Deutsche Bank Research adopts a bearish bias on NZD and CAD over the medium-term.

"We are bearish on NZD. While a US-Iran resolution may help the currency, recent domestic data has surprised to the downside, postponing the economic recovery. Despite this, the market continues to price hikes from the RBNZ. We expect this pricing to unwind, adding to NZD weakness. We prefer to sell NZD against GBP," DB notes.

"We are bearish CAD. The domestic economy remains lacklustre and may continue to lag peers until investment in capex and diversification of export markets take full effect. Risks to this view include a further move higher in oil prices, which is currently acting as a positive terms-of-trade shock for CAD and improving the trade balance. We prefer to express this short CAD against the USD and AUD," DB adds.

• Cable falls to 1.3394 as safe-haven dollar strengthens on higher oil prices

• Oil prices jump as Reuters report signals complication to US-Iran peace talks

• US is net energy exporter. 1.3394 is intra-day low (1.3376 was Wednesday low)

• 1.3454 was London morning high, before big UK services PMI miss (47.9)

• BoE MPC dove Taylor sees less risk of inflation persistence than in 2022

• UK April retail sales data due Friday at 0600 GMT; minus 0.6% MM expected

GBPUSD


(Robert Howard is a Reuters market analyst. The views expressed are his own)

Credit Agricole CIB Research discusses GBP outlook and maintains a bearish bias in the near-term.

"The GBP has already lost ground after the latest political developments and could remain a pressure valve for anxious investors fretting about the impact of the unfolding political drama on the UK stock and gilt markets. We note, however, that the GBP remains quite oversold and that hawkish BoE rate expectations continue to boost its rate appeal," CACIB notes.

"Status-quo is preserved with PM Keir Starmer remaining in charge but with additional fiscal austerity measures potentially required due to growing borrowing costs and the weakness of the real economy. We see GBP/USD remaining on a downward trajectory towards 1.30 this year before a recovery towards 1.39 in 2027. We also expect EUR/GBP to remain range-bound around 0.86 in 2026 but ultimately head lower towards 0.84 into 2027," CACIB adds.

Expect continued volatility for sterling in the near-term, with risks tipped to the downside, as global geopolitical tensions and domestic policy adjustments create a complex backdrop. The pound experienced slight weakness today, trading down at 1.3414 after comments out of Iran revealed the Supreme Leader is refusing to hand over the nation's enriched uranium supply. This refusal has exerted broad downward pressure on risk assets, pulling GBP/USD lower from an open of 1.3440. However, Iran is not the only issue weighing on the currency pair. As a by-product of the Middle East conflict and its deleterious effects on inflation and global growth, UK Finance Minister Rachel Reeves announced measures to lower costs for consumers, including reduced sales taxes on summer expenses and a suspension of food import tariffs. While these actions are unlikely to derail the budget, they keep the spotlight on UK fiscal vulnerabilities despite a slight reduction in UK 10-year gilt yields below 5%, particularly given the fluid political situation.

Technically, GBP/USD remains locked in a tight 1.3300–1.3475 range, with the flat 200-DMA 1.3424 acting as a magnet. Daily price action underscores this hesitation; despite repeated breaches of the 200-DMA, long upper candlestick wicks hint at reluctance by traders to test new highs above the May 20 peak of 1.3476.

If risk aversion intensifies, initial support aligns at the daily low of 1.3402, followed closely by the lower Bollinger Band at 1.3371. Conversely, near-term resistance is established at the daily high of 1.3455, with a more formidable ceiling guarded by the 100-DMA at 1.3478.
Sterling Chart:


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

Goldman Sachs Research changes its RBA rates forecast.

"We view April's larger-than-expected rise in the unemployment rate as partly just the usual volatility in these data. Even so, the rise to 4.5% is likely sufficiently large to keep the RBA on hold at its next meeting in June, given the unemployment rate will now likely overshoot the RBA's 4.2% average forecast for 2Q2026. We now expect a final 25bp RBA rate hike to 4.60% will be delivered in August (prior: June)," GS notes.

"The RBA views current financial conditions as only 'probably somewhat restrictive'. We expect this will be hard to justify in August following a likely very strong 2Q2026 CPI report and view a further 25bp hike to definitively restrictive financial conditions as more consistent with the RBA's characterisation of risks to the macro outlook," GS adds.

Morgan Stanley Research adopts a strategic bullish bias on EUR/USD targeting 1.23 over the medium-term on the FX hedging flows.

"Our forecast of 1.23 in EUR/USD in the coming months is driven in part by an increase in EUR/USD's premium to rate differentials, reflecting more FX hedging. We find that European hedge ratios are impacted by hedging costs, FX vol, and  USD sentiment, and we estimate the sensitivity of hedge ratios to each," MS notes.

Our forecasted 80bp drop in EUR/USD hedging costs boosts hedge ratios by 2.2pp; given $9.6tn of current European assets, this translates to $210bn of buying.  We estimate $210bn of EUR/USD buying boosts EUR/USD about 4% over a 12m period, pushing EUR/USD well above the forwards," MS adds.

• Benchmark 1-month GBP/USD FX option expiry date jumps from June 18 to June 24

• Includes the result of the Makerfield by-election - Andy Burnham win would allow him to contest Keir Starmer for UK PM

• However, the related implied volatility increase was minimal - from 6.7 to 6.95 and already fading

• Dealers equate that to a 5.0 vol addition on a regular overnight expiry price that captures the initial GBP/USD reaction

• Not excessive by any means, but a recognition that the by-election result could still inject some short term GBP volatility

• However, recent sales of GBP/USD FXO butterfly spreads reflect current low GBP/USD volatility and range break-out risks
GBP/USD FXO implied volatility


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

USD/JPY implied volatility is being crushed as a lack of realised volatility drives the benchmark 1-month expiry vol down to 6.9, half a vol lower than just yesterday, and without BOJ intervention it could soon be trading below the recent 4-year lows at 6.6 posted ahead of the BOJ's April 30 intervention, when USD/JPY was sold from 160.00 to the 155s. On the surface, this looks like a market that has completely given up on volatility.

But butterfly spreads tell a different story. Butterfly spreads show the implied volatility differential between at-the-money straddles (the body) versus low delta calls and puts (the wings), which in USD/JPY hold a premium for the wings. In times of low realised volatility or when there is a lack of directional risk premium, the wings typically reduce their premium over the body and favour sellers. During a bout of extreme volatility, however, low delta strikes typically post bigger implied volatility gains than those near the spot rate and can be profitable to holders.

It is therefore interesting to note an increase in the wing-to-body implied volatility premium in sub 1-month expiry low delta USD/JPY butterflies, despite the current lack of USD/JPY volatility. One-month 10-delta butterfly spreads are trading at 1.2 vols — having doubled since last week — with an even bigger differential in sub 1-month expiries. The wings are stubbornly bid even as the body collapses. This divergence is the market's canary — or rather, its butterfly — in the coal mine.

The story is asymmetric. The body is falling because USD/JPY is going nowhere and implied volatility is falling. But the 10-delta wings are a different matter, especially the JPY call wing, which is favoured to hedge against a sudden and aggressive BOJ intervention. Nobody wants to be short a JPY call when that call comes.

The result is a volatility surface that looks cheap in the main body but is quietly pricing fear in the wings. The butterfly spread is not just a volatility trade, but the market whispering that the BOJ intervention threat remains real.

Related comments -

Cheap and compelling - the case for AUD/USD options

Deutsche Bank's FX focus sidesteps US dollar for crosses
USD/JPY spot and 1-month 10 delta butterfly spread


1-week and 1-month expiry USD/JPY FXO implied volatility


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

AUD/USD has had a turbulent few months, staging a strong recovery from its late-March lows to multi-year highs before a sharp reversal over the past week as optimism around a near-term Iran deal began to fade. With markets once again building hopes for a deal that has yet to materialise, the risks to the Australian dollar remain skewed to the downside should those hopes be disappointed again. Against that backdrop, AUD/USD options continue to offer compelling value. Benchmark 1-month expiry implied volatility had compressed to levels close to realised volatility last week — a convergence that historically signals attractive entry points for both hedgers and volatility buyers. Those who took advantage were rewarded as spot sold off and implied volatility moved sharply higher. Notably however, even after that move, implied volatility remains well within the lower end of its long-term range and continues to trade close to realised levels, suggesting options are still far from expensive by any historical measure.

Risk reversals have nudged higher in favour of AUD puts over calls, reflecting a modest increase in demand for downside protection, but the premium remains well below the peaks seen in early March when market stress was at its height. For those with AUD exposure, that gap represents an opportunity — downside protection is still available at a relatively modest cost. The fundamental backdrop adds further weight to the hedging case. AUD remains acutely sensitive to China trade developments, commodity prices and RBA policy, and the ongoing Iran conflict continues to inject uncertainty into global risk appetite. While Deutsche Bank's latest FX Blueprint, published this week, flags AUD as one of its preferred currencies for the summer on the back of high commodity prices and attractive carry, that constructive view itself underscores a broader point — positioning in AUD is long and sentiment has been bullish. Crowded long positioning historically makes a currency more vulnerable to sharp unwinds in a risk-off environment, and any deterioration in the Iran situation could trigger exactly that.

Options markets are not pricing that risk aggressively. For hedgers and those looking to express a volatility view, the current environment — implied vol near realised, risk reversals well off their highs, and a binary geopolitical catalyst on the horizon — continues to make a strong case for using AUD/USD options as a risk management tool.
AUD/USD FXO implied volatility


AUD/USD 25 delta risk reversals


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

• EUR/USD FX option implied volatility is back under pressure as spot losses stall and realised volatility drops

• Benchmark 1-month expiry up from Jan low at 5.35 to 6.0 since last week a spot fell to 1.1600, but since slips to 5.7

• Risk reversals nudged higher in favour of EUR puts, recognising the spot setback — but moves remain measured

• 1-month 25-delta risk reversal peaked 0.6 EUR puts Wed, now 0.5 — well below March long-term high at 1.5

• Hedging demand was light, with the most common strikes being sought in the 1.1550-1.1500 zone

• Bottom line: price action consistent with low realised volatility and a modest downside bias — options cautious, not alarmed
EUR/USD FXO implied volatility


EUR/USD 25 delta risk reversals


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

• USD/JPY trading above the daily cloud, that currently spans the 156.38-158.98 region

• Spot has seen a 158.81-159.09 range, on Thursday, according to EBS data

• Expect bigger gains through the 159.37 Fibo, a 76.4% retrace of the 160.72 to 155.00 drop

• Market wary of MOF-ordered FX intervention but USD/JPY demand is noted on dips

• 30-day log correlation between USD/JPY and EUR/JPY is above +0.5 (pairs moving in tandem)

• BOJ Koeda reinforced hawkish expectations at June BOJ Policy Board meeting

Daily Chart


Daily Chart


(Martin Miller is a Reuters market analyst. The views expressed are his own)

• Cable has traded a 22.5 pip range thus far Thursday; 1.3420 is intra-day low

• 1.3420 is also the low water-mark since Wednesday's 1.3463 high

• UK May flash PMIs due at 0830 GMT; services PMI f/c 51.7, mfg PMI f/c 53

• UK finance minister Reeves announces measures to ease cost of living

• Streeting pledges 'wealth tax that works' in Labour leadership bid, BBC reports

• Bailey says BoE has time to gauge impact of Iran war. Fed minutes

GBPUSD


(Robert Howard is a Reuters market analyst. The views expressed are his own)

• FX options expire at 10am New York/14:00 GMT on Thursday May 21

• EUR/USD: 1.1600 (244M), 1.1725-30 (447M), 1.1750 (681M)

• USD/CHF: 0.7865-75 (1BLN)

• EUR/GBP: 0.8640-50 (920M), 0.8700 (1.2BLN)

• GBP/USD: 1.3200 (350M), 1.3250-60 (290M), 1.3435-40 (250M), 1.3455-60 (1BLN)

• AUD/USD: 0.7200 (202M). USD/CAD: 1.3625 (310M)

• USD/JPY: 158.50 (481M)

• FX options wrap - Caution creeps in (Richard Pace is a Reuters market analyst. The views expressed are his own)

• AUD/USD -0.5% Thur in wake of disappointing Apr employment update

• Markets focussed on rise in unemployment to 4.5%, up from 4.3% previously

• Data reinforces view that RBA has breathing space before next OCR move

• Rising Fed rate hike expectations will increase downside pressure on AUD/USD

• AUD targets break below 0.7093 55-DMA, door opening for move towards 0.6834

• Trump says peace negotiation in final stages, but continues to threaten Iran

• Range Asia 0.7100-555, support 0.7080 0.6834, resistance 0.7283 0.7661
AUD Daily 55-DMA

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

• AUD/USD -0.2% Thur as employment data misses expectations

• AU Apr employment -18.6k, unemployment 4.5% (poll +15k, 4.3% respectively)

• Fed minutes reveal officials more concerned on inflation & open to FFR hikes

• Trump says peace negotiation in final stages, but continues to threaten Iran

• AUD upswing out of steam, likely to move back towards 0.7093 55-DMA

• Range Asia 0.7130-555, support 0.7080 0.6834, resistance 0.7283 0.7661
AUD Daily 55-DMA


AUD Hourly Bollinger Study

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

• Australian gold stocks rise as much as 2.7%, their biggest intraday pct gain since May 12

• Sub-index on track to snap five sessions of losses

• Benchmark up as much as 1.3%

• Bullion gains as hopes for a resolution to the Iran conflict relieve inflation fears [GOL/]

• Gold miner Evolution Mining gains 3.8%

• YTD, AXGD down 14.7%, AXJO down 1.2%
(Reporting by Aamir Sheik Khalid in Bengaluru)

• USD/JPY remains relatively bid, Asia 158.82-94, still seen range-bound

• Off from 159.25 high Tuesday to 158.59 overnight but relatively bid still

• Back in 156.37-158.97 daily Ichimoku cloud if only barely

• Daily kijun/tenkan have converged at 158.86, 100-DMA below at 157.53

• Market wary of MOF-ordered FX intervention but demand noted on dips

• Japanese importers continue to buy for Tokyo fix, speculators on dips

• Though room for optimism on Middle East but nothing solid, crude oil off

• Fed April minutes hawkish but US yields off

• That said, little change in JGB-US Treasury rate differentials

• Some option expiries today between 158.00-05, at 158.50 below

• Related comments , , ,

• And , also , on US-Iran

• US markets , , ,

• On Fed minutes , , for more click on [FXBUZ]

USD/JPY:


US crude oil futures:

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

• NZD/USD +0.9% from Wed 0.58165 low as risk appetite lifts on Iran peace hope

• NZ Apr trade balance 1.9 bln surplus (month), 2.8 bln deficit (annual)

• Trump claims Iran negotiations in final stages, but continues attack threats

• Fed minutes show policy makers becoming more open to FFR hikes

• NZD trading near upper hourly Bollinger band, uptick running out of momentum

• Range NZ 0.5867-779, support 0.5815 0.5680, resistance 0.5991 0.6012
NZD Daily 55-DMA


NZD Hourly Bollinger Study & DXY Daily 55-DMA

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

• AUD/USD +0.9% from Wed 0.70875 low on renewed Middle East peace hopes

• Trump says Iran negotiations in 'final stages', but continues attack threats

• Brent crude -5.4%, WTI -4.9% while USD index fell 0.2% & UST yields softened

• Fed minutes confirm policy makers increasingly open to FFR hikes

• AU Apr jobs update Thur, Reuters poll consensus +15k jobs, 4.3% unemployment

• AUD rejects attempts break below 55-DMA, pair captive to broader risk moves

• Overnight range 0.7105-745, support 0.7080 0.6834, resistance 0.7283 0.7661
AUD Daily 55-DMA

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

Nomura Research maintains a buy-ob-dips stance on JPY crosses, preferring long CHF/JPY expressions.

"The lack of sufficiently hawkish BOJ comments to out-hawk market pricing makes a bullish yen pivot difficult. Nevertheless, a fast pace move higher in USD/JPY towards 160 will further increase the risk of MOF intervention and/or a NY Fed rate check, thus increasing short JPY exposure from here does not seem to be sensible from a risk-reward perspective," Nomura notes.

"Thus, we maintain our buy-on-dips stance on JPY crosses, with with CHF/JPY standing out as an attractive long for the following reasons: 1) May seasonality is typically supportive (hit ratio of 90% since 2016); 2) EUR/CHF has not yet entered territory (below 0.91), where the SNB would likely push back against CHF strength; 3) rising equities, as markets become more “accustomed to” geopolitical headlines, providing a tailwind for JPY crosses," Nomura adds.

• NY opened near 1.1600 after EUR/USD traded downward in Asia and Europe's morning

• The pair then hit a 1-1/2-month low of 1.1583 in early NY, buyers then emerged

• USD, US yields , USD/CNH & oil moved sharply lower to help lift EUR/USD

• Hopes for a deal between the US and Iran drove investors out of safe-haven assets

• Gains in gold, silver & stocks added weight on USD and helped EUR/USD turn positive

• The pair briefly pierced the 55-DMA, traded 1.1646 then neared 1.1620 late in the day

• EUR/USD traded up +0.13% in NY's afternoon but a daily doji candle formed

• A doji indicates either the recent down trend will resume or could reverse

• Monthly RSI & inverted hammer, pair's hold below many DMAs are bear signs though
eurusd


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

• GBP$ firm in NorAm afternoon, +0.36% at 1.3440; Wed range 1.3463-1.3376

• Pair slid early in session after softer than expected UK price data

• Surge in NY afternoon based on Pres Trump comment on Mideast deal progress

• Risk broadly higher, US equities rally, UST yields move lower, precious metals surge

• Despite upbeat Mideast view, UK remains mired in political, fiscal, inflation woes

• GBP$ res 1.3464 Wed high, 1.3479 /85 100-/10-DMA area, 1.3523 61.8% Fib of 1.3658-1.3304

• Supt 1.3400 psychological lvl, 1.3379/76 daily cloud base/Wed low, 1.3304 daily low May 18

GBP Chart:


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

• NY opened near 0.7125 after 0.7088 traded overnight & AUD/USD rallied above the 55-DMA

• Pair dipped toward 0.7115 early but buyers emerged as risk-on sentiment intensified

• Hopes for a deal between the US & Iran helped to drive riskier assets upward

• USD, US yields , USD/CNH & oil all traded downward

• Gold, silver, copper and stocks rallied which helped weigh down the USD

• AUD/USD hit 0.7175 then neared 0.7155, the pair traded up +0.65% late in the day

• Techs lean bearish; daily chart shows possible head & shoulders topping pattern

• Falling monthly RSI, pair's hold below 10- & 21-DMAs add to bearish signals
audusd


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

Goldman Sachs Research adopts a bearish bias on GBP in the near-term.

"UK political newsflow has picked up following local elections and, as is often the case, a rise in political uncertainty has been accompanied by FX underperformance. n this context, it is worth noting that prediction market pricing of a leadership transition by year-end has already been elevated for some time, so we attribute the recent underperformance mostly to a narrowing in the timeline, as well as the confluence of realising this political pressure with macro factors that are already challenging the UK fiscal outlook at this point," GS notes.

"Our economists note that the macro repercussions of the energy shock have already driven a further erosion of fiscal headroom, and energy futures have continued to move higher for the rest of the year. This presents a more durable risk to Sterling, and can also amplify the pass-through from political uncertainty relative to last year. It is also less clear to us that recent sources of Sterling resilience, namely a sharp rebound in global risk sentiment and larger-than-usual cross-border M&A inflows, can remain as supportive as they have been over the past few weeks," GS adds.