Bank of America Global Research highlights the reading from its month-end fixing model.

"We estimate FX rebalancing needs based on a conventional 60/40 portfolio of global equities & bonds. Our estimates reflect broadly an outperformance of EM denominated assets over May (and to a lesser extend USD assets), and relative underperformance of GBP, EUR and JPY denominated assets," BofA notes.

"This underperformance implies scope for rebalancing flows out of EM (-0.9σ) + to lesser extend USD (-0.2σ), and into GBP, EUR & JPY with Z-Scores c.+1.1σ, +0.9σ & +0.8σ, respectively)," BofA adds.

Goldman Sachs Research sees a scope for further USD strength in the near-term on restricted energy flows.

"The latest set of data help demonstrate that, other things equal, each day of restricted commodity flows is incrementally positive for the Dollar. We believe that some of the recent underperformance in European currencies, and sharper move in DXY, reflects the concern that a longer disruption will start to more significantly constrain activity in the region," GS notes.

"We think this is an important and likely durable shift in market dynamics that are increasingly reflected in the Dollar rather than being limited to shifts in relative value pairs. Recent moves give USD more room to sell off on risk relief, or renewed tech sector concerns, but we think as long as energy flows remain restricted there is building and broadening appreciation pressure on the Dollar," GS adds.

• 0.7145 traded overnight, sellers emerged as risk sentiment soured

• The latest reports on the conflict with Iran drove risk-off trading

• USD, US yields , USD/CNH & oil rallied on the reports

• Gold , silver , equities sank to reinforce USD buying

• AUD/USD fell to 0.7098, neared the 55-DMA before bouncing a bit

• NY opened near 0.7115, AUD/UD traded down -0.36% in early action

• Techs lean bearish; RSIs falling, pair trades below the 10- & 21-DMAs

• Monthly inverted hammer candle in place for May reinforces bear signs

• US April PCE, durable goods & weekly jobless claims are risks in NY
audusd


(Christopher Romano is a Reuters market analyst. The views expressed are his own)

• USD/JPY creeping higher at glacial pace, spot trading at levels the MoF last pulled the trigger

• 160 is the line in the sand, how price action evolves there will be telling

• Intervention threat still keeping topside contained for now as ranges compress

• U.S.-Iran air strikes provide JPY a modicum of support on the crosses

• Both parties still at the table though, thus the bias continues to lean towards an eventual deal

• Range for now is 159-160 until a catalyst breaks the stalemate
USDJPY daily chart


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))

• Cable slips back through the 200DMAs following the latest geo headlines

• Iran-U.S. trade air strikes but both sides are still at the table - not a meaningful escalation yet

• In turn, markets are not aggressively chasing the move, price action still somewhat contained

• As long as talks hold, bias still leans towards an eventual deal, preventing an overreaction to the noise

• Cable remains a sideways grind with no fresh catalyst to break it for now

• U.S. Core PCE up today, eyes for a topside beat, but geo headlines are likely to cap any notable USD move

• Levels to watch: Resistance at 1.3485-1.3500. Support at 1.3350, then 1.3300
GBPUSD daily chart


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))

• Fresh attacks by both sides show negotiations to end Mid-East conflict are not as close as hoped

• Oil and USD higher but overall gains remain limited as escalation fears are still contained for now

• EUR/USD based 1.1586 before regaining low 1.16's - support May 21 1.1577 low since early April

• That's down from 1.1661 Wed. Bulls need close above 55 and 200-dma's 1.1648 and 1.1682

• EUR 1-billion 1.1595-1.1600 option expiries today, more nearby on Friday - hedging helps contain FX of late

• Benchmark 1-month expiry FX option implied volatility sits just above new lows since Jan at 5.1

• Option risk reversals retain a volatility premium for downside over upside strikes, but its very small

• Related - Morgan Stanley urges investors to fade any dollar recovery
EUR=EBS


EUR/USD FXO implied volatility


EUR/USD 25 delta risk reversals


(Richard Pace is a Reuters market analyst. The views expressed are his own)

• AUD/NZD took centre stage Wednesday - a sharp drop from 1.2279 to 1.2097 raising questions about the year-long bull trend

• The sell-off was macro driven - hawkish RBNZ and cooler Australian CPI combining to fuel carry trade unwind fears

• Spot found demand at 1.2066 Thursday but the damage is done - a 15% bull run in a year is now firmly under the microscope

• Option desks report heavy directional downside plays including exotic structures like one-touches

• These options would increase in value if AUD/NZD extends losses and if volatility increases

• Implied volatility finally meets demand after trading its lowest levels since January
AUDNZD=D3


AUD/NZD FXO implied volatility


(Richard Pace is a Reuters market analyst. The views expressed are his own)

• Intervention threat and long gamma in FX options have combined to suppress USD/JPY spot and crush volatility

• Much of that long gamma stems from exotic options - barriers and triggers clustered from 160.00 and acting as a spot ceiling

• Many exotic structures expire over the next week - the gamma wall is crumbling and USD/JPY's shackles are loosening

• FX option vols have found a floor at 4-year lows - risk/reward looking more attractive to buyers, especially if 160.00 breaks early

• A 160.00 break forces market to cover short gamma - fuelling spot gains and driving volatility sharply higher

• Related - FX options wrap - The great volatility vacuum
1-week and 1-month expiry USD/JPY FXO implied volatility


(Richard Pace is a Reuters market analyst. The views expressed are his own)

• USD/SGD recoils to 1.2791 from Thurs high 1.2809; STI -0.7%

• Tentatively slips out of Bollinger uptrend channel at 1.2798

• Failure to close above will see consolidation to 100 DMA 1.2755

• Pullback tracks USD/JPY as Japan MOF intervention fears arise

• Nearing 160.00 watermark, long USD/JPY positions get skittish

• US core PCE data due later today could be next big FX catalyst
SGD


(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

• AUD/USD -0.2% Thur as fading U.S.-Iran peace deal hope weighs on markets

• AU Apr household spending -1.1% m/m, offsets data centre Q1 capex spike

• Latest U.S. military strikes on Iran poses further questions on ceasefire

• Trump plays down peace deal chances; Brent crude rises 1.8% in Asia

• Wed's cooler than expected AU monthly CPI prompts paring of rate hike bets

• AUD targets 0.7080 support, break below would accelerate slide toward 0.6834

• Range Asia 0.7118-45, support 0.7080 0.6834, resistance 0.7184 0.7283
AUD Daily 55-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• EUR/USD on back foot, 1.1630 to 1.1610 EBS in Asia, from 1.1661 yesterday

• Still in hover mode below its daily Ichimoku cloud between 1.1668-1.1700

• Tracking away from its 200/100-HMAs 1.1624/1.1629, 1.1630-34 hourly cloud

• Option expiries nearby less massive but still on chunky side

• 1.1590-1.1610 total E1.2 bln, 1.1650-90 E2.1 bln, 1.1700-40 E7.7 bln

• Possible ECB hike in June shrugged off for now, focus still on Middle East

• Also hawkish ECB Lane comments at Tokyo central bankers meet

• EUR/JPY also on back foot, 185.32-47 EBS and off from 185.77 high yesterday

• Still in its ascending daily Ichimoku cloud between 184.37-185.99

• Towards its also ascending hourly Ichimoku cloud between 184.86-185.32

• EUR/CHF buoyant, 0.9152-57 EBS and in middle of 0.9123-89 daily cloud

• Resistance eyed from descending 100-DMA at 0.9167

• EUR/GBP also on buoyant side, 0.8659-65, holding below 0.8667 high yesterday

• Resistance from 100-DMA at 0.8680, daily cloud 0.8684-0.8701 above

• Related comments , , also ,
EUR/USD hourly:


EUR/CHF hourly:


EUR/GBP hourly:

(Haruya Ida is a Reuters market analyst. The views expressed are his own)

• Australian gold stocks fall as much as 3.4%, biggest intraday pct drop since May 20

• Sub-index falls after bullion drops, pressured by expectations of tighter monetary policy to fend off rising inflation and no clear sign of US-Iran peace talks [GOL/]

• Gold miners Northern Star Resources and Evolution Mining fall 3.1% and 3% respectively

• YTD, AXGD down 13.7%
(Reporting by Aamir Sheik Khalid in Bengaluru)

• USD/JPY bid and up to 159.57 EBS yesterday, Asia so far today 159.46-58

• Intervention threat seen high and upside likely capped for now

• 160 line in sand again? USD strength on reports of fresh US-Iran incidents

• Crude oil prices off yesterday before bouncing some into Asia

• USD/JPY tracking away from daily and hourly Ichimoku clouds

• Hourly cloud 159.06-20, hourly tenkan, kijun ahead at 159.50, 159.37

• Some option expiries today topside at 160.00 but larger expiries below

• 159.50-70 total $847 mln, 159.00-45 $2.6 bln, 158.50-80 $1.7 bln

• As to JGB-US Treasury rate differentials, in 2s still wide, 10s narrower

• Related comments , , , also

• US markets , , ,

• On US-Iran , , ,

• Fed-speak , , for more click on [FXBUZ]

USD/JPY:


USD/JPY nearby option expiries into next week:

(Haruya Ida is a Reuters market analyst. The views expressed are his own)

• NZD/USD +1.1% from Wed 0.5835 low as markets calibrate hawkish RBNZ dialogue

• RBNZ sees higher OCR sooner than slated in Feb monetary policy statement

• NZD breaks above recent 0.5888 top, likely headed towards 0.5991 resistance

• NZ government budget to be unveiled Thur, reports suggest fiscal tightness

• Trump not happy with Iran deal & threatens Oman, peace deal looks doubtful

• Range NZ 0.58961-0.5903, support 0.5815 0.5680, resistance 0.5991 0.6012
NZD Daily 55-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• AUD/USD +0.2% wtd, but downside risk mounts as traders pare rate hike bets

• Wed's cooler than anticipated CPI update confirms breathing room for RBA

• Futures pricing implies 92% chance that RBA holds OCR steady in Jun

• AU Q1 capital expenditure due 0130 GMT, Reuters poll consensus +1.0% q/q

• AUD will struggle to ascend above 0.7184, targets break below 0.7080

• Trump says may have to 'blow up' Oman, not satisfied with Iran deal

• Overnight range 0.7124-50, support 0.7080 0.6834, resistance 0.7184 0.7283
AUD Daily 55-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

JP Morgan Research discusses the USD outlook in light of revising its USD Index (DXY) forecasts.

"The bottom-line here is that differentiation in FX is on the rise, and is tradable. Like 2022, the Iran conflict energy shock proved extremely bullish for USD correlations. But that has started to ebb now, for aforementioned reasons. Indeed, we’ve noticed an uptick in our ‘growth’ factor performance, just as low-grade US exceptionalism is being discussed and as regional differentiation becomes more obvious. This has anchored FX returns and some pockets like EUR/ USD and can continue to do so, particularly with US tech supremacy back on investors’ radars and driving USD strength via US equity outperformance," JPM notes.

"Our DXY forecast is upgraded by a large +3.2% on average across the horizon, mainly driven by the EUR/USD downgrade, and similarly now shows an upward-sloping trajectory," JPM adds.

• GBP$ soft in NorAm afternoon trade, -0.15% at 1.3425; NorAm range 1.3459-1.3417

• USD broadly higher but remains w/in recent ranges as US inflation fears ramp up

• Mideast moving toward peace; Sec of State Rubio says progress on peace being made

• Oil slides on peace prospects, Brent/WTI down more than 4% on pot'l openning of Hormuz

• UK data dearth rest of wk, traders will focus on US jobless claims, PCE prc Idx on Thursday

• GBP$ Supt 1.3417 Wed low, 1.3407 daily conversion line, 1.3360 lower 30-d Bolli

• Res 1.3458 Wednesday high, 1.3481- 50% Fib of 1.3658-1.3304, 1.3509 daily high May 25

GBP Chart:


(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Societe Generale Research flags a scope for further correction in AUD/NZD.

"Rate differentials have been rising in favour of the AUD relative to the NZD since April 2023, when NZD 2-year rates were 166bp higher than AUD ones, and AUD/NZD was at 1.06. The rate differential peaked when AUD rates reached 160bp over NZD ones, at the end of March. It’s 30bp off the highs now and the RBNZ’s ‘hawkish hold’ at today’s monetary policy meeting, combined with indications of a softening trend in Australian data that have seen expectations of further rate hikes fall away, beg the question of whether the divergence in RBA/RBNZ policy is now over and could reverse somewhat," SocGen notes.

"There are, of course, plenty of uncertainties still ahead, but the sheer extent of the AUD/NZD move gives it potential for a retracement. The last 12 months have delivered almost 17% in returns for long AUD/NZD and there’s clearly room for a correction if the relative outlook for monetary policy is changing," SocGen adds.

• EUR/USD remains in a state of inertia as ranges compress. Daily range = 1.1623-62

• Geopolitical headlines keep markets in a chop, but bias still tilts towards a deal

• EUR bulls struggle for traction with spot holding below the 200DMA (1.1682)

• Bearish bias intact sub-200DMA will persist as long as spot trades sub-200DMA

• 1.16 support holding, but without a catalyst it is a floor by default

• Eyes on Thursday's U.S. Core PCE, risks skewed towards a topside surprise

• Hot print likely sees EUR retest 1.16
EURUSD daily chart


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))

Credit Agricole CIB Research discusses the scope for another wave of Japan's MoF intervention.

"USD/JPY is back above the key 159.00 level leaving the exchange rate open to further upside and therefore at risk of another wave of FX intervention. Japan’s Finance Minister Satsuki Katayama as well as US Treasury Secretary Scott Bessent both verbally intervened to support the JPY last week, but to little avail," CACIB notes.

"And while BoJ Board and committee members have been switching to supporting another rate hike in June, this is offering little to support to the JPY for several reasons: (1) the market is already 80% priced for a June rate hike; (2) the shift in BoJ pricing has not been as dramatic as the shift in pricing for the Fed or other G10 central banks; and (3) oil prices remain elevated and a drag on Japan’s terms of trade. It would take a hawkish hike by the BoJ in June and/or significantly weaker oil prices to improve the JPY’s prospects. A hawkish hike would be very uncharacteristic of the BoJ," CACIB adds.

• $CAD slow drift higher continues, +0.15% at 1.3834; Wednesday range 1.3839-1.3804

• Diminishing Mideast conflict angst and diverging Fed-BoC rate expectations lift USD

• Long-term US, CA yields are a touch lower; LSEG's IRPR shows US-CA ST rates converging

• Per IRPR, Fed seen hiking 17bp by Dec meeting, BoC +34bp down from abv 50bp 2-wks ago

• $CAD res 1.3839 Wednesday high, 1.3857 rising upper 21-d Bolli, 1.39 psychological lvl

• Supt 1.3804 Wed low, 1.3777 daily cloud top, 1.3723 flat 100-DMA

CAD Chart:


(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Bank of America Global Research flags a scope for a sizeable reversal in AUD/NZD on widening tax differentials between Australia and New Zealand.

"We have been bullish AUD/NZD for most of the past 3 years, but we are becoming more cautious and note the potential downside if widening tax differentials lead to a meaningful shift in trans-Tasman migration patterns...," BofA notes.

"Over the longer run, we think the migration channel is becoming more important and may at least partly offset other drivers. New Zealand's tax system stands out globally for its absence of a broad-based capital gains tax, meaning most asset appreciation is not taxed, aside from targeted rules, such as the bright-line test for property or cases where assets are acquired with intent to resell. 

In contrast, Australia taxes capital gains as part of income and is now moving towards tighter treatment, including a minimum tax on gains and reduced concessions. The net result is a growing wedge between after-tax returns on capital across the Tasman," BofA adds.

Goldman Sachs flags a scope for an extended reversal in AUD/NZD along with further spike in NZD/USD. 

"AUD/NZD on the move lower overnight with the combo of a more hawkish RBNZ coming at the same time as weaker flash CPI out of Australia. With a move from 1.0650 just over a year ago to above 1.2288 high overnight, the market now wary of a potential reversal in AUD/NZD alongside a number of other crosses within the G10 space," GS notes.

"Any reversal would more be led by the NZD side of the equation, with a large short position having built up over the past few months and a path to a reversal likely to come from some kind of Iran deal and a broader USD sell off. We look for a break above 0.5891 (100dma) as the first level to put pressure on existing shorts in NZD," GS adds.

• AUD/NZD longs unwind after hawkish RBNZ hold - 3-3 vote split, RBNZ Governor casts deciding vote

• AU monthly CPI miss also piling on the pressure - largest one day drop since Nov 2019

• Cross now sitting on the 55DMA cluster (1.2100-22). The level has been the backbone of the trend

• Critical to hold as a daily close below the cluster likely changes the narrative, opens door to deeper setback

• Positioning is also a risk, crowded long base means the washout can be disorderly if 1.21 gives way cleanly
AUDNZD daily chart


FX positioning


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))