May, the composite rose for the fourth consecutive month and crossed above 50 for the first time since last October. The Bank of Canada’s Q2 business outlook will also be released today.

• Brazil reports June trade figures. Through May, the trade balance has averaged $6.53 bln a month compared with $4.87 bln average in the first five months of 2025.

• The eurozone reported that May producer prices rose 0.2% (0.7% in April) for a year-over-year rate of 5.9% (5.0% in April). Also, it reported that May retail sales rose 0.2% (-0.3% in April) for a 1.6% year-over-year advance (0.9% in April).

• Germany reported a 1.9% rise in May factory goods ordered after the outsized 3.2% (initially -3.8%) drop in April. Transportation equipment, including for the military, helped flatter today’s report. Industrial output is due tomorrow. It is expected to have eked out a 0.1% gain after it rose 0.4% in April. Separately, the June construction PMI edged up for the first back-to-back increase this year but continued to languish in its trough. It was above 50 last year only in December. It was at 42.4 in May and edged up to 44.8 in June.

• The UK’s construction PMI held below 40 for the second consecutive month. It is at 38.4 (from 38.2 in May, the lowest since the pandemic. It has not been above 50 since the end of 2024.

• Australia’s Melbourne Institute’s Inflation gauge fell by 0.4% in June (-0.3% in May) for a year-over-year pace of 3.9% (4.4% in May). The central bank recently expressed concerns about the elevated inflation expectations, but the broadening of house price declines may become more salient. Note that Reserve Bank of New Zealand meets on Wednesday, and the swaps market favors a hike with around three-quarters of it discounted.

Disclaimer

The Week Ahead: Disappointing US Data, Soft Two-Yield Yield Warns Dollar Leg Up on Fed's Hawkish Hold is Over

noreply@blogger.com (Marc Chandler) — Sat, 4 Jul 2026 07:10:00 -0400

The combination of soft disappointing US data, which culminated in a jobs report on July 2 that showed half the jobs growth that was expected and the continued decline in oil prices, recognized by Fed Chair Warsh in Sintra that inflation expectations have eased recently, took the steam from US short-term rates and the greenback. The two-year US yield finished the holiday-shortened week slightly below 4.14%. It was at 4.18% after the Fed's hawkish hold last month and peaked above 4.20%. It sounds simplistic, but in the current environment as goes the US two-year yield, so goes the dollar.

The other story is the weakness of the Asian currencies despite the strong AI-related exports. The yen's 2.85% decline is not an outlier, but the decline has been sufficient for the yen to trade at 40-year lows. The market knows it risks intervention, and we continue to see signs in the options market that some large pools of capital have bought short-dated dollar puts to protect long dollar positions in the case of intervention. The Chinese yuan continues to stand out. The yuan's gain of a little more than 3% puts it atop the Asian currencies this year. It has also appreciated against the G10 currencies, but the Australian dollar. In the last two sessions, the PBOC set the dollar's reference rate at new three-year lows. The euro has fallen by nearly 9% against the yuan since peaking a year ago. The appreciation of the yuan is not as fast as its critics want but it is moving in the desired direction.

Drivers: The dollar rose in June against all world's currencies but a handful from emerging markets. To explain the decline of a few dozen currencies, one can look for idiosyncratic developments: This country is managing its currency. That country should have raised rates more aggressively. The tune may be different, but the song is the same: Strong US dollar. Last month, the US two-year yield rose by nine basis points. The comparable yield in all the other G10 countries fell (by 3-17 bp). Foreign investors have favored US equities over bonds, and they seemed to be among the bargain hunters who returned to US equities after the S&P 500 and Nasdaq fell for five consecutive sessions.

Data: The US economy appears to have accelerated further in Q2. After slowing to 0.5% annualized pace in Q4 25 and the upward revision in Q1 25 to 2.1%, the economy appears to have grown around 2.5%-3% in the quarter that just ended. ISM's June services and the final services and composite PMI pose little more than headline risk. Net exports likely deteriorated in Q2. The goods trade deficit jumped in May and that points to the widening of the overall trade deficit, which will be reported in the week ahead. If the overall trade shortfall is in line with forecasts, ~$78 bln, the two-month average would be about $67.5 bln after an average of about $55 bln a month in Q1 26. Meanwhile, existing home sales are holding up better than new home sales. Through May, new homes sales are off about 20% this year, while existing home sales are off around 3%. The June series poses some headline risk, but Fed Chair Warsh recognized at the post-FOMC press conference that policy appears restrictive for housing even if not for the financial sector. The minutes from that Fed meeting, Warsh's first, will likely be scrutinized for insight into the new chair's style and to see how close Fed officials may be to delivering a rate hike. The Fed funds futures market has almost 21 bp tightening discounted for the October meeting. While previous Federal Reserve's might be more inclined to hike in September, when there is a new Summary of Economic Projections, Warsh wants to downgrade the SEP, and one way to do that before the taskforce report, is to raise rates without new SEP. Some members of the new taskforces are expected to be named in the coming days.

Prices: The Dollar Index recorded the year's high on June 24 (101.80). It had been consolidating above 101.00 before the disappointing June jobs data on July 2. It fell to almost 100.55, a scratched the 20-day moving average for the first time in a little more than two weeks. The momentum indicators are turning lower. A trendline drawn off the May and June lows begins the new week near 100.30 and finishes the week closer to 100.55. DXY has already met the (50%) retracement of the rally since mid-June and the next retracement objective is near 100.30.

EMU

Drivers: The euro continues to be highly sensitive to changes in the two-year US yield. The 30-day inverse correlation is hovering near -0.70. The most extreme reading was around the June FOMC meeting (~-0.87), which was the most extreme in more than a decade. The 60-day correlation is near -0.69. The euro's correlation with Germany's two-year yield or the two-year rate differential is considerably less (~-0.32 and -0.38, for the 30- and 60-day correlation, respectively).

Data: The ECB hiked rates in June, and there seems to be little chance of another hike this month. This likely limits the impact of this week's high frequency data, namely, May producer prices and retail sales. Coming into May, eurozone retail sales are nearly flat in the first four months of the year. The slight softening in the preliminary June CPI takes the sting from the like rise in May's PPI. Germany's May factory orders are due on July 6 and may have stabilized after falling 3.8% in April.

Prices: The euro bottomed on June 24 dear $1.1325. It reached almost $1.1475 in response to the disappointing US jobs report. It held below the 20-day moving average, and it has not settled above it since the day before the Fed's hawkish hold on June 17. It also stalled near the halfway mark of the euro's decline since mid-June. The next retracement objective is about $1.1510. The momentum indicators are turning higher.

PRC

Drivers: The PBOC manages the exchange rate, but it is not random and it does not ignore market forces. The 100-day correlation between the greenback's changes against the offshore yuan and the Dollar Index is near 0.75, making it more correlated some G10 currencies. Still, we watch the daily fix for signals of potential policy changes. In the last two weeks of June, the fix was raised on a weekly basis. It is the first back-to-back increase since the end of last September and before that it was the first half of April. However, this does not seem to signal a change in policy. Indeed, the PBOC set the dollar's fix at new three-year lows last week. The PBOC has introduced a new policy tool, overnight reverse repos, and appears to have set the rate lower than expected, signaling a potential easing of other rates.

Data: In the management of the yuan's exchange rate, the high-frequency Chinese data seems to have little bearing. The data highlight in the coming days is China June CPI and PPI. These inflation gauges show China as exited deflations grip even as the economy appear to have weakened. In May, CPI stood at 1.2% year-over-year, and the core rate was 1.1%. They look little changed in June. Producer prices increased by 3.9% in the year through May and maybe edged a little higher in June. Yet, the disappointing real sector data has renewed some speculation that the PBOC will ease monetary policy (rate cut and possible reduction in reserve requirements).

Prices: Last month's dollar peak against the offshore yuan was near CNH6.82, about a week after the Fed's hawkish hold. It has since pulled back. It fell in four of last week's five sessions and finished the week below CNH6.7850 and probed the 20-day moving average, which it has not settled below since the FOMC meeting. Last week, for the sixth consecutive week, the onshore yuan settled stronger than the offshore yuan.

Japan

Drivers: Judging from the returns, one set of preferences among investors has been to favor higher interest rate currencies. Australia and Norway's policy rates are the highest in the G10 and their respectively currencies are on top through H1 26. Latam currencies have tended to do better than East Asia currencies so far this year and, while exchange rate determination is rarely mono-causal, their high rates have been an important factor. We are not convinced that another 25 or 50 bp higher rate would have changed the yen's behavior much. It would still be higher than Switzerland and below Sweden at the lower end of the G10 policy rates.

Data: Japan begins the new week with May labor earnings and household spending. Recall that in April real cash earnings rose 2.0% year-over-year, while household spending fell by 0.5%. Many US observers, arguably projecting their own country's experience, are bemused. Higher real income does not lead to more consumption? What gives? They underestimate the cultural roots of consumption. It has to be learned and is part of range of cultural values. For several months this year, US personal consumption expenditures increases have outstripped increase in income, the opposite of Japan's experience. The following day, Japan reports May current account. Japan runs a chronic current account surplus but has been experiencing a trade deficit despite the undervalued yen on most models of valuation. Still, Japan's rolling trade deficit has been shrinking, and on a balance of payment basis, the 12-month average has returned to surplus starting in January this year for the first time in four years. At the end of the week, Japan's June PPI will be reported. It rose 6.3% year-over-year in May, though in the first five months of the year, Japan's producer price index rose at an annualized pace of around 11.75%.

Prices: The combination of fear of material intervention and the softer than expected US jobs report weighed om the greenback for the past two sessions. The dollar peaked on July 1 near JPY162.85, a 40-year high. Before the weekend, it reached JPY160.50 but settled back above JPY161, and the 20-day moving average (~JPY161.15). The momentum indicators are rolling over, but dollar buyers emerging on the pullback and there does not appear to have been intervention. One-month vol finished near 7.15%, up from 6.85% the previous week. The one-month risk reversal (call/put pricing skew) showed the premium for dollar puts rose to about 1.5% last week, up from about 1.1% the previous week. The high vol is consistent with option buying and the large put premium suggests dollar puts are being bought.

Drivers: The UK quit the EU a decade ago last month, and yet over the past 100 sessions, the changes in sterling and the euro have a 0.87 correlation, which is higher than the correlation when the referendum was held (0.45). What is also remarkable is that sterling is more correlated to the euro than the Swiss franc (~0.80). The Swedish krona enjoys around the same correlation with the euro as sterling over the past 100 sessions.

Data: The main data point from the UK in the coming days, June construction PMI is due Monday. It has not been above the 50 boom/bust level since the end of 2024. It was 40.1 at the end of last year and 38.2 in May. It is the lowest since the pandemic. The Labour Party's leadership contest begins formally in the coming days, but there seems to be little doubt that Andrew Burnham will replace Keir Starmer and become the seventh prime minister in the decade since the Brexit Referendum, which is a useful mile marker, but the Brexit decision does not satisfactorily explain the turnover, e.g., Johnson, Truss, and Starmer.

Prices: Sterling bottomed on June 24 near $1.3140. Last week it reached about $1.3385, its best level since the FOMC meeting. It took out the line connecting the mid-May and mid-June highs in the last two sessions but was unable to settle above it. The trendline is found slightly below $1.3350 on Monday and it is closer to $1.3315 at the end of next week. The 200-day moving average is near $1.34, and sterling has not settled above it since the day before the FOMC decision. The $1.34 area also holds the (50%) retracement of sterling's decline since the May 1 high (~$1.3660). The five-day moving average is poised to move above the 20-day moving average for the first time since mid-May.

Canada

Drivers: In the current environment the Canadian dollar tends to do better when short-term Canadian rates are falling. This may seem counter-intuitive, but the 30-day correlation between changes in the US dollar's exchange rate against the Canadian dollar was positive in Q2 26 and mostly inversely correlated in the first quarter. Still, the best thing for the Canadian dollar is a weaker dollar more broadly. The 30-day correlation between DXY and US vs. CAD is a little below 0.70.

Data: It is a big week for Canada's high frequency data. The June services and composite PMI and the Ivey iteration are due. These surveys appear to be faring better than the hard data suggests. The central bank's Q2 business survey is due at the start of the week as well. The highlight of the week is at the end of the week with the June jobs report. It is difficult to envisage a better report than May's when the unemployment rate fell to 6.6% from 6.9% and Canada created 154k full-time posts (lost 66.2k part-time jobs). The Bank of Canada meets on July 15, and the policy dilemma Governor Macklem acknowledged suggests an extend pause remains the most likely scenario. Lastly, Canada announced the beginning of a new oil pipeline that will have the capacity to send 1 mln barrels a day to Asia, as it seeks to diversify away from the US.

Prices: The greenback approached CAD1.4250 last week, matching the high from the previous week. It pulled back to about CAD1.4150, an eight-day low after the US employment report. However, the US dollar bulls have not given up. The greenback finished the week slightly above CAD1.42. The momentum indicators look stretched, but support in the CAD1.4100-CAD1.4135 must be taken out to boost the chance a top is in place. If not, the near-term risk extends toward CAD1.4300.

Australia

Drivers: Unlike the Canadian dollar, changes in the Australian dollar's exchange rate are positively correlated with changes in Australia's two-year yield. Yet, at less than 0.15 and 0.25, respectively, the 30- and 60-day correlations are not inspiring. The inverse correlation between changes in the US two-year yield and the Aussie's exchange rate is ~-0.55 and ~-0.65 for the past 30- and 60-sessions, respectively.

Data: Australia's data calendar is practically empty this week outside of the Melbourne Institute's (experimental) inflation gauge. It fell by 0.3% in May though rose at an annualized rate in the first five months of the year of almost 3.5% compared with a 4.4% year-over-year pace. The Reserve Bank of Australia does not meet until August 11. The odds of a rate hike this year have diminished, but we suspect it is near a bottom. At the end of May, the futures market has almost 18 bp of tightening discounted in the remainder of the year. At the end of June, about 10 bp of tightening was priced in, and now almost 15 bp.

Prices: The Australian dollar posted a key upside reversal last Tuesday by making a new low since early April, slightly above the 200-day moving average (~$0.6865) and recovering to settled above the previous day's high. There was no immediate follow-through buying, but at the end of the week, it tested $0.6950, an eight-day high, its best level since the softer than expected May CPI. The $0.6950 area corresponds to the (38.2%) retracement since the June 15 high (~$0.7080). The next retracement and the 20-day moving average around found slightly above $0.6975. More formidable resistance is seen around $0.7000. The momentum indicators are turning up but are still in oversold territory.

Mexico

Drivers: The dollar's movement against the Mexican peso is more correlated with JP Morgan's Emerging Market Currency Index (~0.80) than the Dollar Index (0.74) over the past 30 sessions. The 60-day correlations are about 0.81 and 0.66, respectively. MSCI has an emerging market currency index but the correlations with the dollar-peso are considerably weaker.

Data: Mexico's June CPI will released on Thursday. Headline inflation is running slightly inside the broad 2%-4% target, while the core rate is slightly above. The central bank has been somewhat more concerned about economic weakness, but it looks as if the economy has gained some traction. On Friday, Mexico reports May industrial output. It surged 2.1% in April, the strongest since March 2021. Manufacturing's gain (1.2%) and construction (7.6%) more than offset the decline in mining (-0.7%) and utilities (-0.3%). The minutes from the recent central bank meeting (it stood pat) will be released on Thursday. The swaps market is discounting the next move, a hike, by late this year.

Prices: The US dollar peaked against the peso on June 24 near MXN17.6765. It was its best level since early April. It has subsequently pulled back and briefly slipped below MXN17.42 ahead of the weekend; its lowest level since June 23. That area also corresponds to the halfway mark of the greenback's gains since the June 15 low (~MXN17.1575) and the 20-day moving average. The next retracement is near MXN17.3550. The US dollar looks toppish against the Brazilian real near BRL5.20-BRL5.22. The Colombian peso continues to bask in the political shift to the right. It was the best performing currency in the world last week, with a 3.7% gain and it reached its best level in six years.

Disclaimer

Dollar Pulls Back Ahead of Employment, Led by Yen's Jump

noreply@blogger.com (Marc Chandler) — Thu, 2 Jul 2026 06:47:17 -0400

The dollar is trading lower against all of the G10 currencies ahead of the US employment report. The softer ADP private sector estimate seems to have encouraged some paring of long dollar positions ahead of tomorrow’s US holiday. The yen is the strongest, up nearly 0.75% against the greenback. This does not appear to be a result of intervention. Instead, it likely reflects the nervous and extended positioning. The dollar fell to JPY160.90 in early European turnover and is now near JPY161.40. The US formally refused to renew the USMCA. This opens the process to annual reviews for the next decade unless a party withdraws. The immediate market impact appeared minimal.

The focus is on the US employment report. After a poor 2025, when the US created an average of 10k jobs a month, there has been recovery this year. Through May, US has created about 114k jobs a month this year. Fed Chair Warsh, who eschews forward guidance, said at the ECB’s Sintra gathering that inflation expectations have eased in recent weeks. The University of Michigan’s consumer inflation expectations for 5-10 years did slip from the preliminary June estimate, and of course, oil and gasoline prices have fallen. Still, coming into today’s jobs report, the Fed funds futures are discounting almost 35 bp of tightening this year.

Prices

G10

• The euro weakened yesterday, and low was made as Fed Chair made it clear he was not going to offer any guidance on interest rates. It reached a low for the week, near $1.1360, before it rebounded to around $1.1410. Sellers pounced on it and drover the euro back to $1.1380. It has come back firmer now, ahead of the US jobs report, but this week has largely remained with last Friday’s range (~$1.1355-$1.1435). There are options for nearly 2.9 bln euros at $1.1450 and 2.4 bln at $1.14 that expire 90 minutes after the employment report.

• The yen jumped in late Asia Pacific time and extended its gains into early European turnover, but it does not appear to be intervention but nervousness about the risk of intervention after today’s US jobs report. The greenback settled yesterday slightly below JPY162.60 and hardly spent any time above there today and fell to about JPY160.90 today. It traded below the 20-day moving average (~JPY161.10) for the first time since last October. There are nearly $1 bln of options struck at JPY161.00 that expire today.

• For the sixth consecutive session, sterling is recording higher lows and higher highs today. It surpassed the (38.2%) retracement (~$1.3340) of the decline since the early May 1 high (~$1.3660). The next retracement is near $1.3400, where the 200-day moving average is also found. With today’s gains, sterling also met the minimal objective of the bottoming pattern carved in the second half of June.

• The US dollar continues to consolidate against the Canadian dollar. It remained within Tuesday’s range (~CAD1.4180-CAD1.4250). A move above CAD1.4250 targets the CAD1.4300 area. It takes a break of CVAD1.4170 to suggest the consolidation is a topping pattern. There are about $1.7 bln of options struck between CAD1.4200 and CAD1.4225 that expire today.

• After posting an ostensibly bullish key reversal on Tuesday, the Australian dollar disappointed yesterday. It traded softly within Tuesday’s range yesterday and continues to trade quietly and uninspiringly today. The Aussie is in around a $0.6885-$0.6910 range. Still, a foothold above $0.6930 would lift the technical tone.

• The Mexican peso fell yesterday but it did not seem to be related to the US not agreeing to renew USMCA. It is consolidating near yesterday’s lows today. The US decision opens the process up to annual reviews, while keeping the agreement itself, which was negotiated in President Trump’s first term, in place for another 10-year if no one pulls out. There were only two emerging market currencies that appreciated yesterday, the Colombian peso, following the 75 bp rate hike on Tuesday, and the Russian rouble. Brazil, the other major Latam currency was the weakest among emerging market currencies. It fell by about 0.7%, around twice as much as the Mexican peso. The latest polls for the October contest show President Lula are still well ahead of his closest rival, Flavio Bolsonaro, the son of the former president.

• While the dollar is consolidating against the offshore yuan, the PBOC has resumed its gradual guidance for a stronger yuan. Recall that in six of the seven sessions before Tuesday, the end of the month/quarter/half, the PBOC had set the dollar’s reference rate higher in contrast to the general trend. Although such action around the year-end or H1 25 end is not immediately evident, such considerations may have been at work. In any event, the PBOC set the dollar’s fix at a new three-year low yesterday (CNY6.8067) and CNY6.8088 today. The yuan’s roughly 3% gain year-to-date may seem like small beer for dollar-centric views but consider its appreciation against all the regional currencies: around 10% against the South Korea won, nearly 9% against the Indian rupee, around 6.5% against the yen. The yuan has also appreciated by more than 6% against the euro, almost 8.5% against the Swedish krona, and 6.5% against the Canadian dollar. It has risen against all of Latam currencies but the Colombian peso and Brazilian real.

• The Indian rupee extended yesterday’s losses and fell to a two-and-a-half week low, despite some reports that suggest intervention in the offshore market. The dollar reached INR95.3960 and settled near session highs.

Other Markets

• The heavier tech sector in the US yesterday took a toll on Asia Pacific equities today. The Nikkei fell almost 2.5%, China’s CSI 300 dropped 3%, while South Korea’s Kospi got tagged for almost 8%. The MSCI Asia Pacific Index fell for the first time in three sessions. Europe’s Stoxx 600 is up about 0.5% and is recouping yesterday loss. US Nasdaq futures are almost 0.5% lower, and the S&P and Dow futures are narrowly mixed.

• Bonds are selling off. The 10-year JGB yield jumped almost eight basis points to a three-month high. European benchmark yields are mostly 4-5 bp higher, while the US 10-year Treasury is a little more than a basis point higher to knock om 4.50%.

• Gold was more animated yesterday. After holding above Tuesday’s low (~$3943), gold was lifted to ~$4115, a five-day high. It was unable to sustain the momentum and gold pulled back to Tuesday’s high (~$4063). It is consolidating today between about $4030 and $4080.Silver reached a five-day high a fraction of a cent above $61. It is consolidating today between about $58.60 and $60.40.

• Yesterday was the first session since January that the August WTI contract traded entirely below the 200-day moving average (~$70.25 today). It has extended its losses and reached $67.30 today. The day before the war began, the August contract posted a high of about $66.30. The following day, it did not trade below $66.95. The gap remains.

Data

• Due to tomorrow’s holiday, the US June employment data will be reported today. US jobs’ growth slowed to an average of 10k a month in 2025, but it has rebounded to around 114k in the first five months of the year. The median forecast in Reuters and Bloomberg surveys is around 110k increase in June. The unemployment rate is expected to be steady at 4.3%, while average hourly earnings may tick up to 3.5% from 3.4% (which lags behind CPI and PCE deflator). The recovery of the labor market removes a powerful argument for the Fed’s doves and helps explain the hawkish hold in June. Ahead of today’s data, the futures market has 34 bp of tightening discounted for this year compared with about 14 bp at the end of May.

• Canada’s manufacturing PMI reached a new cyclical high in April (53.3) before pulling back in May (52.9). It was below the 50 boom/bust level from February 2025 through the end of the year. It has not been below 50 this year. More often than not in recent weeks, Canadian data has surprised on the upside, and the soft patch seen in Q4 25 and Q1 26 may be ending.

• Eurozone unemployment was steady at 6.2% in May after April was revised to 6.2% from 6.3%. This matched the record low under monetary union seen in 2024 at 6.2%. Despite the weak growth (-0.2% in Q1 quarter-over-quarter and maybe 0.1% growth in the quarter that just ended), it is impressive how well the aggregate labor market has fared. Still, we suspect there is little chance of a follow-up hike this month after the hike in June.

• For the last few years, Australia’s goods trade balance has been trending lower. Consider that the 12-month moving average peaked in March 2022 (~A$14.48 bln) and is now near A$2.4 bln. In the first five months of the year, it averaged about A$820 mln compared with A$4.12 bln in the Jan-May 2025 period. Unexpectedly, Australia reported a A$3.02 bln May trade deficit today. Exports dropped 6.9% month over month, while imports rose by nearly 3%. It is the second monthly trade shortfall this year and the largest since 2025. Australia spent a record A$8.6 bln to buy fuels and lubricants in May and the AI build out requires imports of equipment. Gold exports fell by more than A$2 bln, while the value of natural gas exports declined.

Disclaimer

US Dollar Firm Ahead of ECB Conference and Fed Chair Warsh

noreply@blogger.com (Marc Chandler) — Wed, 1 Jul 2026 06:48:52 -0400

The US dollar is bid and pushing against some resistance levels ahead of flurry of central bank talk at the ECB conference in Sintra, which includes the new Federal Reserve Chair Warsh. The talks are set to begin around 9:00 AM ET. Given his reluctance to provide forward guidance at his first press conference last month, it seems unreasonable to expect more today. Still, due to Friday’s holiday, June US nonfarm payrolls will be reported tomorrow and the median forecast of 110-115k would be consistent with a recovery from last year’s average of about 10k.

Meanwhile, August WTI and September Brent have made marginal new lows since March today, but benchmark 10-year yields are firmer. Although the offshore yuan is consolidating with a softer bias, the PBOC set the dollar’s reference rate at a new four-year low today. The greenback has extended its gains to new 40-year highs against the yen, while Japanese officials tout their preparedness to act and the close communications with the US. Still, intervention ahead of the US employment report seems minimal.

Prices

G10

• The euro has mostly traded inside last Friday’s trading range (~$1.1355-$1.1435) so far this week. Yesterday, it recorded the session high as Europe was closing and may have been tied to the quarter-end. Since moving back above $1.1380 before last weekend, the euro has held above it so far this week. Options for about 840 mln euros at $1.1375 expire today.

• The dollar was pressed slightly above JPY162.65 yesterday and stayed firm throughout the North American session. It edged up to almost JPY162.85 today. It has barely traded below yesterday’s settlement (~JPY162.55). Intervention ahead of the US employment data seems highly unlikely.

• For the fourth consecutive session yesterday, sterling recorded higher lows and higher highs. It pushed a couple of hundredths of a cent above $1.3275, and eight-day high. It is holding below yesterday’s high today and is meeting resistance near yesterday’s settlement. Yesterday’s low was slightly below $1.3215 and additional support is seen around $1.3190.

• The Canadian dollar is chopping near its lowest level since last April. The US dollar stalled like it did last week, slightly shy of CAD1.4250. Options for almost $500 mln at CAD1.4260 expire today. The key question is whether this is a double top or part of a choppy consolidation that proceeds another leg up. We are inclined toward the latter. The next interesting chart area is around CAD1.4300.

• The Australian dollar posted a potential key reversal yesterday by making a new low for the move and then recovering and settling above Monday’s high. It approached but held above the 200-day moving average (~$0.6865 today) and has not traded below it since last November. The next technical target is in $0.6950-75 area. However, there has been no follow-through buying today, and the Aussie has been pushed back to slightly below $0.6885 today. Given the position of the intraday momentum indicators, the low may not be in place for the day. That said, re-establishing a foothold above $0.6900 would help stabilize the tone.

• The Mexican peso continued to consolidate yesterday. The dollar scratched below last Friday’s low (~MXN17.43) but settled firmly but below MXN17.50. The greenback has risen to almost MXN17.5475 today. Nearby resistance is seen around MXN17.56-MXN17.5850. The Colombian central bank surprised the market yesterday with a 75 bp hike (to 12%). It cited the tight labor market and above target inflation (5.8% in May). It is the first increase since March, and follows a court ruling that blocked the government from interfering with the rate decision. The Colombian peso rallied 1% yesterday and rose 10.5% in H1 26 to lead the emerging market currencies higher.

• The offshore yuan posted its highest settlement in six sessions yesterday. The dollar found support ahead the 20-day moving average (~CNH6.7830). It has not closed below it in two weeks. The greenback is trading firmly and is probing the CNH6.80 area today even though the PBOC set the dollar’s reference rate at a new three-year low of CNY6.8067 (CNY6.8109 yesterday and CNY6.8195, a week ago).

• The Indian rupee fell for the third consecutive session today, and its 0.6% loss, despite the central bank’s intervention, was the largest since June 8. The dollar rose to INR95.2925, its highest level since June 12.

Other Markets

• Most of the large equities markets finished the Q2 on an up note. Last week’s five-day decline in the S&P and Nasdaq has kindled new buying interest. The S&P 500 slipped about 1% last month, while the MSCI Asia Pacific Index fell a little more. Europe’s Stoxx 600 rose by about 2.5%. Today’s the large bourses in the Asia Pacific region were mixed, while Europe’s Stoxx 600 is slightly heavier after gaining almost 0.9% yesterday. US index futures are around 0.25%-0.50% lower.

• The US 10-year yield rose nine basis points yesterday in the back-to-back increase in three weeks and the largest single day rise since mid-May. It bottomed near 4.35% yesterday and is near 4.47% now. Despite the heavier oil prices, benchmark 10-year yields are firmer today. They rose 2-6 bp In Japan and then Antipodeans and are 2-4 bp higher in Europe.

• Gold recovered from its lowest level since last November (~$3943) yesterday. It settled near $4008. It is consolidating today. It has held below $4020 and above $3960. A move above $4100 would help stabilize the technical tone. Silver’s price action was stronger. It recorded an outside up day by trading on both sides of Monday’s range and settling above its high. Yet, it failed to close above $60 despite the intraday penetration and retreated to slightly below $57.20 today.

• August WTI traded on both sides of Monday’s range yesterday, and although it settled inside Monday’s range, the technical tone looks poor. The consolidation within last Friday’s range (~$68.55-$71.85) looks to be some kind of continuation pattern. Indeed, it has slipped to a marginal new low since March today, almost $68.20. Recall that before the war, the contract settled at $65.70.

Data

• Challenger’s estimate of US June job cuts was announced earlier today. They are down 4.5% year-over-year compared with increase 3.4% in May. The ADP private sector jobs estimate may be the most impactful of today’s US data points. Through May, it shows the private averaged 73k jobs a month, while pending revisions, the BLS estimate is 106k. The median in Bloomberg’s survey is for 120k increase in today’s ADP report. The final manufacturing PMI will be overshadowed by the ISM manufacturing. The PMI has increased in five of the first six months of the year and at 55.7 (preliminary) in June, it is at a four-year high. The ISM manufacturing index rose in three of the past six months to 54.0, which is also the highest in four years. Lastly, May construction spending will be reported. It tumbled by about 1.7% in the first two months of the year and rebounded by a cumulative 0.6% in the past two months. May spending is seen rising by 0.2%.

• Mexico has a full slate of reports today. Worker remittances, the number one source of hard currency, are expected to have rebounded to around $5.56 bln in May from $4.98 bln in April. In the first four months of the year, worker remittances totaled $19.5 bln compared with $19.02 bln in Jan-Apr 2025. While some real sector data have shown that the Mexican economy likely stabilized recently after it contracted by 0.6% quarter-over-quarter in Q1. Still, the June manufacturing PMI and IMEF surveys are expected to have remained below the 50 boom/bust levels.

• The final eurozone manufacturing PMI drew little attention. It ticked up to 51.4 from the flash reading at 51.3. After rising in the first four months of the year, the eurozone manufacturing PMI pulled back in May and June. New orders rose and, while they remain elevated, the rise of input costs slowed. More importantly, the preliminary June CPI was softer than expected at 2.8% down from 3.2% and below the 3.0% median forecast in Bloomberg’s survey. The core rate slipped to 2.4% from 2.6%. The inflation report lent more credence to ideas that after the hiking rates in June, the ECB is seen on hold at the July 23 meeting. That said, the market is confident of a follow-up rate hike in Q4 (22.5 bp discounted).

• The UK’s final June manufacturing PMI stands at 52.5 rather than the 53.1 initial estimate and 53.9 in May. It was the first decline in three months. It finished Q4 25 at 50.6 and was at 51.0 at the end of Q1 26.

• Australia’s manufacturing PMI ended last year at 51.6. It rose to 52.3 in January, but three rate hikes later and it is at 51.5 in June, which is a little better than the preliminary estimate of 51.2. Separately, building approvals were 1.1% in May after a revised 0.2% decline in April (initially -3.4%).

• Japan’s housing starts rose for the first time this year in May but did not even recoup the losses in April. The year-over-year surge (33.9%) reflects the soft patch hit in Q2 25. The final June manufacturing PMI confirmed the improvement to 54.8 (54.9 in the preliminary estimate) from 54.5. More important was the Q2 Tankan Survey. Sentiment edged higher and among the large manufacturers, the results appeared to be the best since 2018. Most impressive was the jump in capex intentions for this fiscal year (11.5% vs. 3.3% in Q1).

• China’s RatingDog’s June manufacturing PMI edged lower to 51.7 from 51.8. It tends to run a little faster than the “official” one, which rose to 50.1 in June from 50.0 in May.

Disclaimer

Yen Drops to 40-Year Lows and Drags Others Down

noreply@blogger.com (Marc Chandler) — Tue, 30 Jun 2026 06:46:13 -0400

The yen has been pushed to its lowest level in 40 years, and this appears to have helped drag most of the other major currencies lower against the dollar today amid month-end and quarter-end considerations. Japanese officials did not appear to have stepped up their verbal defense of the yen and the market pressed ahead. The dollar has traded as high as JPY162.40, while $1.9 bln options at JPY162.50 expire today. The euro has been sold through $1.14, where options for 3.9 bln euros expire today.

Expectations for a firm US jobs report on Thursday (110k-115k increase in nonfarm payrolls) and bargain hunters emerging after a five-day drop in the S&P 500 and Nasdaq may be helping the greenback. The Supreme Court ruling that Federal Reserve Governor Cook can retain her post while she challenges her dismissal by the president seemed to minimize a tail risk. Chair Warsh speaks alongside other central bankers tomorrow at the ECB gathering in Sintra.

Prices

G10

• The euro has come back softer today after yesterday’s consolidation. Before the weekend it neared $1.1435, the (38.2%) retracement of the decline from the mid-June cap near $1.1620. It held yesterday, and after holding today, the euro returned toward yesterday’s low ($1.1380). While there may be support around $1.1365, last Friday’s low (~$1.1355) may be more important. There are options for nearly 3.9 bln euros at $1.1400 and another stack for almost 1.5 bln euros at $1.1420 expire today.

• The dollar crept closer to JPY162 yesterday but made the pushed through JPY162 in the local session today and has reached a 40-year high near JPY162.40. Since the high was recorded, the greenback has held above JPY162.10. Japanese officials reiterated their preparedness to take action, if necessary, but given that no action was taken, one can only conclude officials did not think it was necessary. Options for $1.9 bln at JPY162.50 expire today.

• Sterling recorded a marginally new five-session high yesterday near $1.3260. It is still in the lower end of this year’s range. A move above $1.3265 targets the $1.3300-20 area. However, it retreated to almost $1.3220, as it consolidates within yesterday’s range. Support now is seen in the $1.3200-15 area.

• Rising oil prices and equities did little to blunt the widening of the US-Canada two-year interest rate differential (137 bp vs 123 bp at the end of May and around 92 bp at the end of April) to drag the Canadian dollar lower. The Canadian dollar rose in the last two sessions last week to snap ten-day slide. The greenback settled firmly yesterday and approached last week’s high, slightly shy of CAD1.4250, its highest level since April 2025. The next technical target is around CAD1.4290. The US dollar held CAD1.42 today, where options for $400 mln expire today.

• The Australian dollar also consolidated with a slightly softer bias yesterday. It slipped to a new low today near $0.6865. Last week’s low was near $0.6875, which held above narrowly yesterday and corresponds to the generous measuring of the head and shoulders top pattern we have been monitoring. It has held below $0.6900 today, where options for almost A$500 mln expire today. The 200-day moving average, which the Aussie has not traded below since last November, is slightly below $0.6865. A retracement objective and the March low are a little lower (~$0.6850).

• Although the Mexican peso has rebounded off the ~2.5-month low set in the middle of last week, the price action has not boosted our confidence that a peso’s low is in place. The US dollar reached MXN17.6765 last week, its best level since Apri 8. It pulled back to MXN17.4315 before the weekend and traded above it yesterday. The greenback is consolidating within yesterday’s range today. The five- and 20-day moving averages are still trending up, and pullback in spot held a technical retracement target.

• The dollar has eased below the range set last Wednesday against the offshore yuan (~CNH6.79-CNH6.82) that it has been consolidating within and reached CNH6.7865 today. As we have acknowledged, even though Beijing manages the exchange rate, it does not appear capricious. The rolling 30-day correlation of the changes in the dollar against the offshore yuan is around 0.66, which is roughly the same as the DXY’s correlation against the Canadian dollar and more than the yen (~0.50). That said, there may been a change in the PBOC’s dollar fixes, which we continue to understand as an important signal of policy. It had been sanctioning a strong yuan/weaker dollar, but this has changed in recent days. In six of the past seven sessions, coming into today, it has been fixing the yuan lower and dollar higher. Today, the dollar’s fix was lower (CNY6.8109 vs CNY6.8175 yesterday). Motivations will be projected, if this leg up in the yuan’s appreciation against the dollar is truly over rather than a pause. The simplest explanation (Occam’s Razor) would be based on domestic economic considerations. Typically, central banks want their currency to go in the same direction as interest rates. It appears as the PBOC adopted policy rate (overnight reverse repo) it may have signaled a small cut in rates. The recent economic data have disappointed.

• The rise in oil prices did the Indian rupee no favor after recorded its best level since early May at the end of last week. The greenback gapped lower and reached nearly INR94.14 ahead of the weekend. The top of the gap is INR94.5975 (last Thursday’s low). The gap was filled today and the US dollar reached INR94.7575. Still, this is the first quarterly gain, albeit barely (~0.2%) for the rupee since Q1 25.

Other Markets

• Month- and quarter-end portfolio adjustments appeared to see bottom pickers emerge some battered equity names in the tech and AI space. Both the S&P 500 and Nasdaq snapped five-day slides yesterday. Most of the large bourses in the Asia Pacific rose today, though there were notable exceptions, including Hong Kong, Australia, Singapore, and India. Europe’s Stoxx 60 is up almost 1%, which if sustained would be the largest in two-and-a-half weeks. US index futures enjoy a slightly firmer bias.

• Benchmark 10-year yields were little changed net-net yesterday in Europe and the US. In Europe, it was striking that Greek, Italian, and British 10-year yields were the only ones to experience slightly softer yields. Italian and Greek yields (3.58% and 3.52%, respectively) fell to new three-month lows, while the UK’s 10-year yield recorded its three-month low last week (~4.67%). Yields have edged a little lower today, except in Japan, where the benchmark yield rose nearly four basis points. European rates are mostly 1-2 bp lower, while the 10-year Treasury yield is fractionally low at 4.37%.

• Gold closed firmly before the weekend, a little below $4090 and never traded higher on the day on Monday. It returned to almost $4000 yesterday, which had seemed to have brought in some demand when it was violated last week. Yet, it sunk to nearly $3943 today, a new low for the year, before rebounding. It is above $4025 in late European morning turnover. Silver’s tale of woe is similar. It posted an outside up day before the weekend but saw no follow-through yesterday, which reinforces the technical importance of the $60 cap.

• Despite the deadly geopolitical dance between the US and Iran, August WTI was well behaved yesterday. It traded inside the pre-weekend range. The contract gapped lower on June 15 and fell through $80 and has not looked back. The momentum stalled after falling below $70. It has also been chopping back and forth of around the 200-day moving average (~$70.15). The contract is firm today but remains within last Friday’s range (~$68.55-$71.85).

Data

• Before turning to the US jobs data, which are really the focus this week, the US sees houses prices and the Conference Board’s consumer confidence. The signal from the FHFA house price index is that the dramatic appreciation seen in recent years has slowed considerably. In Q1 26, the house prices rose at an annualized rate of about 0.8%. In Q1 25, the annual pace was 2.6%. In the previous two years, house prices rose at an annualized rate of around 5.2% in the first three months of the year. The Conference Board’s measure of consumer confidence is expected to have ticked up slightly. Before last weekend that is what the University of Michigan’s survey found. And finally, the May JOLTS report is expected to show a decline in job openings. Tomorrow’s ADP private sector jobs report is projected to be little changed from the May reading of 122k.

• Canada reports April GDP. It is likely to have recovered from the 0.1% contraction in March. The Bank of Canada has played down the rule-of-thumb that two consecutive contracting quarters mark a recession. The Canadian economy contracted at an annualized rate of 1.0% in Q4 25 and 0.1% in Q1 26. Growth is seen rebounding to almost 2% in the quarter that ends today.

• Ahead of tomorrow’s preliminary eurozone CPI, we have a few national reports. Spain reported yesterday that its EU harmonized measure rose 0.6% in June but given the base effect, the year-over-year rate was steady at 3.6%. France’s EU harmonized measure of CPI fell 0.3% in June, which brought down the year-over-year rate to 2.0% from 2.8%. Italy’s rose 0.1%, which was sufficient to bring the year-over-year rate to 3.1% from 3.2%. German states have reported and the EU harmonized measure may have eased to 2.6% from 2.7%. Separately, Germany reported a 1.1% jump in May retail sales. The median forecast in Bloomberg’s survey was for a flat reading after the 0.4% decline in April.

• The UK confirmed 0.6% quarter-over-quarter growth in Q1 26. The British economy appears to have slowed here in Q2.

• The minutes from the Reserve Bank of Australia’s meeting earlier this month were released earlier today. There were no significant surprises. After three rate hikes this year, it is expected to let the hikes work their way through the economy. However, another hike before the end of the year cannot be ruled out. The central bank warned that inflation expectations remain too high. The 0.7% rise in May’s private sector credit extension shows little impact from the tighter stance. The year-over-year pace has been largely around 8% for the past three months. It reached 8.2% in May.

• Japan reported steady unemployment in May (2.5%) and a tick down job-to-applicant ratio (1.17 vs.1.18). Separately, the preliminary estimate of May’s industrial output matched the April’s 0.5%. Still, after accelerating to 1.8% annualized growth in Q1 26 (from 0.7% in Q4 25), Japan’s growth looks to have slowed in recent months.

• China’s June PMI slightly better. The manufacturing PMI edged up to 50.3 (from 50.0), while the non-manufacturing PMI ticked up to 50.2 (from 50.1). The composite PMI stands at 50.6 (from 50.5).

Disclaimer

On-Again Off-Again Middle Ease Cease Fire is On Again: Oil and Rates are Firm while Greenback Consolidates

noreply@blogger.com (Marc Chandler) — Mon, 29 Jun 2026 06:52:08 -0400

The US dollar is mostly trading within the ranges seen before the weekend. Shortly before the weekend, though after the markets closed, the US acknowledged new strikes on Iran and there were more hostilities over the weekend. Yet, before the markets opened today, the US and Iran agreed to a new “ceasefire”. Traffic in the Strait of Hormuz reportedly slowed and oil prices are firmer.

Amid the month- and quarter-end considerations, the ECB annual conference in Sintra will draw attention with Lagarde, Bailey, Macklem, and Warsh speaking Wednesday. Due to the US holiday on Friday, the June jobs data will be reported Thursday. The median in Bloomberg’s survey stands at 113k now. Last year, the US created about 10k jobs on average. Through May this year, the average is almost 115k. China as introduced a new policy rate, the overnight reverse repo, and it appears to have signaled a possible rate cut in today’s first operation. Separately, China has escalated its feud with Japan and added 20 Japanese companies to its export control list.

Prices

G10

• The euro reached almost $1.1435 at the end of last week before pulling back to the middle of the session’s range, near $1.1385, in the waning hours of the session. The high was a few hundredths of a cent shy of the (38.2%) retracement of the euro’s retreat since the mid-month high (~$1.1620). It is trading in a $1.1380-$1.1415 range today. It is straddling the $1.140 area late in the European morning, where options for 1.3 bln euros at $1.1400 expire today.

• In the last three sessions, the dollar has been confined to a clear range against the Japanese yen: JPY161.50-JPY161.95. It remains in that range today. At the lower end of that range there are options for $2.3 bln that expire today. Last week the dollar rose by a little more than 0.25%. It was the sixth weekly advance in the past seven weeks.

• Sterling briefly traded above $1.3230 ahead of the weekend; its best level in three sessions. The (38.2%) retracement objective of the losses since the mid-May high is almost $1.3265. Sterling has been confined to a narrow range of about $1.3190 and almost $1.3230 so far today. The new Labour MP and aspiring prime minister, Burnham is expected to give an important economic speech this week and may name who would be his chancellor. It is not clear whether he will face much opposition in the leadership contest.

• The Canadian dollar’s bounce after falling for ten consecutive sessions through the middle of last week seemed lackluster. The greenback retreated from almost CAD1.4250 to about CAD1.4170. The previous week’s high was about CAD1.4185. It has traded between CAD!.4175 and nearly CAD1.4210 today. A convincing break of CAD1.4135 would boost confidence that a top is in place.

• The Australian dollar’s recovery from the its lowest level since early April (~$0.6875) was uninspiring ahead of the weekend. It recorded a new session high in North America, slightly above $0.6915. It is trading sideways today between about $0.6880 and $0.6110. It looks stuck now between the 200-day moving average (~$0.6860) and the five-day moving (~$0.6925), which it has not settled above since June 16.

• The dollar fell against the Mexican peso in North America ahead of the weekend. It reached almost MXN17.43, a three-day low and near the halfway mark of the rally gains from the mid-June low (~MXN17.1575). It recovered to around MXN17.5080 before stalling. It is trading between around MXN17.44030 and slightly more than MXN17.56 so far today. The next area of support may be found in the MXN17.3550-MXN17.3750, which houses the 20-day moving average and the next retracement objective.

• The offshore yuan consolidated in the past two sessions after falling to its lowest level in a month in the middle of last week. The range set last Wednesday remains operative: ~CNH6.790-CNH6.82. The PBOC set the dollar’s reference rate at higher week-over-week for the second consecutive week last week. It was the first time since the end of last September. The fix was set at CNY6.8175 (CNY6.8166 before the weekend. It was the fifth higher fix in the six sessions. The PBOC set the interest rate on its new overnight liquidity tool (overnight reverse repo) at 1.25%, a little below expectations, and it looks like a subtle rate cut. The central bank did not disclose the rate of the operation, but reports say that it was the rate on the CNY300 bln (~$44 bln) operation.

• The decline in oil prices and the technology shares appears to have helped buoy the Indian rupee, which did not trade before the weekend owing to a national holiday in India. The rupee traded at its best level since early May last Thursday. The dollar found support near INR94.14. It has not traded below INR94.00 in a little more than two months. The dollar gapped lower last Thursday and entered that gap today, without closing it. The gap extends toINR94.5975 and today’s high was a little below INR94.5590.

Other Markets

• Global equities are mixed today. The recovery of the S&P 500 and the Nasdaq after new lows for the move were recorded ahead of the weekend. Shortly after equities closed, the US announced it has struck Iran. Today’s shortly after the Asia Pacific session began today, the US announced it reached a new agreement with Iran to stop the tit-for-tat strike. And even though Beijing added 20 Japanese companies to its export control list, Japanese equities posted modest gains. China and Hong Kong indices rose more than 1%. While’s South Korea’s Kospi slipped fractionally (~0.2%), its over-the-counter index (KOSDAQ) jumped slightly more than 8%. Europe’s Stoxx 600 is nursing a minor low, after shedding nearly 0.7% before the weekend. Nasdaq futures are trading a little more than 1% better and the S&P 500 is up about 0.75%.

• Benchmark 10-year yields fell to new three-month lows ahead of the weekend in several countries in Europe, including Germany, Italy, Netherlands, Switzerland, and Greece. The 10-year US Treasury yield fell for the fourth consecutive session, and near 4.37% it settled at its lowest level since May 8. However, with oil prices better bid, yields are higher today (~3 bln in Japan and Australia) around 1-2 bp higher in Europe. The 10-year US Treasury yield is up a little more than one basis point today to 4.38%.

• Gold straddled the $4000-level for the past three sessions. It rose to $4096 ahead of the weekend. It pushed above the five-day moving average (~$4081) but failed to close above it. The $4021 area corresponds to the (38.2%) retracement of the leg down from the June 17 high (~$4382). It is trading softer with the pre-weekend range. It found bids near $4025. Underappreciated, changes in gold are the most correlated with changes in the Nasdaq (30-days 0.70+) in over two decades. Some observers have suggested gold may have been sold to meet margin calls given the rout in tech stocks. Silver posted an outside up day on Friday, but there has been no follow-through buying. It has retreated to around $57.40 after having been turned back from its approach of $60.

• Despite the fraying of the cease fire in the Middle East last Thursday, the market was undaunted and took the August WTI contract to about $68.55, its lowest level since March 4. It settled near session lows and below the 200-day moving average (~$70.20). It is consolidating today between about $69.30 and $71.

Data

• The US data focus shifts to the labor market this week, and even in the best of times, today’s Kansas Fed’s service survey and the Dallas Fed’s manufacturing survey typically are not market movers.

• While the eurozone’s M3 and lending figures used to capture the market’s attention, it is considerably less so now. For the record, M3 growth accelerated to 3.2% from 2.7% year in the year through May. Lending for house purchases increased though consumer credit slowed. Lending to non-financial firms rose 4% year-over-year from 3.4%. The EU sentiment surveys tend not to elicit a market response and today’s release of the June survey, which showed small improvement (except for consumer confidence), appeared to have minor impact.

• The market had little reaction to the UK’s consumer credit and mortgage activity reports. Consumer credit growth was steady, while mortgage lending slowed a touch.

• Japan reported retail sales rose 1.9% in May after surging 2.1% in April. The median forecast in Bloomberg’s survey was for a 0.5% decline. It was the third consecutive increase. They have averaged a monthly increase of 1.2 this year compared with 0.1% in the first five months of 2025. The rise in prices flattered the report. Retail sales rose 5.3% from a year ago (2.8% in April compared with 0.5% decline in the broad measure of household spending). While many economists talk as if consumption is simply a matter of income, in practice it seems more complicated and a reflection of a myriad of cultural factors. Real cash earnings in Japan are rising at the fastest level in five years. After rising 1.4% in Q1 26, consumer spending appears to have slowed here in Q2. The median projection in Bloomberg’s survey is that it rose 0.5% in Q2.

Disclaimer

July 2026 Monthly

noreply@blogger.com (Marc Chandler) — Sat, 27 Jun 2026 07:15:00 -0400

Markets enter July with a ceasefire that nobody quite trusts. The 60-day de-escalation between Washington and Tehran has done its job on paper, traffic in the Strait of Hormuz has increased markedly. Oil has responded accordingly, with August WTI down more than 30% from its May18 peak of over $100 a barrel. It reached around $69 compared with a little below $66 before the war began. Gasoline prices are easing slower, but the direction is clear.

In addition to the drop in oil prices, the other major force shaping the investment climate as we enter the second half is the sharp decline in equities, especially technology shares. It is not clear this marks the end of what many observers saw as a bubble or whether it is just a dramatic bout of profit-taking in a transformational technological moment.

The sharp decline in oil prices coupled with the sharp sell-off in technology shares as the first half wound down, took some pressure off interest rates. Inflation expectations appear to have stabilized.

However, there is a threat that may be less obvious than a Middle East war. It is the potential for a powerful El Niño. The weather pattern is shaping up to disrupt agricultural output, and historically that has meant higher grain, beans, livestock, poultry, and palm oil prices. Markets spent the first half of the year fixated on energy-driven inflation. July may be when food starts pulling its own weight in the inflation conversation, at precisely the moment central banks were hoping headline numbers would cooperate. A second supply shock, this one agricultural rather than geopolitical, would complicate the disinflation narrative that lower oil prices were supposed to deliver.

Critical Metals and Minerals

Rare earths are a quiet crisis. Rare earths are found in everything from electric vehicle motors to precision-guided munitions.

China's reported curbs on shipments to Japan have been disruptive enough that Washington has intervened directly, asking Beijing to ease the restrictions. Reports, for example, indicate that China has not exported any form of tungsten to Japan since the start of the year. It is used precision machinery in the auto sector, which accounts for around 10% of Japan’s GDP. China also has not sent several heavy rare earths, like yttrium, dysprosium, and terbium to Japan, which are used in LED and semiconductor equipment. Japanese companies have responded by finding some ways to reduce rare earth magnets in autos, relying on scrap as feedstocks, and recycling.

A single supplier controlling the bulk of global processing capacity is not a sustainable arrangement for anyone outside that supplier. The G7 has begun talking seriously about diversification, with new initiatives aimed at building processing capacity outside China. Starting with lithium and nickel, the G7 agreed to reduce to 60% the dependence on any one country by 2030 and 50% as soon as possible.

Talk is cheap. China first weaponized rare earths against Japan in 2010 over a dispute about Senkaku/Diaoyu Islands. Refineries and separation facilities take years, not quarters, and the rare earth’s story is a reminder that the most consequential supply chain risks are often the least visible until they are not.

Tariffs

Trade policy delivers two hard dates this month: A batch of reciprocal tariffs reverts to higher levels on July 9 unless extended, a deadline that has loomed over trade desks since the original truce was struck earlier in the year. This is the date with the least ambiguity attached to it. Either an extension is announced beforehand, or the higher rates simply take effect, and the affected sectors will know within days which outcome they got.

July 24 brings the expiration of the Section 122 tariffs; the 10% levies imposed under the president's balance-of-payments authority. Section 122 is a blunter, more legally contested instrument than the reciprocal tariff framework, and its expiration raises a genuine question of renewal versus lapse rather than a simple step up or down.

Two different legal mechanisms, two different expiration logics, all converging in the coming weeks. Markets that have grown comfortable treating tariff deadlines as negotiable will be tested on whether that complacency was earned. Moreover, in late June, President Trump threatening to impose 100% tariffs on European countries that impose a digital services tax.

Wait and See Monetary Policy Stance in July

Monetary policy, for once, may be the quiet corner of the markets in July. The ECB and the Bank of Japan both delivered hikes in June, and with oil prices now lower than when those decisions were made, the urgency behind further near-term tightening has eased. Of the six G10 central banks scheduled to meet in July, the path of least resistance is standing pat and waiting to see how the ceasefire, the tariff deadlines, and the rare earths standoff resolve before committing to another move.

The exception, and more interesting story, is the Federal Reserve. Kevin Warsh's first meeting as chair produced a hawkish hold, a statement notably terse and stripped of the forward guidance markets had grown used to. More tellingly, the new chair declined to submit his own projections to the Summary of Economic Projections, a small procedural choice that nonetheless signals something larger.

The post-Powell Fed is going to communicate differently, and July's FOMC meeting will offer the first real test of whether that opacity is a deliberate strategy or simply a new chair still finding his footing. Markets that built their playbooks around the old Fed's communication style are operating with an outdated map. Still, the idea that there is no forward guidance may underestimate market participants. The nine of 18 Fed officials expected at least one hike would be appropriate this year and 2/3 of those see more than one hike being necessary.

Bannockburn World Currency Index

Bannockburn's World Currency Index is composed of the currencies of the dozen largest economies--half of which are from high-income countries and half from emerging markets. It fell by a little more than 1% through late June after it edged up aby around 0.15% in May. It is practically flat in H1 26.

The BWCI’s decline in June reflected the broad decline of nearly all the currencies in the index. The greenback itself was unchanged, of course. It accounts for about a third of the index and dampens the volatility of the BWCI. The only currency in the index that did not fall was the Indian rupee, which rose by about 0.65% against the greenback. However, the rupee’s weight is about 4.5% so the impact was de minimis.

Among the G10 components, the Australian dollar fell the most, nearly 4%. The Canadian dollar experienced a 10-day slide in the June and lost about 2.7%. The euro depreciated by slightly more than 2%. The yen, where intervention was threatened, fell the least, dropping about 1.5%. Sterling eased about 1.8%.

Turning to the emerging market components of BWCI, the Russian ruble tumbled 8.75%. It has a weight of about 2.5%, making the impact little more than a rounding error. The Brazilian real lost around 2.7% and the South Korean won fell slightly more than 2.1%. The Mexican peso slipped by around 0.85%, making it among the best performers in our index. The Chinese yuan, which has about a 21.5% weight fell by 0.5%.

In early May, BWCI took out the 2025 high but stalled near the late 2024 high. In June, it pulled back into two steps. The first was about 0.6% (to about 91.70). It recovered and in the middle of the month rose to around 92.10. The second step took it to almost 91.10, its lowest level since early April. The low for the year was recorded in late March near 90.75.

U.S. Dollar: The dollar broadly extended May's gains in the first half of June, but it was simply approaching the upper end of its range, around 100 on the Dollar Index. The hawkish hold by the Federal Reserve coupled with the continued apparent resilience of the US economy put the greenback sparked a surge. In the next week, it went on to make new highs for the year against more than half of the G10 currencies. Yet, with the derivative markets pricing in one hike fully and around a 50% chance of another, we suspect the interest rate adjustment is nearly complete, pending new information. Only half of the 18 Fed officials that participated in the Summary of Economic Projections exercise anticipated at least one hike would be appropriate this year, and roughly half of them thought two or more hikes would be necessary. The US economy is proving more resilient than expected. The Bloomberg US hard data surprise model reached its highest level in four years in early June. Notably, the labor market has improved. In 2025, the US created an average of 10k jobs a month. In the first five months of this year, the average was nearly 115k. A critical unknown is whether the pullback in energy prices will be disinflationary or will it boost discretionary spending, which in turn could underpin prices.

Euro: The European Central Bank lifted key rates by 25 bp in June but the Federal Reserve's hawkish offset it in full, and the euro extended its losses to a new low for year near $1.1325. While a break of $1.13 could target $1.11, we are more inclined to look for corrective gains in the coming weeks on the assumption that the US interest rate adjustment to the new Fed and data surprises have run their course and the US two-year premium over Germany may have peaked after reaching its best level since last September. The upside correction we envision may have potential toward $1.1500. The ECB meets on July 23. After hiking in in June, and given the retreat in oil prices, officials are likely to stay on the sidelines in July. Still, the swaps market has another hike fully discounted by the end of the year. The EU has begun taking a hardline toward the trade imbalance with China and this risks retaliatory measures. Lastly, late in June, ahead of the July 4 deadline, the EU completed the approval of trade agreement with the US. It agreed to end tariffs on US industrial goods and some agriculture products in exchange for a 15% tariff cap on exports to the America. Still, the relationship between the two allies remains strained.

(As of June 26, indicative closing prices, previous in parentheses)

Spot: $1.1384 ($1.1661) Median Bloomberg One-month forecast: $1.1493 ($1.1694) One-month forward: $1.1398 ($1.1674) One-month implied vol: 5.6% (5.0%)

Japanese Yen: Since the end of May, the dollar has traded between about JPY159.25 and JPY161.95. It matched its best level since the end of 1986. The BOJ intervened in April and May, but unlike in January, when the US Treasury offered verbal support, it was quiet about the yen in June. The BOJ's 25 bp rate hike failed to lend the yen much support and neither did the decline in US interest rates. The market knows it is tempting another bout of intervention, and the BOJ rate hike delivered, the US may be more supportive. It appears dollar puts have been bought in the options market as some large polls of capital buy insurance that could turn a profit if intervention materializes. Outside of yen weakness, the conventional view that the BOJ is behind the in the monetary cycle seems exaggerated. First, core inflation has not been above the 2% target this year. The US core PCE deflator is more than double Japan's 1.4% core rate, for example. Second, Japanese growth is fragile. After contracting in Q3 25 at 2.3% annualized pace, it took the next two quarters to recover the lost output. The median forecast in Bloomberg's survey is for near stagnation in Q2 amid weaker consumption, government spending, and net exports. The market has the next hike nearly fully discounted at the end of the year. Lastly, we are monitoring the impact of Chinese export controls on critical earths and magnets on Japanese industry. Some efforts have been made for work arounds, alternatives, and some elimination of some magnets but the bite may still become more pronounced in the coming months as domestic inventories are depleted.

Spot: JPY161.74 (JPY159.27) Median Bloomberg One-month forecast: JPY160.11 (JPY158.00) One-month forward: JPY161.35 (JPY158.88). One-month implied vol: 6.8% (6.1%)

British Pound: Sterling was not match for the surging greenback in June, but it was one of two G10 currencies that did not fall 2% or more in the month through June 26. It was sold to a marginal new low for the year ($1.3140) on June 24. If that area does not hold, the risk may extend to $1.2980-$1.3000. May retail sales (reported in volume terms) were stronger than expected and the April series was revised higher. Headline and core CPI were subdued. The swaps market no longer has a hike fully discounted by the end of the year. As recently as mid-May, 60 bp of tightening this year priced in and now about 20 bp are. A rising interest rate environment exhausts the government's headroom on fiscal policy. Government borrowing in May was the highest in the month since the pandemic. The risk is a jump in UK CPI in July as the energy cap will be increased by 13%. Meanwhile, Prime Minister Starmer resigned as the sixth UK leader since Covid. There will be a Labour leadership contest, but with the former health secretary Streeting endorsing former Manchester mayor, Burnham, it could turn into a coronation of sorts in the middle of July.

Spot: $1.3200 ($1.3456) Median Bloomberg One-month forecast: $1.3235 ($1.3400) One-month forward: $1.3205 ($1.3455) One-month implied vol: 6.3% (6.1%)

Canadian Dollar: The slide in the Canadian dollar that began from May 1 low extended through June, pushed it to its lowest level since April 2025. The next important technical area for the US dollar is near CAD1.43. The key driver appears to be the divergence of monetary policy expectations. The US two-year premium over Canada has risen from 90 bp in early May to over 140 bp in late June. It approached last year's high, near 155 bp, which was the highest since May 1997. The Canadian economy contracted in Q4 25 (-1.0% annualized) and in Q1 26 (-0.1%). The Bank of Canada cut its overnight lending target rate by 100 bp last year and 175 bp in 2024. The policy rate stands at 2.25% and headline inflation in May was at 3.2% (up from 2.8%) and the underlying core rates average about 2.05%. The central bank meets on July 15, but the market sees little chance of a change in policy until Q4 at the earliest. The USMCA is unlikely to be reapproved (by July 1) but this does not terminate the agreement. Instead, it would automatically enter a period of annual reviews that theoretically can run until 2036. President Trump has threatened to leave it but six-months notice is required, and Congress would demand a voice.

Spot: CAD1.4196 (CAD 1.3793) Median Bloomberg One-month forecast: CAD1.4159 (CAD1.3700) One-month forward: CAD1.4192 (CAD1.3775) One-month implied vol: 4.5% (4.0%)

Australian Dollar: June was the second consecutive month that the Australian dollar weakened. It has not recorded back-to-back monthly losses since the end of 2024. The Aussie slid by around 3.9% through late June, which also is its largest monthly decline since the end of 2024. Yet, in the first half of the year, the Australia dollar is t the strongest G10 currency (3.5%) and one of two that has risen against the US dollar (the other being the Norwegian krone). The central bank's three hikes this year appears to be beginning to have impact. The futures market suspects the mini-tightening cycle might be over but sees risk of one more hike in Q4. The Australian dollar is has approached the upper end of a band of support in the $0.6830-50 area. A break signals another 1-2 cent decline. Over the past 30 and 60 sessions, changes in the Australian dollar are more correlated with changes in the US two-year yield (-0.68) than the Australian two-year yield (about 0.13 and 0.05, respectively) and the two-year interest rate differential (around 0.55).

Spot: $0.6896 ($0.7185) Median Bloomberg One-month forecast: $0.6964 ($0.7150) One-month forward: $0.6893 ($0.7181) One-month implied vol: 7.7% (7.6%)

Mexican Peso: Like most emerging market currencies, the Mexican peso fell out of favor in June. It was only the fourth month since the end of 2024 that the peso declined against the US dollar. The dollar had been consolidating quietly in the lower end of its two-month range near MXN17.20 before the Warsh Fed delivered its hawkish hold. A little more than a week later, the greenback reached MXN17.6765, its highest level since early April. The exchange rate also is sensitive to the risk environment. Over the past 100 sessions, the correlation between the changes in the exchange rate and the S&P 500 is near 0.70, the highest since 2020. Last month, we anticipated the dollar to rise into the MXN17.58-MXN17.65 area. The next important technical area is MXN17.75-MXN17.80. Meanwhile, it appears that the Mexican economy is gaining some traction after contracting 0.6% in Q1 26. Headline CPI is also moderating and appears poised to move back within the 2%-4% target range. The review of the USMCA also poses a risk for Mexico. The June 2026 U.S.-Mexico talks included steel, aluminum, automobiles, rules of origin, and economic security. That suggests Washington is linking tariff relief and USMCA preferences to stricter regional-content and anti-circumvention measures.

Spot: MXN17.5053 (MXN17.3552) Median Bloomberg One-month forecast: MXN17.5310 (MXN17.4000) One-month forward: MXN17.5490 (MXN17.3986) One-month implied vol: 8.5 (8.4%)

Chinese Yuan: Beijing has allowed the yuan to appreciate this year, and its roughly 2.8% year-to-date gain puts it near the top of emerging market currencies. The others that are stronger have considerably higher interest rates. However, the yuan's appreciation is too small to have much impact on trade flows, and this is a source of angst for many of its trading partners, especially after a recent OECD report underscored the extensive subsides Chinese businesses have received. However, calls for a new Plaza-like agreement to revalue the yuan are unlikely to get much traction without Beijing's assent and neither the US nor Europe have offered any quid pro quo. Meanwhile, China has weaponized its critical materials since US "Liberation Day" last April and Japan has been especially singled out after Prime Minister Takaichi said aloud what many recognized: China's control of Taiwan would pose a security threat to Japan. After the US added of China's largest companies to the growing list of companies that aid China's military, Beijing retaliated in kind and blocked sales to two US rare earth companies and added a few dozen companies to a list that are banned from participating in Chinese government procurement. The G7 initiative to reduce reliance on any one country (China) to 60% by 2030 and to 50% "as soon as possible" seems late given that Beijing first weaponized chokehold on rare earths and magnets against Japan more than a decade ago. Lastly, we note that the 100-day rolling correlation between the dollar's movement against the offshore yuan and Dollar Index is near 0.75, the highest since late 2024.

Spot: CNY6.8005 (CNY6.7662) Median Bloomberg One-month forecast: CNY6.7900 (CNY6.8000) One-month forward: CNY6.8121 (CNY6.7808.) One-month implied vol: 2.3% (2.3%)

Disclaimer

Oil Resumes Decline, Tech Shares Extend Slump, Greenback Trades Heavier

noreply@blogger.com (Marc Chandler) — Fri, 26 Jun 2026 06:43:43 -0400

There have been two key developments this week and they are both evident today. The first is the continued pullback in oil prices. August WTI is off almost 9% this week, after dropping as much last week and 5.25% the week before. It is near $69 compared with slightly below $66 before the war began. September Brent is off a little more than 9% this week after a 7% drop the previous week and 5.2% the week before that. It is slightly below $73 compared with a little more than $70 before the war. The second is the meltdown in technology shares. As one would expect, it is most evident in the large bourses in Asia and the Nasdaq in the US.

The US dollar is mostly softer today, though the decline in oil prices has taken a toll on the Norwegian krone. It is off around 0.3% today and has been tagged for nearly 2% this week. The Dollar Index is off about 0.25% ahead of the North American session, and, if it is sustained, it would be the largest decline since early May.

Prices

G10

• The euro held above Wednesday’s low for the year (~$1.1325) and recovered to almost $1.1390 around the end of the European session on Thursday. The move above Wednesday’s high (~$1.1385) looked promising, and although it was not sustained yesterday, the euro extended the gains today to nearly $1.1415. Options for 2.1 bln euros at $1.1400 expire today. The five-day moving average is also near $1.1400, and the euro has not closed above it since June 16. The $1.1440 area corresponds to the (38.2%) retracement of the leg down since the mid-month high near $1.1620.

• The dollar also has climbed the five-day moving average against the Japanese yen. It is near JPY161.65 today, and the greenback has not settled below it since June 12. The dollar has slipped through it today and found initial support near JPY161.50, where options for nearly $1.25 bln expire today. It is not settled below JPY161 since June 17. The prospect of official intervention has deflected some of the dollar buying away from the yen, and ironically, so far this month, it is the best performing G10 currency, down around 1.4%.

• Yesterday, sterling held above the marginal new low for the year set Wednesday near $1.3140. It briefly traded above Wednesday’s high (~$1.3210) but settled below it. Sterling is trading firmer today and has tested the lower end of a band of resistance in the $1.3230-55 area. Sterling is the second best G10 currency performer this month. It joins the yen as the only other to have declined less than 2% this month.

• The Canadian dollar rose for the first time in 11 sessions yesterday. Its roughly 0.25% gain rivaled the Swiss franc for the top of the G10 currency leader board. The greenback peaked on Wednesday near CAD1.4250 and slipped briefly below CAD1.4180 in North America yesterday. It has not managed to extend yesterday’s losses today, but it is trading heavily. The next charts support is seen near CAD1.4150.

• Similar to the other currency pairs, the Australian dollar held above the low set on Wednesday and recovered to trade slightly above Wednesday’s high. It poked slightly above $0.6925. Yet, today, it initially was sold to almost $0.6875 and marginal new low since early April. However, it has recovered to around $0.6905 in European turnover. A band of resistance between about $0.6935 and $0.6955. There are options for about A$530 mln at $0.6900 and A$500 mln at $0.6875 that expire today.

• The Mexican peso rose for the first time this week yesterday. On Wednesday, the dollar reached MXN17.6765, its highest level since April 8. Yesterday’s pullback saw it slip through MXN17.48 in late dealings. It is holding today. The MXN17.48 area corresponds to (38.2%) retracement of the greenback’s rally since the June 15 low (~MXN17.1575). A break would target the MXN17.4170 area next. With around a 0.55% gain yesterday, the peso was the strongest among emerging market currencies.

• The offshore yuan rose for the first time yesterday in three days. The dollar peaked on Wednesday near CNH6.82 and pulled back to around CNH6.7970 yesterday. The dollar is consolidating in a roughly CNH6.7980-CNH6.8095 range today. The dollar is poised for its first back-to-back gain for the greenback here in Q2. The PBOC set the dollar fix lower today for the first time this week (CNY6.8166 vs CNY6.8209 yesterday). Reports suggest that the PBOC raised the interest rate by five basis points on its one-year medium-term lending facility to 1.50%. It is not clear how much of the CNY500 bln (~$73.5 bln) issued this month was lent there.

• Indian markets were closed today for a national holiday. The dollar rose by less than 0.1% against the rupee this week, and its roughly 0.65% gain this month makes it the best performing currency in Asia.

Other Markets

• After opening higher yesterday, the Nasdaq made a new nine-day low near 25123 yesterday. The S&P held below Tuesday and Wednesday’s highs before falling to a nine-day low itself near 7419. Nasdaq futures are off a little more than 1% and the S&P 500 is trading around 0.5% lower. Global equities are heavy today. The technology meltdown continued today in Asia-Pacific with the Nikkei off almost 4.2% and South Korea’s Kospi down 5.8%. All the large markets in the region were off but Australia. Europe’s Stoxx 600 is off about 0.75% in late morning turnover in Europe, which gives back most of yesterday’s gains.

• Benchmark 10-year yields are softer. The 10-year JGB yield is off 2.5 bp to 2.59%, while European benchmarks are fractionally lower. The 10-year US Treasury yield is off a little more than a basis point to dip below 4.38%. Helped by the pullback in oil prices, and arguably the drop in equity market, G7 ten-year yields fell by 6-13 bp this week.

• After dropping around 4.6% Tuesday and Wednesday, gold bounced 1% on Thursday, which is its largest gain since June 15. It looks like some buying interest was kindled after the push below $4000. It reached $4044. It has extended the recovery to around $4054 today. A move above $4060 target $4100-$4120. Silver stabilized as well yesterday. It rose by about 1.8%. A move above $59.50 could target the $61.70 area.

• August WTI initially fell slightly through $68.60 yesterday, to briefly trade below the 200-day moving average (~$70.10 today) for the first time since early February. It reversed higher and reached about $71.60 in North America. Estimates suggest oil exports from the Persian Gulf have reached at least 75% of the pre-war levels. There were two developments to note. First, in what appears to be part of its negotiations for a larger quota, Iraq threatens to leave OPEC (UAE did last month). Second, apparently Iranian forces struck a ship using a “unapproved” route through the Strait of Hormuz. The attack seemed to freeze activity and lift crude prices. Reports suggest ships are still moving through the Strait today and August WTI is sitting near yesterday’s lows.

Data

• The US reports May goods trade and May inventory data, while the University of Michigan’s final June confidence survey is due. The US merchandise deficit has averaged $82.2 bln a month. Given the positioning around Liberation Day last year, the comparison with the Jan-April 2025 period may not be helpful (though the trade deficit averaged $135.2 bln a month then) and price changes make the comparison with 2024 (average monthly shortfall was $90.7 bln in the first four months). What is often left out of the analysis, is some 15-20% of US goods imports come from affiliates or branches of US companies abroad. Estimates suggest around 1/3 of US imports take place within multinational companies. The significance does not lie with the current account balance—which measures goods/services crossing national frontiers, but the sensitivity of trade to currency fluctuations. Separately, with oil and gasoline prices falling between the preliminary and final University of Michigan’s survey, it would not be surprising to see confidence measures edge higher and inflation expectations lower. Next week’s highlight is the US jobs report (Thursday due to the holiday). The median in Bloomberg’s survey stands at 130k rise in nonfarm payrolls.

• As widely anticipated, Mexico’s central bank maintained its overnight rate target at 6.5% yesterday and continued to point to an extended hold. Today, attention turns to May’s trade balance. It began the year with deficits in January and February but swung back to surplus in March and April. In the first four month, Mexico reported an average trade surplus of $877 mln a month. In the previous four years, it reported a trade deficit in the first four months of the year.

• The ECB’s inflation survey saw one-year expectations soften. The former fell to 3.5% from 4.0%. The three-year expectation was steady at 2.9%. It will not move anyone’s needle. The highlight next week is the preliminary eurozone June CPI (expected to have eased to 3.1% from 3.2%.

• Tokyo’s June CPI ticked up to 1.7%, the highest this year. It finished last year at 2.0%. The core rate, which excludes fresh food rose to 1.6% from 1.3%. It is the first increase in the year-over-year rate since last October. Government measures, like a temporary waiver of water charges and cap on gasoline prices have kept price pressures in check. Still, it appears that Japanese companies are passing along higher labor costs and import prices lifted in part by the yen’s weakness. Next week’s highlight is the Tankan survey, which looks broadly stable.

Disclaimer

Dollar Consolidates, Oil Slips Lower, Equities Helped by Micron Earnings

noreply@blogger.com (Marc Chandler) — Thu, 25 Jun 2026 06:51:05 -0400

The strong dollar advance seen in recent days is consolidating today. The G10 currencies are trading in narrow ranges. Most of them are +/- 0.1%. The New Zealand dollar and Norwegian krone are off a little more. The Canadian dollar is threatening to extend its losing streak for the 11th consecutive session. The greenback crept closer to JPY162 while Japanese officials remain on the sideline.

Oil prices have continued to unwind their war gains, and reports suggest Israel is pulling out of some territory in southern Lebanon. Micron earnings beat expectations and it appears to have arrested the slide in chips and AI shares. The US reports May personal income, consumption, and deflators today, alongside May durable goods orders. The Atlanta Fed’s GDP tracker puts Q2 growth at 3%, up from 0.5% in Q4 25 and 1.6% in Q1 26.

Prices

G10

• It seemed to have taken a 5-6 bp decline in the US two-year note yield to help stabilize the euro, but only after it fell to about $1.1325, its lowest level since May 2025. It overshot the (38.2%) retracement of the rally from last year’s low (~$1.0140), which was found at $1.1340, but it settled above it. The euro recovered to almost $1.1370 before stalling yesterday and has risen a few ticks more today but is holding below Tuesday’s low (~$1.1375).

• The market continues to hold the yen near its multi-year low, with the dollar slightly below JPY162. It is in a range so far today of about JPY161.55-JPY161.90. The actual or historical annualized volatility over the past month is the lowest among the G10 currencies, about 2.85%. The volatility implied in one-month options is near 7.5%, among the highest in the G10. The one-month risk reversals show a premium for dollar puts and this suggests dollar puts are being bought for protection by the longs. If calls were being sold, implied vol would be lower.

• Sterling was sold to $1.3140 before Europe closed yesterday, its lowest level since last November. It steadied in the North American afternoon but could not re-establish a foothold above $1.3180, more or less Tuesday’s low. It has reached almost $1.3200 today. Yesterday’s high was about $1.3210, around where the five-day moving average is found, which sterling has not settled above since June 16.

• The US dollar extended its streak against the Canadian dollar and rose for the tenth consecutive session yesterday. It reached almost CAD1.4250 and closed above Tuesday’s high. It is consolidating in a narrow range of about CAD1.4225-CAD!.4245 today. The next technical target is near CAD1.43. However, we note that US two-year yields the and premium over Canada, which have risen alongside the dollar have softened for the past two sessions.

• The Australian dollar has been unable to sustain even the most modest of upticks this week. It was sold to new lows late in the session, near $0.6880 yesterday. It has not been this low since April 6. The Aussie settled below the lower Bollinger Band for the second consecutive session yesterday. It is consolidating quietly and trading in a narrow range around $0.6900. Nearby support may be in the $0.6860 area that houses the 200-day moving average and the late March low.

• The dollar’s two-day surge against the Mexican peso extended yesterday. The greenback reached MXN17.6765, the highest since early April. The next upside target may be in the MXN17.75-MXN17.80 area. It is trading in MXN17.5870-MXN17.6350 range today. The dollar rose above BRL5.20 for the first time since the end of March. The 200-day moving average, which the greenback has not traded above this year, is near BRL5.2475.

• The offshore yuan fell to a new one-month low yesterday as the broad dollar gains took a toll. The dollar reached almost CNH6.82. Consolidative forces are evident today with the greenback holding below CNH6.8165 and above CNH6.80. The PBOC set the dollar’s fix slightly higher for the fifth consecutive session (CNY6.8209 vs CNH6.8195 yesterday).

• The further pullback in oil prices helped lift the Indian rupee to a marginal new high since early May before backing off. The dollar gapped lower and fell to almost INR94.14. It recovered and settled slightly above INR94.40. The gap extends from today’s high (~INR94.5565) to yesterday’s low (~INR94.5975).

Other Markets

• Micron’s earning results have lifted sentiment in the equity markets today. Most of the large bourses in the Asia Pacific region rose but Hong Kong, mainland shares that trade there and Australia. The MSCI regional index rose for the first time in three sessions. Europe’s Stoxx 600 is up about 0.6%, and if it is sustained, it would be the largest gain in nearly two weeks. The US Nasdaq futures are up around 2%, while the S&P futures are trading about 0.7% better.

• Benchmark 10-year yields are lower today helped by the drop in oil prices and the nearly 10 bp decline in the US Treasury yield yesterday. It slipped below 4.40% yesterday, the lowest since early May. Japan’s 10-year yield fell three basis points today to about 2.61%, while European yields are mostly a little softer. The 10-year US Treasury yield is 1-2 bp firmer to edge toward 4.41%.

• The precious metals are less precious. Gold was dumped to a new low for the year, slightly below $3960. It settled near session lows. It is stuck in its trough. It reached almost $4019 today but is near $3986 ahead of the US open. It fell by around 3.4% yesterday, while silver was taken for around 8%. It fell to almost $55.60 yesterday, its lowest level since last November. It too is consolidating near yesterday’s lows.

• August WTI fell below $70 yesterday for the first time the early days of the Middle East war. It briefly traded below the 200-day moving average (~$70.10) for the first time since early February. The losses were extended to $68.90 today. On eve of the war, it settled at $65.70.

Data

• Today’s US data will likely show that personal consumption rose faster than income in May for the fourth consecutive month. The median forecast in Bloomberg’s survey calls for a 0.6% rise in consumption and a 0.4% increase in income. In April, income was flat while spending rose by 0.5%. Economists have a good handle on the deflators after the CPI and PPI have been reported and do not offer much new information. The headline is expected to rise by 0.5% for a 4.1% year-over-year pace. The core rate is seen rising by 0.3% for a 3.4% year-over-year pace. Separately, durable goods orders, which jumped by 8% in April, flattered by Boeing orders, may have pulled back by 5%. However, excluding aircraft and defense orders, a 0.6% gain is expected after a 1.0% decline in April. Weekly jobless claims are likely overshadowed by other data points. Due to next week’s holiday, the June nonfarm payroll report will be released next Thursday, and the early forecasts are around 118k (172k in May) and are consistent with modest improvement after slow 2025 (average monthly nonfarm payroll increase 10k vs 114k in the first five months of 2026). The Fed’s Bowman, Goolsbee, and Williams speak today.

• Canada reports April employment via the establishment survey. The household survey in April showed a loss of 17.7k jobs after gaining 14.1k in March. The establishment survey reported a 31.8k loss in March. The market does not seem particularly sensitive to the time series and the swaps market sees little chance of a change in Bank of Canada’s policy settings until at least late Q4.

• Mexico’s May unemployment may have crept up to 2.6% from 2.46%. With such a large informal labor market, the peso tends not to be responsive to the official unemployment rate. The central bank meets later today and there is little doubt over the outcome: unchanged overnight rate at 6.50%.

• Australia labor market improved in May, and household spending rebounded from the April slide. Of the 40.3k increase in overall jobs last month, 35.2k were full-time posts. In April, Australia lost a revised 40.7k jobs (initially -18.6k), of which 21.6k (initially10.7k) were full-time positions. The participation rate ticked up to 66.7% (from a revised 66.6%), while the unemployment rate slipped back to 4.4% from 4.5%. Household spending jumped by 1.3% in May after falling 1.1% in April. In the futures market, the odds of a rate hike before the end of the year slipped.

Disclaimer

Dollar Extends Gains Without Support of Higher Rates

noreply@blogger.com (Marc Chandler) — Wed, 24 Jun 2026 06:46:22 -0400

The US dollar’s rally is extending today, but the market remains cautious about intervention by Japanese officials. The Dollar Index has not fallen since last Tuesday. It has risen by a little more than 2% since the Fed delivered its hawkish hold last week. Yet, for the second consecutive session, the dollar is rising without it being backed by higher two-year rates. The greenback is at new highs for the year against many G10 currencies today, including the euro, sterling, Swedish krona, and the New Zealand and Canadian dollars.

More ships are transiting the Strait of Hormuz and reports indicate ships are keeping their satellite signals switched on, reflecting growing confidence by ship owners. August WTI fell to about $71.55 today, its lowest level since March 10. Equities have mostly stabilized after yesterday’s tech-led decline. The focus shifts to Micron Technology earnings later today.

Prices

G10

• The euro spent most of the North American session yesterday below $1.14, and it was sold to almost $1.1375. It has not been able to trade much above there today, and the euro has taken another leg down today. It has frayed $1.1340, the (38.2%) retracement of the euro’s rise since February 2025. A convincing break could target the $1.11-$1.12 area.

• The market knows it is risking BOJ intervention with continued yen weakness. The pricing of the risk reversals in the options market seems consistent with dollar bulls buying puts as a hedge. The yen spent yesterday consolidating inside Monday’s range. In North America yesterday, the market seemed reluctant to push the dollar much above JPY161.60. It is in about a JPY161.50-80 range today. Options for a little more than $1 bln at JPY161.50 expire today.

• Sterling unwound Monday’s gain yesterday and extended the losses today to a new low for the year near $1.3155. A convincing break could target $1.3040 next and then the low from last November (~$1.2985).

• The Canadian dollar falling for the tenth consecutive session today, which would the match its April-May 2017 slide. The greenback reached nearly CAD1.4240 today, the highest level in 14 months. Although the momentum indicators are stretched, the price action remains constructive. The next chart point is closer to CAD1.44.

• The Australian dollar continues to break down. It was sold slightly below $0.6910 yesterday and $0.6885 today, its lowest level since early April. The next technical target is in the $0.6835-55 area, which houses the March low and the 200-day moving average.

• The risk-off mood sent the Mexican peso to its lowest level since early April. The dollar reached MXN17.6045. The greenback settled near session highs and the next technical target is the around MXN17.6450, which corresponds to the (50%) retracement of the losses since the end of March high (~MXN18.1645). The US dollar gains have been extended to MXN17.6145. The MXN17.6460 area corresponds to next retracement area. While the Mexican peso was the worst performer in Latam yesterday with almost a 1.3% loss, the Colombian peso was strongest currency among from the emerging market economies, gaining almost 0.5%.

• The dollar pushed against this month’s high against the offshore yuan. It approached CNH6.7980 yesterday. The gains have been extended today to CNH6.8160. It has not settled above CNH6.80 since May 20. Nearby technical resistance is around CNH6.82 and then near CNH6.85. Over the past 100 sessions, the correlation of changes in the dollar against the offshore yuan and the Dollar Index is near 0.75, the highest late 2024. The dollar’s strength seemed to give the PBOC little choice but to set the dollar’s reference rate higher today for the fourth consecutive session (CNY6.8195 vs. CNY6.8171 yesterday). It is the longest advance since six sessions in April 2025.

• The dollar initially edged higher against the Indian rupee. It narrowed the gap that was created on the June 15 lower opening but did not close it. It extends to about INR94.9475 (it reached ~INR94.9335) before sellers emerged, ostensibly helped by the continued drop in oil prices and optimism that a trade pact with the US is near completion.

Other Markets

• Equities are mixed today. Most of the large bourses in the Asia Pacific but Japan and Taiwan rose. South Korea’s Kospi that dropped 10% yesterday bounced back 3.25%. Europe’s Stoxx 600 is trading with a heavier bias after dropping nearly 0.75% yesterday. The S&P 500 and Nasdaq gapped lower yesterday. The gaps extend to Monday’s lows (~7460 and 26125, respectively). The S&P and Nasdaq futures are trading with a firmer bias (~0.15% and 0.50%, respectively).

• Benchmark 10-year yields are softer. Yields slipped fractionally in the Asia Pacific regions, but are off 1-2 bp in Europe, with the UK Gilt yield leading. The 10-year US Treasury yield is a little more than a basis point lower near 4.48%.

• Gold could not find much traction yesterday and fell to $4091 and the losses were extended to $4050 today. Recall that on June 11, the yellow metal recorded the low for the year (~$4024). Silver was sold to almost $61.50 yesterday but held about 2/10ths of a penny above the low set earlier this month. It has been pressed to a new low for the year today, slightly below $60.75.

• August WTI made a marginal new three-month low slightly below $72.50 yesterday and to above $71.55 today, the lowest since March 10. There looks to be chart support around $70.00. On the eve of the US-Israel attack on Iran at the end of February, August WTI settled around $65.70. Meanwhile, the average price of retail gasoline, according to AAA, has fallen every day since May 20 until yesterday, when it rose by a couple of tenths of a cent. Near $3.93, for a cumulative loss of about 14%. The average retail price was slightly below $3 before the war began.

Data

• The US reports Q1 26 current account deficit today. It has already reported a trade deficit in Q1 of about $181 bln. The trade deficit drives the current account deficit, which is expected to be around $210 bln. Last year’s current account deficit was about $1.12 trillion after a $1.19 trillion shortfall in 2024 and $928 bln in 2024. The economic identity means that provided the US runs a current account deficit, foreign investors must accumulate US assets. The issue is which assets and at what prices. May new homes sales also are on tap, and after a 6.2% decline in April a 3.3% bounce is anticipated (median projection in Bloomberg’s survey). Through April new homes sales are off about 8% this year. When asked about whether the current monetary policy setting was restrictive, Fed Chair Warsh explained at last week’s press conference it was restrictive for housing but not the financial markets.

• Mexico reports CPI for the first half of June, and a minor decline in the headline and core year-over-year readings are expected. Regardless of the data, the central bank will stand pat when it meets on Thursday, leaving the overnight rate target at 6.5%.

• Germany’s June IFO survey was encouraging. The current assessment rose to 87.0 from 86.1, while the expectations component edged up more mildly to 84.1 from 83.9. The overall business climate improved to 85.6 (from 85.0). While it is the second consecutive month of improvement, it remains below the 88.5 high seen before the Middle East war began.

• Australia reported a larger-than-expected 0.7% decline in May CPI (+0.4% in April). Yet, given the base effect, the year-over-year rate ticked down to 4.0% from 4.2%. The trimmed mean rose by 0.4%, a little more than expected, and the year-over-year rate edged up to 3.6% from 3.4%. The central bank meets next on August 11. It is expected to be on hold until at least Q4. Tomorrow, Australia reports May jobs data. Recall that its lows 18.6k jobs (10.7k full-time) in April, and a recovery is expected last month.

• Japan reported PPI service prices rose 3.3% year-over-year in May after the April series was revised to 3.3% from 3.0% initially. That matches the March reading, which was the highest since March 2025. After this month’s hike, the BOJ is seen on the sidelines until Q4, and a rate hike is nearly fully discounted by the end of the year.

Disclaimer

Stocks Slide, Tech Hit, Greenback Trades Higher but Market Turns more Cautious on Yen

noreply@blogger.com (Marc Chandler) — Tue, 23 Jun 2026 06:56:47 -0400

The markets have weathered the US tariffs and war in the Middle East. A new disruption has emerged—unwinding tech investment--. The S&P and Nasdaq are poised gap lower and the South Korea’s Kospi dropped 10% today (and is still up nearly 95% for the year). The risk-off has pushed yields lower and the dollar higher.

The euro has been sold to a new low for the year, slightly above $1.1400. The yen is the only G10 currency holding its own today as Japan’s finance minister has played up talks with US Treasury Secretary Bessent, who has been quiet about the exchange rate through the BOJ intervention in April and May. With the BOJ rate hike delivered this month (but not in April), we have suggested Japanese efforts may receive more support from the US (as was the case in January).

Prices

G10

• The euro has been sold to new lows for the year today, slightly below $1.1400. The previous low for the year was set in mid-March near $1.1410. A break of the $1.1390, last August’s low, could signal a test on the $1.1340 area. The intraday momentum indicators are stretched but previous support in the $1.1420-25 area may now offer resistance.

• The yen returned to near the low from early July 2024 that spurred heavy intervention by Japanese officials. The dollar approached JPY161.95 yesterday. It was the greenback’s sixth rise in seven sessions. It is not only a one-way market, but volatility also has picked up. One-month implied volatility is near 8%, which is about 0.5% above where it was when the BOJ intervened at the end of April. Finance Minister Katayama has played up talks with US Treasury Secretary Bessent, and this appears to be helping the yen stabilize today, though the pullback in US yields may be helping too. The dollar has been confined to about a half of a yen below JPY161.75.

• Sterling was resilient in the face of the political drama that will lead to the seventh UK prime minister in a decade. It recovered from around $1.3180 and reached almost $1.3275 in early North American turnover yesterday before consolidating. It is trading softer today but within yesterday’s range. It has thus far held above $1.3200 but has spent little time above the $1.3250 yesterday’s close.

• Firmer than expected Canadian CPI failed to deter the Canadian dollar’s continued decline. It fell for the eighth consecutive session yesterday as US rates rose and the premium over Canada widened. The US dollar is firm but holding below yesterday’s high, near CAD1.4195, the highest level since April 2025. The US dollar is stretched but still no sign of a top.

• The Australia dollar taking another leg lower today. After barely settling above $0.7000, the Aussie has been sold to almost $0.6940 today, its lowest level since early April. It has convincingly broken below the trend line, connecting lows from mid-December, January, and March. It came in slightly above $0.7000 today. The break of $0.6980 is an ominous technical signal. It gives more energy to the possible head and shoulder top that has been unfolding (targets ~$0.6680). Given the stretched momentum indicators, perhaps the 200-day moving average, near $0.6885, would offer an initial target.

• The risk-off mood is weighing on the Mexican peso today. It is near a two-week low. The recent consolidation looked dollar friendly and the greenback rose to MXN17.4760 today. The next target is the month’s high, recorded June 5 (MXN17.5360). The shift to the right, confirmed in the weekend run-off election lifted the Colombian peso to its best level since 2020. However, after surging about 1.6%, it pulled back and settled about 0.75% better, which still put it atop emerging market currencies yesterday.

• The offshore yuan is trading mostly sideways. The US dollar has carved a CNH6.75-CNH6.80 trading range and it ended yesterday near the middle of it. The greenback reached slightly above CNH6.7900 today. The PBOC set the dollar’s reference rate at CNY6.8170 (CNY6.8150 yesterday). It was the third consecutive higher fix, the longest such streak since the end of April. The fix was also the highest since June 8.

• The Indian rupee fell to six-day lows today amid reports of dollar purchases by corporates and overnight borrowing rates fell as the central bank injected cash into the banking system. The dollar reached INR94.9150. We are watching the top of the gap created with the lower opening on June 15, near INR94.9475.

Other Markets

• Equities are under pressure today. The US Nasdaq declined for the third session in the past four. More commentators are talking about a rotation. The S&P 500 record an ostensibly bearish outside down day. A break of 25960, last Thursday’s low, would suggest a return to the month’s low, near 25000. The heavy tone in the S&P and Nasdaq seemed to weigh on Asian and European equities today. Most of the large bourses in the Asia Pacific regions fell by 2-3%, but the high-flying South Korea Kospi was tagged for 10% and the Nikkei tumbled 3.5%. Europe’s Stoxx 600 is off almost 0.80%, which if sustained, would be the largest drop since mid-May.

• The US 10-year yield rose by a little more than five basis points yesterday. It is a slightly larger increase than seen in the immediate reaction to the FOMC’s hawkish hold last week. Benchmark 10-year yields are mostly 2-3 bp in Europe and the 10-year Treasury yield is off nearly three basis points to 4.48%.

• Gold finished firmly yesterday but could not re-establish a foothold above $4200 on a closing basis. It has been sold to an eight-day low today, a little below $4100. The month’s low is near $4024. Silver settled near the North American session lows, slightly above $65. Follow-though selling today sent it to around $61.80. This year’s lows are closer to $61.00-50.

• August WTI peaked in early Asia Pacific trading on Monday (~$75.40) and tumbled to about $73.25 in North America. Despite some brinkmanship tactics, reports from both the US and Iran spoke of progress. The contract slipped briefly below $72.50 but is near $73.50 now.

Data

• Nearly a week ago, the Philadelphia Fed reported that its June business outlook improved from -0.4 to 10.3. Today, its survey of non-manufacturing activity will be reported. The Richmond Fed also will report its June survey results. The focus, however, is on the preliminary June US PMI. Growth in the manufacturing sector (55.1 in May, nearly a four-year high) may slow a little, but service activity may have quickened and that will help fuel a stronger composite, which could reach its highest level since January. The Atlanta Fed’s GDP tracker puts Q2 growth at 3%.

• Mexico reports April retail sales today. A small 0.1% gain is expected, the same as March. However, given the base effect (-0.9% in April 2025), the year-over-year pave can improve to 3.6% from 2.9%. Also, Mexico will report the IGAE economic activity, which is similar to a monthly GDP estimate. The median forecast in Bloomberg’s survey is for a 0.80% increase, which would be the strongest since last October. Banxico meets on Thursday, but there seems to be little doubt about the outcome: leaving the 6.50% overnight target steady.

• The preliminary June eurozone manufacturing PMI was softer at 51.3 (from 51.6). The contraction in services slowed (48.9 vs. 47.7) as did the composite. But, at 49.5 (from 48.8 in April), it was the third consecutive month below the 50 boom/bust level. It did not fall below 50 at all last year. Both, the German and French composite remained below 50, and slowed sequentially.

• While the UK’s flash manufacturing PMI slowed (53.1 vs. 53.9). The services and composite readings also slipped to hold below 50. The composite had slipped below 50 (to 49.7) in May, the first sub-50 reading since October 2023. June’s preliminary estimate is 49.4.

• The three hikes delivered already this year by the Reserve Bank of Australia appear to be slowing the economy. The composite PMI finished last year at 51.0 and June was the third month in the past four that it is below 50 (49.8). The manufacturing PMI rose to 51.2 (from 50.7) and the services PMI stands at 49.9 (from 48.7). Tomorrow, Australia reports May CPI. It likely edged higher (headline and core) but may be near the peak.

• Japanese markets tend not to react much to the PMI series. Still, the takeaway is that the Japanese economy appears to be enjoying if steady but uninspiring growth. The manufacturing, services, and composite PMI rose further above 50. At 52.5 (from 51.1), it is the highest since March. The highlight this week is Friday’s release of Tokyo’s June CPI. The headline and core rates are expected to tick a little higher but will remain below 2%.

Disclaimer

Sterling Proves Resilient as Starmer says Good Bye

noreply@blogger.com (Marc Chandler) — Mon, 22 Jun 2026 06:48:28 -0400

Conflicting news from the Middle East initially lifted oil prices and weighed om risk-taking appetites, but US-Iran negotiations continue and both sides report progress. Oil prices have come back off. The dollar is mostly firmer but so far has held above last week’s lows against the euro and sterling. The yen snapped a five-day slide ahead of the weekend but is softer today, and the greenback is knocking against the recent high (~JPY161.80). The Canadian dollar is extending is slide into the eighth consecutive session.

Given the light economic diary today, politics are in the spotlight. The UK’s sixth prime minister since Brexit a decade ago has resigned and will oversee the selection process of his successor. Sterling was initially sold but has come back to record near session highs late in the European morning. US-China tensions have taken a turn for the worse. Apparently in response to the US decision this month to add some of China’s largest companies to a list of companies that aid the military, Beijing has sanctioned two US rare earth companies. It maybe mostly symbolic as the two companies reported have reported largely cut off inputs from China.

Prices

G10

• The euro initially was sold to its lowest level since mid-March (~$1.1420) ahead of the weekend before recovering to new session highs late in the holiday-thinned North American session near $1.1480. That is around the low it saw in the initial reaction to the hawkish hold by the FOMC on June 17. It drifted back to almost $1.1440 in Europe before steadying. A band of resistance is seen between $1.1480 and $1.1520.

• The dollar consolidated roughly the half yen above JPY161 ahead of the weekend. The apparent failure of the April-May intervention, and the apparent silence of US authorities, may be emboldening the market. The dollar held above about JPY161.20 today and is testing the JPY161.80 area in Europe. The high from July 2024 was near JPY162, the highest since 1986.

• Sterling came within a few hundredths of a cent of the year’s low recorded at the end of March near $1.3160 ahead of the weekend. But it recovered to new session highs around $1.3240 in the waning hours of the week’s activity. It settled firmly but still below the low from the initial reaction to the FOMC meeting (~$1.3260). It tested $1.3180 in early European turnover, seemingly initially weighed by the political uncertainty that as lifted when Prime Minister Starmer indicated he would resign and open formal contest for his replacement on July 9 and the process would be completed by September 1, the end of Parliament’s summer break. Sterling recovered to new session high near $1.3250. A move above $1.3280-$1.3315 would lift the technical tone.

• The Canadian dollar is extending its drop for the eighth consecutive session today. It is at its lowest level since April 2025. In the 16 sessions this month, counting today, the Canadian dollar has declined in 13. Last week’s US dollar closed above the H2 25 high (~CAD1.4140) contributes to the favorable technical tone. The greenback reached almost CAD1.4195 today. As one can imagine, the momentum indicators are stretched. The upper Bollinger Band is near CAD1.4180 today. We are alert for a possible reversal pattern.

• The Australian dollar recovered from a six-day low near $0.6990 and settled little changed last Friday, a little above $0.7010. It stalled near $0.7025 today and is straddling the $0.7000 area late in the European morning. A break of $0.6980, the month’s low could signal the next leg lower. Options for nearly A$1 bln at $0.7010 expire today.

• The Mexican peso is consolidating in last Wednesday’s trading range (~MXN17.18-MXN17.44). The dollar is in a MXN17.3165-MXN17.3685 range today. The market is confident tht the central bank will maintain the 6.5% overnight rate target when it meets on Thursday.

• The dollar reached a four-week high against the offshore yuan ahead of the weekend (~CNH6.7980). It is consolidating today between CNH6.7730 and CNH6.7865 and threatening to three-day advance. The PBOC set the dollar’s reference rates at CNY6.8150, matching the highest since June 8.

• Ahead of the weekend, the Indian rupee snapped a five-day advance, and on Friday the loss was miniscule. It was the fourth week in the past five that the rupee settled firmer. The rupee extended its retreat today, falling a little more than 0.35%. The dollar reached INR94.7550, its highest level since last Monday. A gap is found between ~INR94.7735 and INR94.9475.

Other Markets

• While US markets were closed before the weekend, Asia Pacific and European equities fell. The MSCI Asia Pacific index fell for the first time in six sessions. It reached a record high on June 18. Most of the large bourses in the area rose today. Hong Kong, Australia, and New Zealand were exceptions. Europe’s Stoxx 600 had broken a five-day winning streak on June 18 and fell further on the 19th. It fell to a six-day low today. The record high was set at the start of last week. US index futures are narrowly mixed.

• Benchmark 10-year yields jumped mostly 4-6 bp ahead of the weekend among the G10 countries. The 10-year UK Gilt yield rose the most, almost nine basis points, perhaps pushed higher by the deterioration in the government’s finances that was reported. The Gilt yield is off a little more than two basis points today, in line with most European bonds today. The US 10-year Treasury yield is about three basis points higher at 4.48%.

• Gold gapped higher last Monday and made a marginal new high on Wednesday before reversing lower last week. After the bearish midweek outside down day, the yellow metal continued to sell-off and reached $4122 ahead of the weekend. It has come back firmer today and tested the $4220 area. A move above $4235 may help improve the technical tone. Silver did not trade much better at the end of last week, but it has returned bid and risen above the pre-weekend high. A close above would be constructive.

• August WTI was sold to about $72.85 last Thursday. It recovered and settled near sessions highs (~$76). Follow-through buying ahead of the weekend lifted it to almost $76.80. The gains were extended to almost $78.15 today, when it looked as if the US-Iran talks were breaking down. However, progress is now being reported by both sides, and August WTI has reversed lower. It is near $75.25 ahead of the start of the North American session.

Data

• The US economic calendar is light this week. The highlight is the midweek income, consumption, and deflator reports. Household consumption is expected to have outpaced income in May again. Outside of rounding, the deflator tends not to surprise. The headline will likely rise above 4%, while the core edged up to 3.4% from 3.3%. The preliminary PMI will be reported the day before and May durable goods orders the day after consumption, income, and deflator data. Durable goods orders look to have fallen by around 5% after jumping 8% in April. Governor Waller speaks early today at a Federal Reserve conference today in Washington on the international role of the dollar. A few Fed presidents (Williams, Goolsbee, and Kashkari) are scheduled to speak Thursday/Friday.

• Canada reports May CPI today. While headline inflation is elevated (2.8% in April year-over-year), the core rate is mild at 1.5%. The underlying core measures are hovering around 2.0%. Today’s report is unlikely to sway the market that sees the central bank is on hold at least until Q4.

• Mexico reports April retail sales tomorrow alongside the IGAE economic activity report that serves the function of a monthly GDP. It has stabilized after an exceptionally poor January. The week’s highlight is Thursday’s central bank’s decision, but it is on hold with its policy rate at 6.5%. The Colombian presidential run-off election appears to have resulted in Espriellla’s victory. Although final results will be confirmed by the end of the week, it looks like a shift to policies more aligned with the US. Last Tuesday, the greenback fell to a five-year low against the Colombian peso (~COP3409).

• The eurozone, UK, and Japan have quiet starts to the week in terms of data with Wednesday’s preliminary PMI the main feature. The same is true of Australia, but it will also report May CPI on Wednesday and employment on Thursday.

• China has announced export controls against two important US rare earth producers. The move seems to be in response to the US adding some of China’s largest companies to its entity list due to ties to the Chinese military.

Disclaimer

Video: Last Week's Echo to Reverberate

noreply@blogger.com (Marc Chandler) — Sat, 20 Jun 2026 14:11:35 -0400

Here is a few minute video where I try to sketch out the significant developments last week, including the Fed's hawkish hold, BOJ rate hike, and the by-election in the UK, whose effects may not have run their course yet.

That said, the Fed's hawkish hold will likely to persist, and the El Nino weather pattern warns of the risk of another food shock in the fall. The BOJ's rate hike did not stop the market from extending the yen's sell-off. Gaming intervention and the possibility of greater US support (than in April and May) is part of trading the yen now. The UK's Brexit referendum was a decade ago, and in that time, the country has had six prime ministers, and seems likely to have a seventh in the second half of the year.

August WTI has come off a little more than 25% since the peak on May 18, a little over $100. At last week's lows, it was back at levels seen in mid-March. Much good news seems to be discounted, and yet the ceasefire remains fragile.

Disclaimer

Week Ahead: Digesting Last Week's Evolving Developments

noreply@blogger.com (Marc Chandler) — Sat, 20 Jun 2026 06:59:54 -0400

Last week was momentous. There was a fragile 60-day de-escalation during negotiations between Washington and Tehran. However, the allies of both (Hezbollah and Israel) continue to clash, stalling talks. Still, oil prices tumbled 7-9%. At the same time, a new era at the Federal Reserve has begun. The new chair eschews forward guidance, and this was reflected in the terse statement and the fact that he did not participate in updated individual projections. Ironically, this led to even more weight being placed on Summary of Economic Projections. Nine of the remaining 18 Fed officials anticipated at least one rate hike would be appropriate this year. This sparked a 13 bp jump in the two-year US Treasury yield, the largest rise since April 2025, and lifted the dollar broadly.

The Bank of Japan raised its overnight target rate to 1% last week. It did not prevent the yen from extending its slide to a new low since July 2024. Given the hike, perhaps Japanese officials can count on US support for intervention in a way if did not get during the April and May intervention. By measures such as size of speculative short yen position in the CME futures, the one-way direction of the market, and volatility, conditions favor intervention more than they did at the end of April, when the market responded to what was perceived as not sufficiently hawkish message by BOJ Governor Ueda. Meanwhile, Andrew Burnham will return to the UK parliament after winning a byelection. The political drama will play out in the coming days/weeks, and many expect Burnham to become the next Prime Minister. The largely as expected results, seemed to have marginal impact at best, and the outsized nearly nine basis point rise in the UK 10-year Gilt yield was more a function of the jump in oil prices, which lifted most European yields by 5-6 bp before the weekend, and the deterioration in the government finances that were reported on Friday.

Drivers: The one variable whose changes remain highly correlated (~0.65) with changes in the Dollar Index is the two-year US yield over the past 30 sessions. While the dollar typically has risen alongside the increase in US rates, the Dollar Index is inversely correlated with changes in the S&P 500. Near -0.45, the inverse correlation is the least extreme since the end of Q1 26.

Data: Most of the high-frequency reports in the coming days consist of surveys, mostly from the regional Federal Reserve Banks but the preliminary June PMI will be reported on Tuesday. Real sector data include May personal income and consumption (along with the deflators, which can be extrapolated from the CPI and PPI), durable goods orders and May's goods trade deficit. The Federal Reserve meets at the end of July (July 28-29) and the bar to a change in policy is high. The Fed funds futures have about 10 basis points of tightening discounted--and if the real choice is between standing pat and hiking 25 bp, the odds of a hike are around 40%. At the end of April, the was still a small chance of a cut priced in and at the end of May, about 1.5 bp of tightening was reflected in the swaps market.

Prices: On the back of the hawkish hold by the Federal Reserve, the Dollar Index broke to the upside. It reached a new high since May 2025, and the high ahead of the weekend, slightly below 101.15, met the (38.2%) retracement objective of DXY's decline since the high in January 2025, a week before President Trump's second inauguration. Overcoming that area, target the 102.85, which corresponds to the 50% retracement and is also where the 200-day moving average is found. A note of caution, in the pre-weekend session, the Dollar Index may have recorded an ostensibly bearish shooting star candlestick. The price action on Monday will be important for the near-term technical outlook.

EMU

Drivers: The euro 's 30-day inverse correlation with the US two-year yield remains robust near -0.85. The correlation between the exchange rate and changes in the German two-year yield is also inverse but a less than against the US two-year yield, around -0.52. The euro also is the most correlated with the S&P 500 in more than a decade, near 0.75 earlier this month but has eased to a little more than 0.60. It fits into the narrative about European investors buying US equities but hedging the currency risk. The euro's correlation with changes in the Stoxx 600 is weaker (~0.27)

Data: The swaps market leans slightly toward another ECB hike next month but has it fully discounted for September and around an 80% chance of another before the end of the year. There are two surveys due this week, but neither will likely be decisive in July rate decision, barring a major surprise. First is the preliminary June PMI. Recall that in the first five months, the composite (output) fell four times and at 48.5 in May was the weakest since January 2024. The other survey is the ECB's on inflation expectations. In May, the one-year stood at 4.0% and the three-year stood at 2.9%. May's inflation was confirmed last week at 3.2% with a 2.5% core. The ECB's updated forecast is for CPI to increase by 3% this year, 2.3% next year, and 2.0% in 2028.

Prices: The euro stalled in the first half of last week near $1.1620. The backing up of US rates saw it drop to a little below $1.1420 ahead of the weekend. The low for the year was recorded in mid-March near $1.1410. The euro bounced back and reached a new session high in light North American dealings slightly above $1.1480. A potential bullish hammer candlestick was left in its wake. However, the euro still settled below the previous week's low. Regaining a foothold above $1.15 is needed to stabilize the technical tone.

PRC

Drivers: The PBOC continues to guide the yuan higher through the daily fix. The yuan is the strongest currency in Asia so far this year. It has risen by 3.20%-3.40% (offshore, onshore, respectively). A distant second is the Singapore dollar, up about 0.20%. The case that a stronger yuan would help lift other currencies in the region seems off-the-mark so far. Only the onshore and offshore yuan have risen against the greenback among Asian currencies so far this year. The dollar's performance against the offshore yuan has about a 0.65 correlation with the Dollar Index over the past 30 sessions and a little more than 0.70 over the past 60 sessions.

Data: Without signals from the central bank, Chinese banks will likely keep the loan prime rates steady at 3.0% and 3.50% for one- and five-year loans, respectively. The five-year government bond yield is little changed over the past month, near 1.45%. China also will likely confirm a 3.7% current account surplus is Q1 26. The IMF projects a slightly smaller surplus this year (3.5% vs. 3.8% in 2025), while OECD estimates steady at 3.8% before increasing to 4.0% next year. Early Saturday in Beijing, May industrial profits will be reported. Although officials have been critical excess investment, the rise in industrial profits has been largely function of two sectors--tech and materials. Industrial profits surged 24.7% year-over-year in April after rising 15.8% in March.

Prices: The dollar recorded a new three-year low against the offshore yuan in the middle of last week, near CNH6.7540 before the FOMC meeting. The broad greenback gains lifted it to about CNH6.7980 ahead of the weekend, its highest level since May 22. Near-term risk may extend to around CNH6.82.

Japan

Drivers: Changes in the dollar against the yen remain more sensitive to changes in US 10-year yields than to the 10-year interest rate differential. The 30-day correlation with changes in US 10 Treasury yields is above 0.56, easing from a new high since last September (~0.65) seen earlier last week. The correlation approached 0.10 earlier this year. The correlation of the changes in the exchange rate and the 10-year interest rate differential is around half as much.

Data: The market favors another hike by the Bank of Japan before the end of the year, though it is not fully discounted. However, given the glacial speed at which the BOJ is moving, it seems unrealistic to expect this week's data to have much impact on expectations. The market typically has muted reaction to the PMI. Still, recall that the May composite stood at 51.1, the low for this year after falling for three consecutive months. The other report, Tokyo's June CPI, is a good indicator of the national reading. In May, the national CPI stood at 1.5% and 1.4% for the core. The target for the latter, which excludes fresh food, is 2%. It has not been above the target this year. Most other countries wish they had Japan's inflation and would most likely not be raising interest rates. Japan has purchased lower inflation, as it were by providing energy subsidies. Tokyo's headline CPI was 1.4% in May, with the core at 1.3%.

Prices: The dollar reached JPY161.80 the day after the FOMC's hawkish hold. This was its best level since it came within spitting distance of JPY162 in July 2024. The greenback rose by about 0.65% against the yen last week. It is the fifth weekly gain in six weeks. It is arguably more of a one-way market now than in late April when the BOJ intervened. At the end of April, one-month implied vol was near 7% before the intervention. It reached 8.1% before the weekend, the highest May 7. As of June 9, the most recent CFTC data, non-commercials (speculators) in the CME futures have amassed the largest net short yen position since July 2024.

Drivers: Of the past 30 and 60 days, changes in sterling are more correlated with the euro than the Dollar Index. However, sterling's correlation with the US two-year yield is less than the euro's over the past 30 and 60 sessions. Sterling remains not only inversely correlated with US two-year rates but is also inversely correlated with changes in the two-year Gilt yield (30-day correlation is around -0.30 and the 60-day correlation is about -0.40).

Data: The only economic report of note in the coming days is the preliminary June PMI. In May, the composite PMI fell to 49.7. The last time it was below the 50 boom/bust level was in October 2023. The BOE stood pat last week (3.75%) with a 7-2 decision, and the market is nearly evenly split about the outcome at next month's meeting. However, a hike is nearly fully discounted for the following meeting in mid-September. The political fallout from last week's byelection may take a bit of time to sort out but a formal challenge to Prime Minister Starmer, the sixth prime minister since the Brexit referendum a decade ago, is a certainty.

Prices: Sterling, which began last week above $1.35 fell slightly below $1.3165 ahead of the weekend to approach the low of the year, recorded at the end of March near $1.3160. It recovered amid the wider pullback in the US dollar and traded back toward the session high near $1.3240 in late European turnover. Near-term potential may extend toward $1.3275, while a push above the $1.3310-15 area improves the technical tone.

Canada

Drivers: Changes in the US dollar against the Canadian dollar show a low correlation over the past 30- and 60 sessions with changes in the US-Canada two-year interest rate differential (0.15-0.18). The exchange rate is more correlated with the Dollar Index (~0.57and 0.66, respectively) and the US two-year yield (~0.53 and 0.42). The exchange rate is also positive correlated with a change in Canada's two-year yield (~0.41 and 0.32). The Canadian dollar tends to weaken as US and/or Canadian yields rise. Yet, the rise of the US two-year premium began widening in in early May and has risen consistently alongside the greenback rising against the Canadian dollar. The US two-year premium rose from about 94 bp on May 1 to slightly more than 140 bp at the end of last week.

Data: The market understands the dilemma of weak growth and firm prices that Bank of Canada Governor Macklem discussed as keeping the central bank on the sidelines in the coming months. The market is pricing in a hike late this year. Still, this week's data highlights are the May CPI and the establishment jobs survey (SEPH). Through April, the headline CPI has risen at an annualized pace of about 5.4%. The core rate was at 1.5% in April, the underlying cores, which the central bank pays attention to, while Macklem has suggested it might overstate, averaging 2.05% in April. The market responds more to Canada's household survey that is often reported alongside the US jobs data on the first Friday of the following month. The US reports the household and establishment surveys, at the same time, while Canada's establishment survey is reported with a lag. In April, the household survey found a loss of almost 18k jobs, while establishment survey had a nearly 32k decline. In May, the household survey saw an 87.8k increase in jobs (154k full-time positions vs. -46.7k in April).

Prices: Since the Canadian dolla5r's slide began at the start of last month, it has fallen by about 4.15% and is the worst performing G10 currency. It remains under pressure. The Canadian dollar fell for the seventh consecutive session ahead of the weekend. The Loonie fell for the third consecutive week, and the sixth week in the past seven. The greenback reached almost CAD1.418 in North America before weekend, its highest level since April 2025. With last week's gains, the US dollar met the (50%) retracement objective of the decline from the multiyear high in February 2025 (~CAD1.48). The next retracement (61.8%) is slightly below CAD1.43. Still, some caution is in order. The US dollar settled above the upper Bollinger Band for the past three sessions, and the momentum indicators are stretched.

Australia

Drivers: The correlation between changes in the Australian dollar's exchange rate and the two-year interest rate differential is more robust than we saw with the Canadian dollar. The Aussie's correlation is about 0.60 and 0.50 over the past 30 and 60 sessions, respectively. Australia's two-year premium over the US has dropped from about 90 bp on April 30 to almost 25 bp in the middle of last week, the lowest since last November. The Aussie may be the closest thing to a proxy for gold among the G10 currencies. The rolling 30-day correlation is almost 0.85, and the 60-day correlation is near 0.73, which is the highest since early 2024.

Data: The Reserve Bank of Australia has raised rates three times this year and recognizes that the impact is being felt. The bar to another hike seems high now, and many suspect the short tightening may be over, after a short easing cycle. Still, in addition to the preliminary PMI, Australia will see three reports that feed into the RBA's reaction function: CPI, employment, and household spending. In the four months through April, Australia's inflation rose at a 5.7% annualized pace. Given the base effect (-0.5% in May 2025), the year-over-year headline rate may lurch higher from April's 4.2% pace. Australia lost jobs in April (18.6k) for the first time this year. The unemployment rate rose from 4.1% in December to 4.5% in April, while the participation rate has been steady at 66.7%. Household spending is expected to have stabilized after falling 1.1% in April, which followed a 1.6% jump in March. The swing appears to have been driven by a 1.3% decline in food (+1.6% in March), transportation dropped 4.7% (+5.4% in March) and a 2.2% contraction in clothing and footwear (+0.9%) in March.

Prices: The Australian dollar recorded last week's low in Friday's turnover, near $0.6990. It recovered to about $0.7025 by late in the European session. It fell in the past four sessions and in nine of the past 11. The technical tone remains fragile, but a move above $0.7050 would help stabilize it. That said, we continue to monitor a possible head and shoulders topping pattern. We estimate the neckline is $0.7080-$0.7100. Last week's high, slightly below $0.7090 on Monday, tested the neckline, which is not unusual in this pattern. It held and the Aussie declined for the rest of the week. Recall, that the $0.7000 also is the (61.8%) retracement of the Aussie's rally from the March low (~$0.6835).

Mexico

Drivers: The correlation between changes in the two-year US yield and the dollar/Mexican peso exchange rate over the past 30 session is near 0.79, the highest in more than 20 years. Also, it is above the 30-day correlation between the exchange rate and the Dollar Index (~0.70). Note that the 30-day correlation between changes in the exchange rate and Mexico's two-year yield is also positive (USD tends to rise alongside Mexican interest rates). It is a little below 0.50.

Data: It is a week full of important economic data and the central bank meeting on Thursday. Yet, the fact of the matter is that the economy contracted in Q1 (-0.6% quarter-over-quarter). Still, after cutting the overnight rate by 425 bp in the past two years, and most recently while the headline and core CPI were above the 2-4% target range, the central bank has signaled an extended pause. Mexico's inflation headline inflation in May slipped slightly below 4% for the first time since January. The core rate remains above 4% and the reading for the first half of June will be published on Wednesday, the day before the central bank meeting. However, before the inflation report, Mexico sees retail sales and that IGAE report, which is like a monthly GDP estimate. The day after the central bank meets, the May trade figures are due. Through April, Mexico had a $3.5 bln trade surplus compared with a $313 mln deficit in the first four months of 2025 and a $9.4 bln deficit in the same 2024 period. To put the trade balance in perspective, note the worker remittances to Mexico were $19.5 bln in the Jan-Apr period this year and almost as much in the same 2024 period.

Prices: The dollar had been in a roughly MXN17.16-MXN17.25 trading range in the few days before the FOMC meeting. The greenback spiked to almost MXN17.4370 in response to the hawkish hold. In the past two sessions, the US dollar has held below that high and consolidated. In the larger picture, the dollar seems well supported MXN17.12-15 and capped around MXN17.50-MXN17.54.

Disclaimer

Dollar Glows After the Fed's Hawkish Hold

noreply@blogger.com (Marc Chandler) — Thu, 18 Jun 2026 07:01:45 -0400

The Federal Reserve delivered a hawkish hold yesterday. The jump in US rates spurred a strong dollar advance that has been extended a little today. The new Fed chair received mostly high marks and dealt a blow to those narratives that saw him as beholden to the president’s wishes. He repeatedly underscored his and the Fed’s commitment to price stability. Warsh appears to harken back to Greenspan’s era before greater transparency replaced ambiguity in the communication. Less is more. On Tuesday, the Fed funds futures were discounting 21 bp of tightening this year, and now it is near 40 bp.

Three other G10 central banks met today, Norway’s Norges Bank, the Swiss National Bank, and the Bank of England. All three kept policy unchanged. Norway signaled another hike is likely this year. The swaps market has it discounted for September. The Swiss National Bank kept its deposit rate at zero. The BOE’s target rate remained at 3.75% and the swaps market anticipates at least one hike by year end. Today’s byelection in Makerfield will shape the near-term course of national politics and set the stage for a formal challenge to Prime Minister Starmer. Lastly, reports indicate ships are beginning to transit the Strait of Hormuz and oil prices are extended their slide.

Prices

G10

• Following the hawkish hold by the Federal Reserve, the euro tumbled to its lowest level since the end of March. It has made a new low near $1.1460 today. The intraday momentum indicators are stretched, and the euro looks poised to stabilize. Initial resistance may be around $1.15, where options for 9.5 bln euros expire today and another 2.9 bln euros on Friday. That said, the next technical target may be the low from late March around $1.1445 and the mid-March low, which is also the low for the year, was about $1.1410.

• Rising US yields pushed the yen to a new low since July 2024. The dollar reached JPY160.80. It backed off to about JPY160.50 but returned to JPY160.90 in Europe. Options for $1.5 bln at JPY161 expire today. The BOJ tried to overwhelm the market in late April/early May following the BOJ meeting that was judged as not sufficiently hawkish. With the US on holiday tomorrow, is this an opportunity for Japanese officials to try to overwhelm the market again. Separately, we will likely learn tomorrow that Japan’s core inflation was below its 2% target for the fourth consecutive month in May.

• Sterling tumbled to $1.3285 yesterday, its lowest level in a little more than two months. The firm labor market report was insufficient to prevent sterling from extending yesterday’s losses to slightly below $1.3225 today. The early April low was around $1.3180 and the late March low, and low for the year, was closer to $1.3160. The intraday momentum indicators are overextended. The $1.3265-85 area may offer the first hurdle.

• The Canadian dollar was sold to new lows for the year yesterday amid the jump in US rates and the risk-off reflected in the sharp equity market losses. The greenback reached almost CAD1.4125 yesterday and nearly CAD1.4135 today. It found support a little below CAD1.41 today. Previously, the year’s US dollar higher, which was recorded last week, was near CAD1.4025. Last November’s high was around CAD1.4140.

• While the Australian dollar was sold yesterday and traded slightly below $0.7000, it held above last week’s low (~$0.6980). It is consolidating so far today between about $0.7005 and $0.7040. In the bigger picture, we have been monitoring a possible head and shoulders top pattern. The neckline is around $0.7080-$0.7100 and projects toward $0.6880.

• The dollar made a one-month low against the Mexican peso on Monday near MXN17.1575. It reached almost MXN17.4370 on the back of the jump in rates and the equity drop. The greenback’s gains were halved in late dealings, and it settled near MXN17.3055. It is trading in about a MXN17.24-MXN17.3550 range today. The intraday momentum indicators are overextended and a pullback in North America toward the session low seems reasonable. Separately, Brazil’s central bank delivered its third consecutive quarter-point rate cut and brought the Selic to 14.25%. It was largely anticipated though inflation at 4.72% in May is above target and unemployment is near a record low. The dollar settled at BRL5.1115 yesterday, a six-day high close. Near-term risk extends back to last week’s high around BRL5.20.

• The dollar reached a five-day high against the offshore yuan yesterday, near CNH6.7815. Initial resistance may be around last week’s high (~CNH6.7925). It is consolidating inside yesterday’s range today. The dollar’s jump gave the PBOC little choice, it would seem, but to fix the dollar higher today and it did (CNY6.8130 vs. CNY6.8096 yesterday).

• The prospect of a trade deal with the US and the further drop in oil prices helped the Indian rupee extend its recovery into the fifth session today. In fact, initially the dollar gapped higher today and reached INMR94.7225 before reversing lower and fell to INR94.17, its lowest level since early May. It settled at INR94.33 for a nearly 0.85% loss this week, the largest in a little more than two months.

Other Markets

• The sharp decline in US equities did not carry over much to the Asia Pacific session today. Most large bourses advance but Hong Kong and mainland companies that trade there. Australia and New Zealand indices also retreated. Europe’s Stoxx 600 is threatening to end a five-day advance. US index futures are bouncing back, with the Nasdaq futures up about 1.6% and the S&P 500 up around 0.9%.

• The jump in US rates yesterday (13 bp in the two-year note and nearly five bp in the 10-year note) appeared to drag global rates higher today. European 10-year benchmark yields are mostly 1-2 bp higher. The 10-year US Treasury yield is about three basis points softer, near 4.45%, while the two-year yield is firm near 4.19%. European two-year rates are mostly 4-6 bp higher.

• Gold was not a match for the jump in US rates and dollar. It posted an ostensibly bearish outside down day. It closed the gap created by Monday’s higher opening and settled inside it. The yellow metal is firmer today but within yesterday’s range. It has traded between about $4254 and $4330 today. Silver’s price action was similar—an outside down day and filled the gap from Monday. However, unlike gold, silver settled below now filled gap, adding to the bearish action. Yet, it too has not seen follow-through selling today and is slightly firmer, above $68.

• July WTI fell to $74.60 yesterday before stabilizing. Losses were extended about $74.15 today. Reports indicate that the first ships, including a Saudi supertanker has made its way through the Strait of Hormuz today. July WTI is off a little more than $20 since the start of last week. The momentum indicators are stretched, and much good news seemingly has been discounted. The memorandum of understanding, or as one US Senator called it “a framework on how to get a deal”, has been signed and apparently is being implemented, and therein lies the immediate risk.

Data

• Following yesterday’s FOMC’s hawkish hold, today’s US data seems like small beer. The June Philadelphia Fed business outlook is one of the first June surveys that are reported. The Empire manufacturing and services were weaker than expected. Weekly initial jobs claims draw some attention after last week’s report saw a third consecutive weekly increase to 229k, the most since January. Continuing claims rose to a two-month high. Late today, the Treasury’s April international capital report (TIC) will be released. In Q1 26, there was a monthly average net foreign purchase of US stocks and bonds of about $101.55 bln, which is down from an average of about $128.55 in Q1 25. Chair Warsh may eschew forward guidance, yet for the time being at least, the market uses the Summary of Economic Projections as its forward guidance.

• Canada reports May industrial product and raw material prices. These are not the stuff that moves markets. Tomorrow, Canada is expected to report a 0.6% rise in April retail sales (0.9% in March). Next week’s highlight is the May CPI. The swaps market expects the Bank of Canada to remain sidelined until at least the fourth quarter.

• The eurozone reported a 15.7 bln euro current account surplus in April. In April 2025, it stood at 22.1 bln euros. In the first four months of the year, it averaged 24.09 bln euros compared with an average of 24.25 bln euros in January-April 2025 and 38.83 bln euros in the same period in 2024. Separately, construction spending rose by 0.6% after rising by a revised 1.7% (0.8% initially) in March.

• Ahead of the expected standpat decision by the Bank of England (7-2 vote), the UK released labor market report. Average weekly earnings growth with and without bonuses was steady at 4.4% and 3.4%, respectively. The number of payrolled employees rose by 2k in May. It was the first increase in four months. Through May, the UK payrolls fell by about 85k compared a loss of 43.2k in the first five months of 2025. The claimant count rose by 31.2k for an average monthly increase of about 12k this year compared with an average decline of almost 5k a month in the year ago period. The ILO measure of unemployment slipped to 4.9% from 5.0%. The swaps market has the BOE on the sideline until late this year when a 25 bp hike is discounted in Q4. Makerfield holds its much anticipated byelection today, and a victory by Andrew Burnham sets the stage for a formal challenge of Prime Minister Starmer, who the Labour Mayor of London declined back earlier this week. Still, there are hopes that there can be an orderly transition.

Disclaimer

New Era at the Federal Reserve

noreply@blogger.com (Marc Chandler) — Wed, 17 Jun 2026 06:43:50 -0400

Subdued activity mostly characterizes the capital markets today, ahead of the sessions highlight, the outcome of the FOMC meeting that Kevin Warsh will chair for the first time. Given his criticisms of the central bank and his past comments, it is possible he does not participate in the Summary of Economic Projections. At the press conference, he may share initiatives that are under consideration. There is a strong belief that after an extended period of continuity (Bernanke, Yellen, Powell), a new chapter in the Federal Reserve’s history is beginning.

The dollar is mostly firmer today, but the Swiss franc and Japanese yen are bucking the trend. Sweden’s Riksbank delivered a hawkish hold implying a rate hike by early 2027, but the krona is off about 0.20%, and among the G10 currencies, only the New Zealand dollar is heavier. The UK’s April CPI was softer than expected but there was little doubt before it that the Bank of England will hold policy steady tomorrow. The same is true for Norway’s Norges Bank. Late today, Brazil’s central bank meets and the swaps market leans toward a 25 bp rate cut that would bring the Selic to 14.25%. Oil prices initially extended their sharp decline but stabilized and both Brent and WTI futures are slightly higher.

Prices

G10

• Even though the euro was confined to Monday’s range yesterday, it posted its highest settlement since June 4, a little above $1.1605. The $1.1615 level, which has been frayed on an intraday basis for the last two sessions, corresponds to the (61.8%) retracement of the euro’s decline since the May 29 high (~$1.1685). The euro is trading quietly with a softer bias today. It has slipped below $1.16 in Europe. Initial support is seen $1.1590 but yesterday’s low was closer to $1.1575. We continue to note resistance in the $1.1640-50 area.

• Given that the BOJ’s rate hike was well discounted, we did not expect it to have much of an impact on the yen. In subdued trading today, it is within yesterday’s range. The greenback held above JPY160 yesterday and settled near its highs, slightly below JPY160.50. Last week’s high was slightly shy of JPY160.60. The April 30 high before the BOJ intervention was a smidgeon above JPY160.70.

• Sterling held above $1.3390 in the Asia Pacific session yesterday, a little below Monday’s low (~$1.3405) and set the session high near midday in NY near $1.3445. It must overcome resistance around $1.3485 to be meaningful, but for the first time in three weeks, it settled above the 20-day moving average. There has been no follow-through today, and sterling is trading in a narrow range (~$1.3410-$1.3435). Softer than expected CPI (0.2% vs. 0.4%) has spurred a Gilts rally that has not impressed sterling traders.

• The US dollar made another run at last week’s high for the year against the Canadian dollar (~CAD1.4025) but held slightly below. Still, the greenback posted its highest settlement since early last December and remains within striking distance. It is in less than a 10-tick range around CAD1.40. Yesterday’s session high was set in Asia-Pacific hours, and the session low was near midday in NY (~CAD1.3980). The US dollar’s 3.5% advance since the May 1 low (~CAD1.3550) is getting stretched. We are looking for some signal in the price action that a top is in place.

• The Australian dollar traded quietly yesterday, inside Monday’s range. It is within yesterday’s range today. We have been monitoring a head and shoulder topping pattern. Although the downside momentum stalled last week, the Aussie has not risen back above the neckline, which is $0.7080-$0.7100. Yesterday’s high was $0.7080.

• The Mexican peso advanced for the seventh consecutive session against the US dollar yesterday. It is the longest rally since last September’s eight-day run. The peso has appreciated by about 1.5% over the run. However, the downside momentum looks to have stalled in the MXN17.15-16 area. The low since May 2024 was recorded around the middle of February near MXN17.0865. The greenback is a little firmer today, but within yesterday’s range. A move above MXN17.2750 could signal a near-term low is in place.

• The offshore yuan rose it a new three-year high today. The greenback was sold to CNH6.7540. Through yesterday, the offshore yuan has risen by about 3.25% this year while the onshore yuan has risen by slightly more than 3.4%. This is the best in the region and accept to the Singaporean dollar, the other Asian currencies have declined against the dollar. The PBOC set the dollar’s reference rate at CNY6.8096 (CNY6.8108 yesterday).

• The US dollar gapped lower against the Indian rupee on Monday and consolidated inside that range yesterday. The near-term price action is important for the technical outlook. The top of the gap is around INR94.9475. If the dollar settles above it, it would be seen as a bullish development. On the other hand, follow-through dollar selling could signal a test on last month’s low near INR94.07. Today, the dollar was sold to a six-week low near INR94.29 but gains were trimming in late dealings, and it settled near INR94.5325.

Other Markets

• Profit-taking in the US tech stocks saw the Nasdaq tumble a little more than 1.1% yesterday, snapping a three-nearly 6% rally. The S&P fell almost by 0.60%. However, most bourses in the Asia Pacific region shrugged it off, but Hong Kong and the index of mainland shares that trade there, though China’s CSI 300 rose nearly 1%. Europe’s Stoxx 600 is extending its advance for the fifth consecutive session. In futures trading, the Nasdaq is up about 0.5% while the S&P 500 and Dow are narrowly mixed.

• Falling oil prices appeared to lend support to European and North American bonds yesterday. Benchmark 10-year yields fell 2-4 bp. The 10-year US Treasury yield fell in back-to-back sessions for the first time this month and near 4.44%, the yield has been practically flat since the end of April. Falling yields helped ensure a solid reception to Treasury’s $13 bln sale of 20-year bonds. Asia Pacific bond markets played catch-up and fell 4-7 bp today. European yields are narrowly mixed but for the 10-year Gilt, which is off 4-5 bp. The 10-year US Treasury yield is slightly softer but above 4.43%.

• Gold recovered from the test on $4000 last Thursday and approached $4370 on Monday before consolidating yesterday. It continues to consolidate and remains within Monday’s range. Nearby resistance is seen in the $4375-$4405 band. For its part, silver bottomed last week near $61.60 and reached about $71.30 on Monday before consolidating yesterday and today.

• July WTI took a leg down in North America yesterday amid reports that the MOU between the US and Iran will lift the sanctions on Iranian oil. The July WTI contract was sold to a new three-month low near $75.50. It fell another $1 today before recovering and is now slightly firmer on the day. The $74.35 area corresponds to a (61.8%) retracement of this year’s rally and the 200-day moving average is near $71.20.

Data

• Despite elevated household debt stress levels and the decline in savings, Americans continue to shop. The median forecast in Bloomberg’s survey is for retail sales to have risen by 0.5% in May, the same as in April. In the first four months of the year, US retail sales grew by an average of 0.8% a month compared with 0.2% a month in Jan-Apr 2025 period. Of course, the retail sales figure has been inflated by rising prices, but still we know that through April, real personal consumption rose by an average of 0.2% a month compared with a flat average in the first four months of last year. Still, it is outcome of the FOMC meeting—Warsh’s first as chair—and the Summary of Economic Projections (of which he is critical and has suggested before that he might not participate in the exercise. There is little doubt but that the FOMC will standpat and the statement may be crafted to avoid the three dissents over the bias at the April meeting. The post-FOMC press conference will draw much attention as the markets take the measure of the new chair.

• Ahead of tomorrow’s Bank of England meeting, at which it will most likely stand pat, the UK reported an acceleration in May’s CPI. The 0.2% increase was half of the median forecast in Bloomberg’s survey and kept the year-over-year rate steady at 2.8%. At an annualized pace, UK CPI has risen by 3.6% this year. Core prices are 2.6% higher year-over-year after a 2.5% increase in April. Service prices accelerated to 3.7% from 3.2%. Input producer prices rose 0.2% after a 2.6% surge in April (revised from 2.4%) for a year-over-year increase of 8.7% (vs.7.9%). Output producer prices were eased to 4.0% from 4.1%. The divergence warns of margin risk.

• True to form, Japan’s trade balance deteriorated in May (as it has done in 18 of the past 20 years). It nearly always has improved in June. Japan reported a trade deficit of about JPY379 bln, its first deficit since January. Through May, its trade deficit is around JPY577 bln vs. almost a JPY2 trillion shortfall in the first five months of last year. Separately, Japan reported core machine orders surged 8.7% in April after they plunged 9.4% in March.

Disclaimer

The Dollar Holds above JPY160 after BOJ Hikes, Aussie is Firmer after RBA Stands Pat

noreply@blogger.com (Marc Chandler) — Tue, 16 Jun 2026 06:42:29 -0400

Investors are still in the dark over the precise details of the memorandum of understanding between the US and Iran, but they apparently are sufficiently comfortable to take July WTI to a new two-month low, with August Brent at three-month lows. Softer oil prices are helping ease interest rates, and peripheral European benchmark 10-year yields are at three-month lows. The 10-year US Treasury yield has fallen a dozen basis points since Monday, June 8. Most G10 and emerging market currencies are firmer today.

As widely expected, the Bank of Japan hiked its overnight rate to 1% and would stop tapering its bond purchase next April, stabilizing them around JPY2 trillion (~$12.5 bln) month. The market leans toward another hike late this year. The dollar has held above JPY160 so far today. The Reserve Bank of Australia kept its policy rate steady at 4.35%. The market has around a 50% chance of another hike discounted in the fourth quarter. Chile’s central bank meets late today and is expected maintain its 4.5% overnight target rate.

Prices

G10

• After the euro was marked up to around $1.1620 yesterday, the upside momentum yielded to consolidation. The market appears to wait for more details of the US-Iran agreement and may have turned cautious ahead of tomorrow’s outcome of the FOMC meeting. The euro was sold to $1.1575 in the Asia Pacific session but recovered to almost $1.1615 in the European morning. The intraday momentum indicators are stretched and there are 1.25 bln euros of options at $1.16 that expire today.

• The Bank of Japan’s widely anticipated 25 bp rate hike left the dollar unimpressed. The dollar has held above JPY160 today and remains within last Thursday’s range (~JPY159.60-JPY160.60). Last Thursday, and again yesterday, the dollar approached and held above the 20-day moving average (~JPY159.75 today). It has not settled below it since May 14.

• Sterling recorded yesterday’s high near $1.3460 in Asia Pacific turnover. It was sold to a low near $1.3415 in the North American morning but mostly consolidated below $1.3445. After spending most of the session above the 20-day moving average (~$1.3420), it failed to settle above it. It has not closed above it in three weeks. Sterling was sold to $1.3390 before the European session today snapped back to around $1.3425 in the European morning. The intraday momentum indicators are stretched ahead of the North American opening. Almost GBP470 mln options at $1.34 expire today.

• The Canadian dollar rose a little through the pre-weekend high but remained on the defensive in North America. The US dollar fell to nearly CAD1.3950 in late Asia-Pacific trading yesterday and recovered to reach almost CAD1.3995 in North America. It reached nearly CAD1.4020 earlier today. Recall that last week, the greenback set a new high for the year near CAD1.4025. It is finding support in Europe near CAD1.40.

• The Australian dollar rose through last week’s high yesterday to reach almost $0.7090. After first approaching $0.7090 in early Asia Pacific turnover yesterday, it retested it in North America. The session low near $0.7040 was recorded after the RBA’s widely anticipated decision to hold policy steady. It recovered to around $0.7070 in Europe, which stretched the intraday momentum indicators.

Emerging Markets

• The risk-on mood helped the Mexican peso extend last week’s 1.4% rally. The greenback reached a one-month low before the weekend (~MXN17.1770) and recorded a marginal new low near MXN17.1575 yesterday, which was slightly below last month’s low. It is holding above MXN17.19 so far today. The US dollar ‘s decline is stretching into the seventh consecutive session today. fallen for the past six sessions. The April low was closer to MXN17.1275.

• The offshore yuan reached a new three-year high yesterday but is consolidating today. The US dollar was sold to nearly CNH6.7555. It is trading between CNH7.7565 and CNH6.7635 today. The PBOC set the dollar’s reference rate at CNY6.8108 (CNY6.8088 yesterday, a three-year low).

• The Indian rupee rose by a little more than 1% over the past two sessions, seemingly boosted more by the drop in oil prices than the official measures taken to encourage foreign investment and limit speculation of further rupee decline. The rupee is firm today but inside yesterday’s range. The dollar is trading between~ INR94.49 and INR94.7160, the lower end of where it has been over the past month.

Other Markets

• Falling oil and interest rates helped lift equities yesterday but consolidation is the flavor today. The MSC Asia Pacific Index rose 3% yesterday after a 2.75% gain before the weekend. It rose by about 0.5%, with the Nikkei 225 reaching a new record high. Australia stocks recovered from earlier losses after the RBA stood pat. Europe’s Stoxx 600 surged almost 1.9% before the weekend and edged up another 0.20% yesterday. It is up another 0.5% today. US S&P 500 and Nasdaq gapped sharply higher yesterday and settled firmly. The Dow Industrials did not gap higher but rose to a new record high. US index futures are narrowly mixed.

• Benchmark 10-year yields fell mostly 2-6 bp yesterday among the G10 yesterday. Australia and Canada were the exceptions, as their yields fell around half of a basis point. The US 10-year yield briefly slipped to a new low for the month, slightly below 4.42% but recovered to new session highs near 4.47% in the NY afternoon. While the 10-year JGB yield jumped nearly six basis points earlier today, Europe yields and the 10-year US Treasury yields are off mostly 2-4 bp. Peripheral European benchmark yields are at three-month lows, including Greece, Italy, Spain, and Portugal

• Gold rallied strongly yesterday and reached nearly $4370 after testing $4000 last week. The three-day rally of about 6.5% was the biggest three-day advance since early February. It gapped higher yesterday and the gap was unfilled. In the cash market it is found between the pre-weekend high (~$4246.50) and yesterday’s low (~$4265.35). It is consolidating today between about $4306 and $4348.50. Silver also gapped higher yesterday. The gap is between about $68.35 and $68.75. The 20-day moving average near $72.25 may offer initial resistance. Silver is trading between about $69 and $70.65 today. The consolidation in gold and silver looks constructive.

• July WTI gapped lower yesterday, but given the uncertainty, the market seemed reluctant to push it much below $80 yesterday. Today, the market seems more confident and pushed the July contract to almost $78.40, a new two-month low. Previous support (~$80) may not offer resistance.

Data

• The US reports May import/export prices (export prices rising faster than import prices) and housing starts and permits (which are expected to have slipped). The NY Fed’s service business survey is due on the heals of the softer manufacturing survey (13.5 vs. 19.6) reported yesterday. Still, tomorrow’s FOMC outcome is center stage as the Warsh era begins.

• Canada reports May existing home sales today. They rose (0.7%) in April, the first increase since last October. Canada also reports April portfolio capital flows. There has been a positive turnaround this year. In the first three months of the 2026, Canada reported net inflows of C$57.75 bln. In Q1 25, Canada experienced nearly C$6 bln net outflows.

• Germany’s June ZEW survey was mixed. The assessment of the current situation deteriorated (-81.0 vs. -77.8), while the current assessment improved (10.5 vs. -10.2). It is the third consecutive deterioration which now has returned to the level since at the end of last year. The expectations component, which had been improving, was dealt setback apparently by the Middle East war but recovered in May and June. The 10.5 reading in June is the best since February.

• As widely anticipated, the Bank of Japan hiked its target rate to 1.0% from 0.75% earlier today. It was a 7-1 vote with Asada, a Takaichi appointment, dissented. The swaps market has another 21 bp increase by the end of the year. The BOJ indicated that the normalization of monetary policy is not complete and indicated that from April 2027 it would stabilize its bond buying at around JPY2 trillion (~$12.5 bln) a month.

• There was not surprise from the Reserve Bank of Australia. After delivering three hikes already this year, it stood pat today. The futures market suspects the RBA is on the sidelines until at least last Q4, where around a 50% chance of another hike is discounted. The RBA seemed non-committal and kept the door open to further tightening if necessary.

• The weakness in China’s retail sales (-0.6% year-over-year) is grabbing attention today along side the continued contraction in property and fixed asset investment. Industrial output accelerated (4.5% year-over-year vs. 4.1% in April). House prices continue to decline. The yuan is unlikely to feature prominently in G7 discussions because 1) the currency is appreciating, even if the pace could be faster, and 2) there are other, arguably more important issues (e.g., AI, rare earths, Middle East War).

Disclaimer

Investors Don't Wait for Details to Celebrate US-Iran Agreement

noreply@blogger.com (Marc Chandler) — Mon, 15 Jun 2026 06:39:51 -0400

The prospect of a deal between the US and Iran has bolstered risk-taking appetites today, even though the details are the agreement are not clear and Washington and Tehran seem to have different interpretations of what has been agreed. Brent and WTI are near two-month lows. Stocks and bonds have rallied. The dollar has been sold and the PBOC set the dollar’s fix at a new three-year low.

At the end of last week, the US government ordered Anthropic to remove complete access to its new Fable 5 and Mythos new AI. The implications continue to be discussed. The US also added several large Chinese companies, including Alibaba, Baidu, and BYD to list of companies with alleged military ties. The most immediate implications are to restrict Pentagon procurement, but Beijing argues it is in violation of the recent agreement between Trump and Xi. Lastly, we note that Swiss voters rejected the referendum to cap the country’s population at 10 mln 55% to 45%. Still, the referendum does not appear to resolve the immigration issue.

Prices

G10

• The euro consolidated ahead of the weekend between about $1.1555 and $1.1590. It recorded an ostensibly bullish outside up day on June 11 on hopes of a Middle East settlement. Support near $1.15 held on two tests last week and boosted its significance. It opened near $1.1570 today and reached a little above $1.1620. Since the high was recorded, the euro has consolidated and found support a little below $1.16, where options for 1.43 bln euro expire today. Nearby resistance is seen in the $1.1640-50 area.

• The dollar consolidated against the yen ahead of the weekend. It was capped near JPY160.60 in the middle of last week and fell to about JPY159.60 on the optimism on June 11 and held above the 20-day moving average (~JPY159.70 today) and has not settled below it in a month. Yet, it still recovered ahead of the weekend and settled above JPY160 for the seventh time in the past two weeks. It is in about a quarter of a yen range around JPY160 today, where options for about $960 mln expire today.

• News before the weekend that the UK economy contracted by 0.1% in April took sterling to the session low near $1.3385. It recovered quickly to the session high near $1.3425 before consolidating. It approached that area again near midday in NY and it held again. It has been lifted to $1.3460 today, a six-day high. The next technical target may be the $1.3480-$1.3500 area.

• The Canadian dollar spent Friday’s session consolidating the loss from the previous session that saw it trade at levels not seen snice the end of last November. The greenback reached nearly CAD1.4025. It spent session ahead of the weekend below CAD1.40 and was sold to almost CAD1.3950 today. Last Thursday’s range is key (~CAD1.3930-CAD1.4025).

• The Australian dollar posted an ostensibly bullish key upside reversal on the June 11 risk-on fueled advance. Follow-through ahead of the weekend was limited to about 5/100 of a cent. Still, the consolidation looks favorable. Buying today lifted the Aussie to the lower end of a band of resistance that extends from $0.7090-$0.7120. A convincing move above there would negate the bearish head and shoulders pattern we have been tracking. There are about A$1 bln options at $0.7075 and another A$485 mln at $0.7085 that expires today.

• The risk-on mood helped lift the Mexican peso to its best level in nearly a month at the end of last week. The greenback was sold to MXN17.1770 and about MXN17.1575 today. In the previous week, the dollar traded above MXN17.50 for the first time in a month. It has a five-day slide in tow, matching the longest losing streak since January. Five of the eight top performing emerging market currencies were from LATAM last week. The Mexican peso was in eighth place, while the Colombian peso’s 3.3% (continued favorable response to recent first round of the presidential election) was the strongest. The Colombian peso is at level not seen since early 2021. Colombia’s central bank meets at the end of the month, and the swaps market is pricing in a 50 bp hike.

• The offshore yuan consolidated in the first part of last week and strengthened in the last couple of sessions. The dollar was sold to a marginally new the three-year low today near CNH6.7555. The PBOC set the dollar’s fixing ahead of the weekend at a new three-year low (CNY6.8109) and a little lower today (CNY6.8088).

• The Indian rupee traded firmly ahead of the weekend, helped by the lower oil prices and a smaller than expected rise in the May CPI. Indian inflation rose to 3.93% in May up from 3.48% in April. Inflation rose for the seventh consecutive month and was already at 3.21% before the Middle East war began. Helped by the tentative agreement between the US and Iran and the drop in oil prices, the rupee rose to its best level in over a month today. The dollar gapped lower and was sold to INR94.4525 before recovering and reached the session high in late turnover, near INR94.7740 and settled around INR94.7160. The pre-weekend low was INR94.9475.

Other Markets

• Equities finished last week on firm tone. Still, Japan, China, Hong Kong, South Korea and Taiwan and Singapore among the largest bourse posted weekly declines. Regional markets were firmer today. Several large bourses in the Asia Pacific regions rallied more than 2%. Europe’s Stoxx 600 rose nearly 1.7% last week and is up 0.60today. The S&P 500 bottomed last Tuesday at its lowest level in a little more than a month and recovered to trade at three-day highs ahead of the weekend. US indices are poised to gap higher at the open.

• Benchmark 10-year yields fell last week, arguably dragged lower by the drop in oil prices. The 10-year JGB fell 10 bp last week, and in Europe, only UK, Italy, and Greek yields were down slightly more. The 10-year Treasury yield fell a little more than eight basis points. Yields have fallen further today. The 10-year JGB yield was off almost 4.5 bp, while European yields mostly 4-5 bp lower. The 10-year US Treasury is down 3-4 bp to almost 4.44%.

• Gold fell to almost $4000 last week, completely unwinding the rally since late last November that had carried the now-tarnished yellow metal to nearly $5600 at the end of January. While it traded firmer ahead of the weekend and reached slightly above $4245, it still fell by 2.5% last week but gapped higher today to reach $4345. Silver also gapped higher today and it is pushing above $70. Initial resistance is around $72.50.

• July WTI fell by almost 3.5% ahead of the weekend to bring the weekly loss to about 6.5%. It traded as low as $83.20 at the end of last week, a level not seen since April 21. It gapped lower today and traded below $80 for the first time since April 17.

Data

• The US reports May industrial output and manufacturing production, and the NY Fed’s June manufacturing survey is due. The manufacturing ISM and PMI rose to four-year highs in May. After rising 0.7% in April, industrial output is expected to have risen by about 0.2% in May. Manufacturing production also is anticipated to have slowed after rising 0.6% in April. Manufacturing jobs increased by 25k in the first five months of the year. The sector lost nearly 160k last year. Recall that there are around four times more service sector jobs than manufacturing.

• Canada reports May housing starts and April manufacturing and wholesale sale. The reports tend not to move the exchange rate, and the implications for monetary policy are marginal at best.

• The eurozone reported a 0.1% increase in April industrial production after a 0.2% rise in March was revised to 0.4%. Over the first four months of the year, eurozone industrial output is flat compared with a 1.2% increase in the Jan-Apr 2025 period. The aggregate trade April trade surplus (seasonally adjusted) was 1.3 bln euros, down from 13 bln euros in April 2025. Through April, the eurozone trade surplus stood at 19.7 bln vs. 70.4 bln euros in the first four months of last year.

• The Reserve Bank of Australia meets the first thing tomorrow. After three rates hikes so far this year, and Governor Bullock acknowledging that they have begun having the desired impact, there is little doubt but that the RBA will leave policy unchanged.

• At the end of last week, Japan confirmed industrial output rose in April for the first time in three months. Earlier today, we learned that tertiary industry activity (services) rose by 1.3%, which was also the first increase since January and was twice as strong as the median forecast in Bloomberg’s survey projected. The Bank of Japan’s two-day meeting also concludes tomorrow. The market has high confidence of a 25 bp hike, even though Governor Ueda is sick and in a hospital. We suspect that a rate hike may make material intervention more rather than less likely.

• Tomorrow is the one day a month that China releases bevy of data, including retail sales, industrial production, fixed asset investment, unemployment, and house prices. Beijing reported that the economy grew by 1.3% quarter-over-quarter in Q1 26, the fastest since Q4.24. However, the economy appears to have slowed and growth this quarter may be near 1.0% (due mid-July).

Disclaimer

Week Ahead: 7 G10 Central Banks Meet, Only BOJ to Hike, Warsh Chairs First FOMC meeting, G7 Summit, and Possible US-Iran Agreement

noreply@blogger.com (Marc Chandler) — Sat, 13 Jun 2026 06:55:55 -0400

The week ahead is important. Seven G10 central banks meet. Even though Bank of Japan Governor Ueda has been hospitalized and will not attend the central bank meeting, it is only central bank expected to hike. Still, the FOMC meeting is historic, even though there is practically no chance of a change in policy. Kevin Warsh chairs his first FOMC meeting and a new Summary of Economic Projections will be published. A new era is at hand, and the full implications are not fully clear yet. In the UK, while the Bank of England still seems to be several months away from a change in monetary policy, the byelection in Makerfield may set the stage for a proper challenge to Prime Minister Starmer.

Risk appetites continue to appear sensitive to developments in the Middle East. After threatening a new round of intense bombing of Iran, the US relented and suggested an agreement was near. Risk was bought, lifting stocks and bonds and foreign currencies against the dollar in the North American afternoon on June 11. However, the lack of further progress and unnamed officials were quoted on the newswires suggesting an agreement may be struck on the outskirts of the G7 heads of state summit in France on June 15-17. Polymarket participants seem less sanguine and have a 17% chance that the Strait of Hormuz is re-opened by the end of June and 40% by the end of July.

Drivers: The single most important driver of the dollar is US interest rates. The correlation is a little stronger at the short-end of the curve (December Fed funds and the two-year yield) than changes in the 10-year note yield. The 30-day correlation of changes in the Dollar Index and two-year note yield is near the highest in about ten years (~0.77) while the correlation with the December Fed funds futures is near a two-year high (~0.76).

Data: With the May employment and CPI in hand, attention would turn to the real sector this week with industrial output, retail sales, and housing starts on tap. However, the most important event is the FOMC meeting, which Warsh will chair for the first time and hold a press conference. There will be a new Summary of Economic Projections. The Bernanke, Yellen, Powell era at the Fed is over. Warsh is from a different school of thought, and his appoint of a couple of advisers, including the author of the Agenda 2025 chapter on the Fed, underscores that observation. In addition to changes at the Federal Reserve itself, which may include communication and inflation targets, we suspect there is a reasonably good case for a new Treasury-Fed accord and the revaluation of gold, which is carried on the US books at $42.22 an ounce.

Prices: The Dollar Index has been trending higher since early May. The trendline connecting May's lows begins the new week near 99.50 and near 99.75 at the end of the week. The momentum indicators look poised to turn lower. The 20-day moving average, which DXY has not closed below since May 13 is near 99.45.

EMU

Drivers: It seems intuitive that the euro would be sensitive to changes in US rates. The rolling 30-day correlation between changes in the two-year US yield and the euro is near -0.84, the most since 2003. What is less intuitive is that changes in the euro are also inversely correlated with changes in the Germany's two-year yield. It reached -0.65, in early June, the most extreme since Q1 2020. Theory suggests the rate differential should be more important, and while we find that exchange rate often broadly tracks the two-year US German interest rate differential, the 30- and 60-day correlations are statistically insignificant.

Data: The ECB's rate hike last week, and given the other central bank meetings this week, the eurozone data may pose little more than headline rise. The eurozone data includes industrial production, external balances, and construction output. Germany's June ZEW investor survey is due on June 16. Expectations in May improved (for the first time since January), while the assessment of the current situation deteriorated for the second consecutive month to stand at a new low for the year. Note that Sweden's Riksbank meets on June 17 and the Swiss National Bank and Norway's Norges Bank meet the following day. All three will most likely stand pat.

Prices: Follow-through selling after the June 5 slide, spurred by the US jobs report, was limited to $1.15, which was tested last Monday and Thursday. The euro peaked last Thursday and Friday near $1.1590, encouraged by hopes of a lasting ceasefire in the Middle East, which corresponds to about the halfway mark of the sell-off since the May 29 high near $1.1685. The 20-day moving average also is near $1.1600. The momentum indicators look set to turn higher. The $1.1640-55 area may offer resistance ahead of the end of May high.

PRC

Drivers: Beijing’s encouragement of gradual yuan appreciation through the setting of the dollar's daily reference rate is like oxygen. At the same time, the dollar's broad movement also has been conducive. Changes in the Dollar Index and the greenback against the offshore yuan rolling 60-day correlation rose above 0.80 for the first time in a decade in late May and is now around 0.76.

Data: China reports real sector data and house prices on June 16. The Chinese economy has lost some momentum. Retail sales in May are projected to have declined on a year-over-year basis for the first since the end of 2022. Industrial output may have increased by around 4.3% year-over-year. In May 2025, it rose 5.8% year-over-year. Meanwhile, house prices still do not appear to have reached a floor, and fixed asset investment contraction is deepening.

Prices: Ahead of the weekend, the PBOC set the dollar's reference rate at a new three-year low (CNY6.8109). Since the end of last September, when the PBOC campaign began the dollar's fix has risen on a weekly basis only three times (in 35 weeks). The cumulative move has been modest (~4.2%). Still, only a handful of emerging market currencies, (mostly Latam, Hungarian forint, Russian ruble, and South African rand) have outperformed it. It means that yuan is rising on a trade weighted basis alongside the rising trade surplus. The dollar made a new low for the week ahead of the weekend near CNH6.7590, just above the three-year low set earlier this month (~CNH6.7580). The next important technical target may be around CNH6.70.

Japan

Drivers: The broad direction of the dollar appears to be the one of the most important influences on the dollar-yen exchange rate, despite the weakening correlation. The rolling 30-day correlation of changes is nearly 0.60 correlated, down from about 0.85 in late May, and now is near the lowest in three months. The correlation of changes in the exchange rate and US rates is around 0.62 (two-year yield) and 0.60 (10-year yield). The dollar tends to rise when Japanese yields increase too, but the correlations over the past 30- and 60-days are below 0.1 (for the 10-year JGB yield for both tenors) and 0.15-0.20 (for two-year JGB yield). We are not convinced that a 25 bp hike will change the exchange rate dynamics. However, it might make the US more supportive, like it was in January, of Japanese official efforts to support the currency, rather than the silence that greeted the recent material intervention.

Data: The highlight of the week is the Bank of Japan meeting that concludes on June 16. The swaps market has 25 bp nearly fully discounted. The market also is discounting about an 80% chance of another hike before year end. Japan's May CPI is due a couple of days later, but the Tokyo CPI gives good insight. Recall that Tokyo's May CPI eased to 1.4% from 1.5%, and the core measure, which excludes fresh food slipped to 1.3% from 1.5%. The measure that excludes fresh food and energy moderated to 1.6% from 1.9%. The core rate, which the BOJ targets, has been below 2% for three months through April. Ironically, with US CPI running more than twice as high as Japan's, and growth considerably stronger (2.6% year-over-year in Q1 vs. 0.4% year-over-year in Japan), the US administration wants Japan's central bank to raise rate and for the Federal Reserve to cut them. Japan also reports May trade figures. By most reckoning, the yen is terribly undervalued, yet it continues to record trade deficits. It is swinging toward a surplus. In the first four months of the year, the trade deficit was about JPY200 bln. The deficit was about JPY1.91 trillion in the same period in 2025. Japan has reported a small surplus in five of the past six months.

Prices: The dollar settled above the JPY160 threshold for the second consecutive week. The greenback appreciated in the previous four weeks. In the three weeks before the late April intervention, the dollar had fallen. It reached almost JPY160.60 last week, its best level since poking above JPY160.70 briefly at the end of April. The momentum indicators are turning lower. A break of last Thursday's low (~JPY159.60), which also is around where the 20-day moving average is found, may be the first indication a top may be forming.

Drivers: The 100-day correlation of changes in sterling and the euro (~0.88) is slightly higher than the correlation between the Swiss franc and euro (0.86). Changes in sterling are inversely correlated (30 sessions) with changes in the US two-year yield by the most in more than a decade (~-0.75). Sterling also is inversely correlated with changes in the UK two-year yield (-0.52, the lower end of a four-year range.

Data: Ahead of the conclusion of the Bank of England meeting on June 18, the UK reports May CPI and April/May labor market update. In the first four months of the year, UK's CPI has risen at an annualized rate of almost 4%. The UK's 10-year breakeven (the difference between the inflation protected security yield and the conventional yield) has risen from a little below 2.95% at the end of last year to nearly 3.65% in mid-May and now is near 3.28%. The UK's unemployment rate has risen from 4.4% at the beginning of last year to 5.2% in December 2025 and January 2026 before pulling back to 4.9% in February and was 5% in March. Private sector earnings growth (three-month average, year-over-year) has slowed to 3% in March 2026 from around 6% at the start of 2025. The swaps market recognizes there is little chance of a change in policy from the BOE now. The swaps market has about 9 bp of tightening discounted for next month's meeting or about 36% of a 25 bp hike. A hike is fully discounted at the November BOE meeting and about 12.5 bp of another hike in December is priced in before the end of the year. Meanwhile, all eyes will be on the Makerfield byelection on June 18, where a victory for Manchester Mayor Burnham will give him standing to challenge Prime Minister Starmer. Defense Secretary Healey resigned last week in a dispute over military spending. An ally of Starmer's, Healey's resignation is another blow to the prime minister.

Prices: After posting an ostensibly bearish outside down day after the US employment report on June 5, follow-through sterling selling was limited to about a quarter-of-a-cent at the start of last week. Sterling found support ahead of last month's low (~$1.3300). It recovered to almost $1.3435 on June 11 amid optimism about the Middle East. The momentum indicators have stabilized but have not turned higher. Sterling appears to be near the middle of a one-month two-cent trading range, $1.33-$1.35.

Canada

Drivers: Among various financial variable, the changes in the US dollar against the Canadian dollar had been the most correlated with the changes in the Dollar Index. The rolling 30-day correlation is around 0.70. The high for the year was in early March, near 0.85. It has now fallen to a new low since early January, around 0.47. The exchange rate is correlated with the changes in the US two-year yield. It peaked near 0.55 in mid-May, the highest since last October, and now it is near 0.37. The correlation was mostly inverse last November-December and again from early February 2026 to early March. Since mid-March, higher Canadian two-year rates have coincided with a stronger US dollar against the Canadian dollar. The 30-day correlation is a little above 0.35, the highest this year. It was mostly inversely correlated from last November through mid-March.

Data: As widely anticipated, the Bank of Canada left policy steady last week, with its overnight target rate at 2.25%. The policy dilemma that officials noted of the supply shock emanating from the Middle East war amidst economic sluggishness is understood to keep the central bank on the sidelines in the coming month. A quarter-point hike at the end of year is largely priced into the swaps curve. This week's high-frequency data, which includes May housing starts, existing home sales, and April portfolio flows and retails sales do not have the heft to move the needle.

Prices: Want to see a one-way market? Look at the Canadian dollar. Since the start of May, there have been 31 sessions through the end of last week. The Canadian dollar has weakened in 24 of the sessions, and five of the past six weeks. The greenback reached nearly CAD1.4025 last week, its best level since last November. The momentum indicators are stretched but do not stand in the way of a new high, but last November highs (~CAD1.4130-40) seem a bridge too far. Initial support maybe in the CAD1.3900-30 area.

Australia

Drivers: Over the past 30 sessions, changes in the Australian dollar's exchange rate are slightly more inversely correlated with changes in the US two-year yield (~-0.85), than the Dollar Index (~-0.77). Changes in the two-year US yield is more than twice the correlation with Australia's two-year yield (~0.12). The Aussie's rolling 30-day correlation with gold prices edged a bit higher to almost 0.87 in recent days, the highest in more than a decade. The 60-day correlation peaked in February, a little above 0.70, a two-year high, and is near there now.

Data: In an otherwise quiet week for high-frequency Australia data, the central bank meeting on June 16 is the highlight. The RBA has hiked its cash rate target by 75 bp this year in three steps to 4.35%. Governor Bullock has recognized that the tightening of policy is already having the desired impact. The Reserve Bank of Australia's mini-tightening cycle may be over. It followed a three-step easing cycle in 2025. The swap and futures market do not have another hike fully discounted.

Prices: The Australian dollar's losses after the June 5 US jobs data were extended from a little below $0.7040 to about $0.6980 last week. However, the risk-on, drop in oil prices and lower US rates helped the Aussie post a potential key upside reversal on June 11. The Aussie made a new two-month low and then recovered to settle above the previous day's high. It consolidated between about $0.7020 and $0.7055 ahead of the weekend. The neckline of the potential head and shoulders pattern is ~$0.7080-$0.7100 and it is not unusual to retest the neckline after a break of it. Momentum indicators are extended but have not turned higher. A break of the $0.6980 area could target $0.6940 next.

Mexico

Drivers: Two factors seem to have the most influence on the Mexican peso's exchange rate against the dollar now. The first is changes in the US two-year yield. The 30-day correlation is near 0.80, the highest in more than a decade. The 60-day correlation is around 0.55, the highest since late 2022. The other factor is the risk environment, for which we use the S&P 500 as a proxy. Over the past 30 sessions, the inverse correlation of change in the US dollar-peso exchange rate and the S&P 500 is near -0.76. It has rarely been more extreme than -0.80 in the past 10 years. The 60-day correlation is nearly identical with the 30-day, but it is the most extreme since 2012.

Data: There are no market-moving economic reports from Mexico in the coming days. Brazil's central bank meet on June 17, and economists polled by Bloomberg are more confident of a rate cut, which would be the second in the cycle than is the swaps market, which has about eight basis points of easing discounted.

Prices: Optimism about the war in the Middle East and the risk on spurred a 1% gain for the peso on June 11, the largest single day advance since early April. The peso has a five-day rally coming into the new week. The dollar pushed briefly above MXN17.50 on June 5 after the US jobs report and reached MXN17.1770 before the weekend, its lowest level in about a month. Last month's low was closer to MXN17.16 and the April low was about MXN17.1275. A two-year low was recorded in February near MXN17.0865.

Disclaimer

Week Ahead: Surging Greenback on Robust Jobs Data, while ECB Hike Seen as a Done Deal

noreply@blogger.com (Marc Chandler) — Sat, 6 Jun 2026 07:15:00 -0400

(No commentary this week. Analysis returns on June 13 with the next weekly. Good luck, and thank you for your patience.)

The war in the Middle East continues to disrupt flows from the region and helps shape risk appetites. After falling by almost 14% in the last two weeks of May, July WTI rose about 4.5% last week as there seemed to be little progress toward a resolution. The odds that Strait of Hormuz on Polymarket seem more cautionary and stable than the vagaries of the capital markets and oil futures. On that event site, there is about 18% chance that the Strait is opened by the end of June and about 36% it is opened by the end of next month.

Meanwhile, monetary policy is also in play. The Bank of Canada and the European Central Bank meet on Wednesday and Thursday, respectively. Even though revisions at the end of last week showed the regional economy contracted in Q1, the market is highly confident that the ECB will hike rates and signal that it will remain vigilant, i.e., that it is prepared to raise rates again. The deposit rate will stand at 2.25% at the end of next week. On the other hand, there is practically no chance that the Bank of Canada changes its 2.25% policy rate. The Canadian economy unexpectedly contracted in Q1 26, the second consecutive quarterly contraction. Still, ahead of the weekend, Canada reported an increase of 154k full-time positions in May and a drop in the unemployment rate to 6.6% from 6.9%. Canada and the EU-harmonized CPI baskets are quite different, yet Canada's April headline CPI was 2.8% and its core rate was at 1.5%, and its underlying core measure average about 2.05%. The eurozone's May CPI was 3.2% and the core 2.5%.

Drivers: The greenback remains sensitive to geopolitical developments, and when news gives reason to be hopeful of an extended ceasefire, the dollar is typically sold. In terms of financial variables, the 30-day correlation of changes in the Dollar Index and the two-year US yield is around 0.75, near the highest since late 2016. The correlation of changes in the Dollar Index and the US 10-year is also near 075, the highest since the end of 2024. Last month, the rolling 30-day correlation of changes in the Dollar Index and S&P 500 reached almost -0.75, its most extreme since Q4 22. It is now closer to -0.65, which is more extreme than seen in 2025.

Data: The most important high-frequency US data point is the mid-week release of May CPI. The median forecast in Bloomberg's survey is for a 0.5% rise in the headline rate and 0.4% in the core. Given the base effect, the year-over-year rates will likely rise to about 4.2% (from 3.8%) and to 3.1% (from 2.8%), respectively. This may understate the price pressures. Assuming the median projections are accurate, it would translate into a 6% annualized pace of headline inflation in the first five months and 3.6% annualized pace in the core. That is a week before the conclusion of the first FOMC meeting that Warsh chairs, at which a new Summary of Economic Projections will be presumably released. The day after the CPI report, the May PPI is due. For understandable reasons, the market reacts less to PPI than CPI. After surging 1.4% in April, a more modest but still strong rise of 0.5% is expected. That would lift the year-over-year rate to 6.2% from 6.0%. The April trade balance is also due. We already know that the goods surplus narrowed a little. While the US runs a chronic goods deficit, its service surplus is just as persistent. While China, with about 17% of the world's population accounts for about 14.5% of the world's exports, the US accounts for a little more than 4% of the world's population and 13% of global service exports. Throughout the industrialized and many emerging markets, the service sector provides for more jobs than the manufacturing sector. The May federal budget deficit will be reported, too. Through April, the cumulative deficit is about 9% smaller than the year ago period, through the shortfall in the first four months of the calendar year is about 4% larger.

Prices: The strong May jobs growth and the backing up of market rates lifted the Dollar Index to two-month highs ahead of the weekend, about 100.10. It posted an ostensibly bullish outside up day by trading on both sides of the previous session's range and closing above it high. The next technical target may be the year's high was recorded at the end of March, near 100.65.

EMU

Drivers: With a few exceptions, the euro has been mostly in a $1.16-$1.18 trading range since around April 20. It broke decisively lower ahead of the weekend and after the US employment data. The euro's inverse 30-day correlation with changes in the two-year US yield is near -0.82, the most extreme in more than 20 years. Ironically, the correlation of changes in the euro and Germany's two-year yield is also inverse and around -0.65, it is near the most extreme in six years. The correlation between changes in the euro and the two-year interest rate differential is about 0.10 over the past 30 sessions.

Data: Germany reports April factory orders, industrial output, and trade figures ahead of the ECB meeting on Thursday, June 11. German factory orders jumped 5% in March after a 1.4% increase in February. Yet, industrial output has disappointed. It fell by 0.7% in March after a decline of 0.5% in February. On the other hand, Germany's trade surplus is holding up better than one might expect given the China shock memes. German recorded an average monthly trade surplus in Q1 26 of 18 bln euros, the same as in Q1 25. Meanwhile, the market is confident that the ECB will hike rates. The swaps market has another hike fully discounted in the fourth quarter.

Prices: The euro was turned back from the 20-day moving average (~$1.1645) even before the stronger-than-expected US jobs data sent the single currency below last month's low near $1.1575. It slumped a little through $1.1520. Initially, the $1.1500 area may offer support , but a move back to the year's low set in mid-March a little above $1.1400 cannot be ruled out. Reestablishing a foothold above $1.1600 is needed to begin repairing the technical damage.

Japan

Drivers: Near 0.85, the 30-day rolling correlation of changes in the dollar-yen exchange rate and the Dollar Index, it is near the best level since early Q4 25. The correlation between the exchange rate and the changes in the US 10-year yield has drifted lower from the year's high in late April near 0.65 to a little above 0.50. The correlation between the exchange rate and Japan's 10-year yield is less than 0.05 and has not been above 0.40 since mid-2024. The correlation of the exchange rate and the 10-year interest rate differential is a little below 0.50. It was briefly inversely correlated in December last year. The threat of intervention after a record operation in late April through early May has also injected a new element into the mix.

Data: Ahead of the BOJ meeting conclusion on June 16, Japan offers up a revision of Q1 GDP, April's current account, and May producer prices. The data is unlikely to impact expectations that the central bank will hike rates. The initial estimate of Q1 GDP (2.1% annualized vs. 0.8% in Q4 25) was stronger than expected. While Japan runs a current account surplus and has a currency that is undervalued, it has been running a trade deficit. That is changing. The swaps market has almost an 80% chance of a hike later this month, and around a 70% chance of another before the end of the year. Paradoxically, the US Treasury Secretary has encouraged a BOJ hike, yet its core inflation has been below target for the three months through April, and its headline rate is less than half of the US, but the administration has argued for lower US policy rates.

Prices: The dollar reached a new high since the late April BOJ intervention after the US employment data near JPY160.35. The high set April 30 was JPY160.70. The dollar reached a high in March around JPY160.45. The momentum indicators are higher now than when the BOJ intervened at the end of April. The US two- and 10-year yields are around 25 bp higher than at the end of April. The chances of a BOJ rate hike this month was seen as a 65% chance in the swaps market at the end of April and is now about 95% discounted.

PRC

Drivers: Assuming rational actor, one must conclude the Beijing is allowing the yuan to appreciate against the dollar and its trade-weighted basket because it is understood to be in its interest. One can speculate about what interests are being served. There are a few candidates: Deflect some animosity of its historically large trade surplus, make the acquisition of foreign financial and real assets cheaper, and encourage domestic capital to stay at home, as Beijing checks outbound capital flows. At the same time, the rolling 30-day correlation of changes in the Dollar Index and the dollar against the offshore yuan reached at least a 10-year peak in late April near 0.85 and has eased to about 0.68 now. This is still the upper end of its long-term range. Recall that in late January it fell to below 0.05 and last year, it was even inversely correlated briefly.

Data: China reports two time series for which the markets and the media are particularly sensitive. The first is trade. The May trade figures are due. Through April, the China's trade surplus is about 4% smaller than in the first four months of 2025. While we recognize the yuan is undervalued, the 20% magnitude that some economists and banks suggest, does not appear extreme given the greenback's over-valuation against serval major currencies. The OECD's measure of purchasing power parity estimates the yen is more than 60% undervalued, the euro 30% and the Canadian dollar 20%. And the claim that a rising yuan will allow other Asian currencies to appreciate is not borne out in the price action in recent months. Moreover, some economists claimed that China was exporting deflation. Yet, what has happened is opposite. China's inflation gap with other countries has narrowed, not because others converged with China, but China's consumer and producer prices have risen.

Prices: The yuan is entering a consolidative/corrective phase after trending higher since the end of March. It had spent most of March consolidating. The greenback posted an outside up day against the offshore yuan and settled above the 20-day moving average (~CNH6.7875) for the first time since the end of April. The dollar's high from the second half of May was around CNH6.82 and this may be a reasonable initial target.

Drivers: Sterling's correlation with the euro over the past 30 sessions is near 0.87. It has rarely been higher in the past decade. The 60-session rolling correlation is 0.90, which matches the late 2023 correlation, and the highest in at least two decades. Changes in sterling are inversely correlated with changes in US two-year yields, as one would intuitively expect, and around -0.75, it is the most extreme since nearly 20 years. Less intuitively clear, the correlation of changes in sterling and UK two-year yields is also inverse, at near -0.55, it rarely is more extreme.

Data: The UK's April GDP will be released at the end of the week. Growth in the first quarter was a firm 0.6%, matching the best quarterly performance since Q1 24. Still, the economy seems to be on the verge of slowing, and the median forecast in Bloomberg's survey is for near stagnation in Q2 and Q3. The swaps market has tempered its previous hawkish outlook for the central bank. The first hike is not fully discounted until the middle of Q4 and about a 20% chance of a second hike. Recall that as recently as late April, three hikes were fully discounted.

Prices: Sterling posted a big outside down day ahead of the weekend. It settled below $1.3400 for the first time in two and a half weeks. It was sold to $1.3330. The next target is around $1.3300, which held last month. The year low was recorded at the end of March near $1.3160.

Canada

Drivers: The Canadian dollar is sensitive to the greenback’s overall direction. The rolling 30-day correlation of changes in the USD-CAD exchange rate and the Dollar Index is around 0.67. It peaked shortly after the war began near 0.85, which was the highest since mid-2024. The Canadian dollar is also sensitive to the general risk environment, using the S&P 500 as the proxy. The rolling 30-day correlation of changes in the USD-CAD exchange rate and S&P 500 is near -0.45. The exchange rate is more sensitive to changes in the US two-year yield (~0.45, 30-day rolling correlation) than changes in Canada’s two-year yield (~0.35) or changes in the two-year interest rate differential (~-0.04).

Data: As we noted above, the OECD's model of purchasing power parity has the Canadian dollar trading about 20% below fair value. Yet, Canada's trade balance has deteriorated. In Q1 25, the goods balance was in surplus by an average of about C$337 mln a month. In Q1 26, the average shortfall was nearly C$2.2 bln. The Bank of Canada meets on June 10. Before the Middle East war began, the swaps market was discounting about a 40% chance of another cut. This swung around dramatically, and by March 20, the market had a little more than three rate hikes this year fully discounted. The pendulum has swung sharply again, and even before the recent data that showed back-to-back quarterly contractions, the swaps market had less than two hikes priced into the swaps curve. Now, there is a hike fully discounted late in the year and about a 37% chance of a second.

Prices: The Canadian dollar initially reacted positively to news that a whopping 154k full-time jobs were created in May, the most since February 2022. The unemployment rate fell back to 6.6% from 6.9%, while the participation rate was steady (at 65%) and wage growth slowed markedly (to 3.2% from 4.8%). The US dollar initially fell to almost CAD1.3865 before it rebounded to a new session high near CAD1.3950. The year's high was recorded at the end of March slightly above CAD1.3965. A move above CAD1.40 would signal potential toward CAD1.4100-40.

Australia

Drivers: Judging from the 30-day rolling correlation of changes, the Australian dollar is most sensitive to changes the US two-year yield (-0.85), the most in more than two decades. The Aussie is also sensitive to the greenback's broad direction, using DXY as the proxy (~-0.82), the most extreme in two years. The Aussie is less sensitive to changes in the domestic two-year yield (<0.35). The correlation with the two-year interest rate differential and the exchange rate is lower than with the US rate alone (~0.71). The exchange rate’s correlation with gold has recovered from around 0.35 in late March to around 0.84, the highest since late 2022.

Data: Australia's economic calendar is light, consisting of private sector consumer and business surveys. Melbourne Institute's consumer inflation expectation survey may be the most important. It reached 5.9% in April, its highest level since November 2022 before pulling back in May to 5.6%, which was also last year's high print. The central bank meets on June 16. With three hikes this year already delivered and the recent data, including employment, the preliminary May PMI, and April household spending, weaker than expected, there is little doubt, but the RBA is on hold. The futures market has downgraded the probability of another hike this year to about 70%. It had been fully discounted as recently as May 26.

Prices: The Australian dollar broke down after the US jobs data and fell a little below below $0.7040, its lowest level since April 13. It settled below the lower Bollinger Band (~$0.7065) The Aussie could be at the edge of a precipice. Since around mid-April, a head and shoulders topping pattern has been etched out and it appears to have settled below the neckline with the losses suffered at the end of last week. The measuring objective of the pattern is around $0.6900. From another perspective, the $0.7055 area is the halfway mark of the Aussie's rally off the year's low from March 331 (~$0.6835) and the next retracement objective is near $0.7000.

Mexico

Drivers: Four recent peso drivers stand out. First, the 30-day correlation between changes in the exchange rate and changes in the US two-year yield is above 0.80 and the highest in 20 years. They were inversely correlated until about mid-March. Second, there is still a substantial sensitivity to risk. Using the S&P 500 as the proxy, the inverse correlation of the dollar-peso exchange rate is almost -0.79. In April, it approached -0.85, which has not been seen in a decade. Third, the exchange rate is inversely correlated with gold (~-.079), the most extreme since mid-2022. This is to say, the peso tends to strengthen alongside gold. Fourth is the dollar's overall direction. The correlation of the exchange rate and DXY changes is about 0.63. It is off this year's peak near 0.80, but it is still in the upper end of this year's range.

Data: Mexico reports May vehicle production and exports to start the new week. In April, Mexico exported almost 87% of the vehicles it produced. By contrast, estimates suggest China exports 15-20% of the vehicles it produces and about of a fifth of those exports are foreign brands. The highlight of the week is Tuesday's May CPI and Thursday's April industrial output. Both the headline and core CPI measures likely remained about the upper end of the 2%-4% target range, while the economy struggles to find traction. Industrial output contracted by 1.2% year-over-year in Q1 and the monthly series fell by a cumulative 1.36% in Q1. After delivering the second cut of the year last month, Banxico has signaled it is moving to the sidelines, and the swaps market favors a rate hike (80%) by the end of the year.

Prices: The Mexican peso fell by around 1.10% ahead of the weekend, matching it biggest decline in nearly three months. It turned what was a small gain for the week into modest loss (~0.70%). The dollar recorded an ostensibly bullish outside up day against the peso, having traded on both sides of Thursday’s range and settled above its high. In fact, the greenback settled at its best level in a month. The dollar had forged a base in recent sessions in the MXN17.26-MXN17.27 area. It was lifted to about MXN17.5360 before the weekend, its best level since May 5 before closing near MXN17.48. The next technical target is the cap from the second half in April in the MXN17.58-MXN17.59 area.

Disclaimer