Bank of America Global Research highlights a technical setup for EUR/USD to retest parity over the medium-term.

"While the DXY is on watch for a double bottom, such confirmation would support euro retesting parity

 Of the six times euro was below 1.15 and formed a bottom, euro retested the lows at least once (see blue circles in chart below). In this cycle it has not done this yet. Will history repeat?," BofA adds.

• AUD/USD overnight rally hit 0.6686, stalled short of the 200-DMA then slid

• Pair rallied away from the 0.6640 area after three bouts of selling faded

• Dib buyers emerged near the June 2 & 5 highs, 50% Fib of 0.6818-0.6459

• AUD/USD rallied back above the 55-DMA, traded up +0.85% into Europe's close

• Rising daily, monthly RSIs imply upside momentum & more gains possible

• 61.8% Fib 0.6818-0.6459, 200-DMA, May 16 high are impediments for longs

• Rally & close above those may see longs target May's monthly high

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Credit Agricole has expressed a fairly positive outlook for the USD in the near term, given the successful resolution of the US debt ceiling. The resolution has not only triggered a USD short-squeeze, especially against overbought currencies such as the EUR, CHF, and JPY, but it has also impacted market expectations of the Federal Reserve's rate, boosting the USD's relative rate appeal.

However, Credit Agricole believes many of the Fed-related positives are already priced into the USD, especially considering the anticipated extended Fed pause in the coming months.

The bank notes that another significant USD-positive effect of the debt ceiling resolution has yet to unfold. The expected drain of USD liquidity due to the increase in Treasury Bill issuance by the US Treasury could trigger a USD shortage, increasing the demand for more expensive USD cash. If this situation tightens global financial conditions and impacts risk sentiment, it could enhance the currency’s safe-haven appeal.

As the Fed blackout period begins and no major US data releases are scheduled, Credit Agricole suggests that the USD outlook will increasingly be driven by USD scarcity gauges such as cross-currency basis swap spreads.

EUR/USD fell Tuesday as dollar buying reversed earlier gains, while data and yield spreads also weighed and shorts are gaining confidence a test of the 1.0500 area is likely.

German industrial orders and month-on-month euro zone retail sales for April indicated the economy is weakening, helping increase the dollar's yield advantage over the euro as U.S-German 2-year spreads US2DE2=RR widened.

The data may also lead investors to expect a less hawkish ECB, while traders could be wary of the potential for a surprise move from the Fed next week.

Though CME's FedWatch tool indicates that markets see a 75% probability that the Fed will leave rates unchanged Click here , the recent upward surprise in April core PCE -- the U.S. central bank's favored pricing indicator -- raises the risk of a surprise hike.

The RBA hike showed markets that central banks are willing to depart from expectations now and U.S. May CPI due on June 13 could further fuel speculation of a Fed rise if it comes in above forecast, which would buoy U.S. rates SRAU3 and the dollar.

Bearish EUR/USD technicals, net-long dollar and net-short euro positions reinforce downside risks and may contribute to EUR/USD falling toward 1.0500.

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Bank of America (BofA) expects the Bank of Canada (BoC) to maintain the overnight rate at 4.50% on June 7, largely due to core inflation trending downwards. BofA also anticipates economic deceleration and the high sensitivity of household debt to interest rates.

However, recent acceleration in the economy, a tight labor market, and volatile headline inflation could prompt the BoC to consider a rate hike at this meeting, or prepare the market for a potential hike at the full meeting in July, where they will present the Monetary Policy Report.

BofA predicts the statement will reiterate the Bank’s commitment to reaching the 2% inflation target. Due to strong data, the market has moved the risk of a BoC cut to 2024, with over one 25bp hike now being priced in by the end of the year.

Although a rate hold decision in June could temporarily hinder the CAD's rally, BofA maintains a medium-term bullish view for the CAD. Even if the US-CA rate differential reverses back to above zero due to a dovish BoC, BofA's estimated fair value for USD/CAD would still be in the 1.32 range, significantly below the current spot level.

The Australian dollar emerged as the best performing currency among the G10 following the Reserve Bank of Australia's (RBA) unexpectedly hawkish policy update, according to MUFG. The currency strengthened by around +0.7% against the US dollar and +0.5% against the New Zealand dollar.

The main catalyst was the RBA's surprise decision to increase their policy rate by a further 0.25 percentage point to 4.10%. In the policy statement accompanying the decision, the RBA indicated that inflation remains "too high", and the additional interest rate increase aims to provide greater confidence that inflation will return to the target within a reasonable timeframe.

Expressing concern over "very high" and "very persistent" services price inflation overseas, similar to other major central banks, the RBA emphasized that it will closely monitor the evolution of labour costs and firms' price-setting behavior. The RBA also continued to signal that "some further tightening" of monetary policy may be necessary depending on how the economy and inflation evolve. This counters market expectations that the RBA had concluded its hiking cycle.

MUFG believes this development supports their long AUD/NZD trade recommendation (OPEN @ 1.0870, TARGET @ 1.1200), which is set to benefit from the growing policy divergence between the RBA and the Reserve Bank of New Zealand (RBNZ) in the near term. Unlike the RBA, the RBNZ recently strongly signaled the end of their rate hike cycle after raising their key policy rate to a peak of 5.50%.

• Cable eyes 1.2400 after falling from 1.2459 (post-weekend high at 0514 GMT)

• 1.2370 (Monday's low) and 1.2350 (May 31 low) are sub-figure support levels

• Monday's low was plumbed before dollar fell on U.S. May ISM services miss

• Markets currently see 75% chance of Fed keeping rates unchanged next week

• UK May construction PMI 51.6 vs 51.1 f/c. Another BoE hike expected June 22

• High inflation and recession risk - the BoE's dilemma nL8N37U3IO

• RBA surprised with a 25 bps hike, yield AU3YT=RR rally extended

• AUD broadly bid after RBA said some further tightening may be needed

• AUD/USD rallied 0.6610-0.6686 overnight, NY opened near 0.6655, +0.59%

• Pair pierced the 50% & 61.8% Fibs of 0.6818-0.6459 and the daily cloud base

• Rally stalled just short of the 200-DMA which currently sits at 0.6693

• Equity ESv1 slip & USD/CNH rally to 7.1368 likely tempered AUD/USD bulls

• Techs lean bearish; RSIs rising & pair traded above the 10- & 21-DMAs

• No major US data Tues., Australia Q1 GDP, China May trade are risks in Asia

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FX options use implied volatility to measure expectations of the actual FX volatility on which they thrive, and those in EUR/USD are at very telling levels.

Actual volatility is an unknown parameter when pricing a forward-looking FX option, so dealers use implied volatility instead.
Any difference between implied and actual volatility therefore creates the trading opportunity.

The benchmark 1-month expiry EUR/USD implied volatility traded another long term low at 6.15 on Friday - levels last seen in February 2022.
Other dates also posted fresh 1-year lows before recovering slightly this week.

Historic volatility measures actual volatility over any timeframe in the past, and can therefore provide a fair value measure for implieds.

One-month daily historic, based on a once daily FX spot calculation, is just 5.5, and suggests that 1-month implied can fall even further.

If the impending U.S. and euro zone central bank policy meetings can pass without volatility and any signs of a break from familiar ranges, then implied volatility would have the potential for even deeper declines as markets head toward the traditional summer lull.

For more click on FXBUZ

• AUD/USD jumped to 0.6686 following the RBA's hawkish 25 bps hike to 4.1%

• 0.6686 is highest level since May 16 (0.6610 was pre-RBA low in Asia)

• Offers may emerge ahead of 0.67 if AUD/USD extends north (0.6691 is 200DMA)

• There is a large 0.6700 option expiry on Wednesday; A$1.2 billion strike

• 0.6638 (Friday's high) is now a support level (0.6637 was Monday's high)

• RBA Governor Lowe is due to speak on Wednesday at 9.20am AEST (2320 GMT)

• Suppressed option vols suggest EUR/USD goes nowhere fast

• Pair effectively trapped within 1.05-1.10 this year

• Traders are betting pair rises further with longs weighing

• Daily Ichimoku cloud twists around 1.0850 in early July - twists attract

• If it stays quiet investors may grow more inclined to sell strength

• Interest rates differentials will add to potential profits of short sellers

• One-month swap is +20 pips, 3 months +60 pips

• Influence option expiries to grow - EUR 3bln 1.0740's may anchor spot today

• Long upper-lower candle shadows once more clouding near-term direction

• Bulls failed to take out the 0.8640 minimum correction of 0.8875-0.8568

• Recent high and low, 0.8635 and 0.8568, the main levels to watch today

• Fourteen day negative momentum has faded but so has the daily RSI

• We are long from 0.8590 for 0.8710 with a stop at 0.8560

• A further 0.8640 failure might force us to square up

  For more click on FXBUZ

• AUD/USD jumped from 0.6635 to 0.6675 after RBA surprised with a 25 bp hike nAZN152AYJ

• It is a hawkish hike - as the RBA said more tightening may be needed nS9N30200X

• Resistance is at the 61.8 fibo of 0.6818/0.6459 move at 0.6680

• More resistance is at the 200-day MA at 0.6693

• Market was looking for a hawkish pause - but RBA surprised for second straight month

• For more click on FXBUZ

• EUR/USD opened slightly higher 1.0710 after bouncing from 1.0675

• Recovery came after weaker US data pushed US yields and USD lower nL1N37X299

• In a quiet Asian session the EUR/USD traded in a 1.0707/25 range

• It is trading around 1.0715/20 heading into the afternoon

• Support is at the May 31 low at 1.0635 with bids tipped above 1.0650

• Resistance is at the 21-day MA at 1.0792 with better resistance at 1.0811

• Both the 100-day MA and 38.2 of the 1.1096/1.0635 converge at 1.0811

• EUR/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment

• A close above 1.0815 would suggest a bottom is forming

• For more click on FXBUZ

TD Bank Financial Group's recent analysis highlights the excitement that May brought to financial markets as it handed over to June. Unexpected data from the US, China, and the Eurozone has tested positions and growth stories. Furthermore, the outperformance of US equity markets demonstrates a revived interest in technology.

Despite these developments, TD Bank believes the market is still in a transitional phase and that the USD's uptick should be viewed as a more tactical move. It maintains that emerging markets (EM) continue to offer better growth opportunities and yield than their G10 counterparts. The pricing of the Federal Reserve seems more reasonable now, which should keep EM carry trades in the forefront.

• +0.05% in a low-key Asian start, after closing little changed

• ECB's Lagarde believes underlying inflation pressures remain

• ECBWATCH prices a June 21 25pt hike to 3.5% at 90.18%

• FEDWATCH prices no change on June 14 at 76.6% - underlying EUR support

• Charts; 21-day Bollinger bands contract, momentum studies crest

• 5, 10 & 21-day moving averages edge south - net negative setup

• Close above 1.0794 falling 21-day moving average would be a bullish signal

• 1.0750 2.523 BLN are the only significant close strikes for June 6

For more click on FXBUZ

• Steady after closing off 0.1%, recovering from sharp losses in Europe

• UK inflationary pressures continue, putting pressure on BoE to hike

• Expecting tight Asian range trading - USD and risk appetite lead

• Charts, daily momentum studies, 5, 10 & 21-day moving averages conflict

• 21-day Bollinger bands contract - neutral setup suggests range trading

• 1.2308 May low and Friday's 1.2543 June high are the significant levels

• 1.2369 NY low then 1.2308 May base are initial major supports

• 1.2453/1.2457, 21 and 5-day moving averages are initial resistance

For more click on FXBUZ

• AUD/USD opens +0.17% after US yields eased and weighed on the USD nL1N37X299

• It will likely stay in tight range ahead of RBA decision later today

• RBA expected to remain on hold with hawkish guidance, but its a close call nL4N37X04B

• AUD/USD resistance is at the 50% of 0.6818/0.6459 at 0.6638

• It topped out around 0.6638 on both Friday and Monday

• A break above 0.6640 targets the 61.8 of that move at 0.6680

• Support is at the 10-day MA at 0.6554 and break would ease upward pressure

• For more click on FXBUZ

ING Group forecasts a possible divergence in the Australian dollar's trajectory as the Reserve Bank of Australia (RBA) readies to announce its monetary policy. With markets and consensus divided over a potential 25bp rate increase or a hold following a series of contrasting Australian data, ING perceives the chances of a hike as nearly even.

Given the recent mixed economic signals, such as the disappointing April jobs numbers and a surprising surge in April's CPI data to 6.8% YoY, the bank suggests the RBA's decision is highly data-dependent. The theory of data dependency implies that the outcomes of a "hawkish hold" or a "dovish hike" shouldn't be considered, despite the variety of interpretations that could be inferred from central bank communication.

ING frames the upcoming policy decision as a potential binary event for the Australian dollar. In case of a hike, the AUD/USD could begin a move towards stabilization around 0.6700 by the week's end. Conversely, a decision to hold could risk revisiting sub-0.6500 lows soon, even if a diminished USD strength could stabilize the pair regardless of a hawkish surprise by the RBA.

• Uptrend trying to reassert itself after last week's correction

• Prices fell from O/B probes of 2023's rising channel top

• Thur's low was caught near the 23.6% Fibo of the March-May rise at 138.27

• The daily uptrend is intact while above 138.27

• A close above 141 is key to a run at twin November highs at 142.25

• And the 61.8% of the drop from 2022's peak to 2023's lows at 142.50

• Prices are well off Monday's 140.45 highs on EBS

• They fell back to the 10-DMA and tenkan at 139.66/58

• Monday's 139.25 low was a 61.8% of the Thur-Mon rebound

For more click on FXBUZ

• Big dip to 139.25 by 61.8% Fibo on poor ISM non-mfg was scooped up

• US data diverging: huge NFP, JOLTS beats vs jobless rate rise, feeble ISMs

• Close above the 10-DMA and tenkan at 139.68/58 would keep May high in play

• Week's biggest expiries are at 140 are likely to attract ceteris paribus

• IMM net spec longs hit highest since by time of 2022's 151.94 peak

• That with a BoJ move away from extreme easing not yet on the agenda

• Despite Japan services ISM at record high, inflation well past BOJ's 2% goal

• Fed's June rate hike skip looks plausible, with June 13 CPI last key input

• Above May's 141.93 EBS peak, twin Nov highs and a 61.8% loom at 142.25/50

• Key support is the 23.6% Fibo of the March-May rise at 138.37

For more click on FXBUZ

• GBP$ pares early dip, ending NY -0.1% at 1.2433; Monday range 1.2445-1.2370

• Pair rallied off early debt-deal, NFP induced low after soft ISM data

• Sterling slips amid less-dovish Fed outlook, sticky UK inflation view

• Weak UK Svcs PMI data hints UK recovery slowing, inflation may be persistent

• GBP$ supt at Mon low 1.2370, 1.2328 May 30 low, 1.2304 100-DMA

• Res 1.2439 daily cloud top, 1.2479 30-DMA, 1.2540 Thurs-Fri high area

• EUR/GBP +0.16% to 0.8616, Mon range 0.8635-02; increased UK recession fears keeps GBP on backfoot

The recent decisions by the Organization of the Petroleum Exporting Countries (OPEC+) to further reduce production are seen as only mildly bullish for the price of oil, according to the analysts at Mitsubishi UFJ Financial Group (MUFG). These developments include a unilateral, extendable voluntary cut of 1 million barrels/day by Saudi Arabia starting in July, and the extension of existing voluntary cuts by nine OPEC+ countries until December 2024.

The OPEC+ meeting that took place on 3rd and 4th June led to an increase in Brent crude prices to an intra-day high of USD78.73/barrel. However, if prices remain below USD75/barrel, MUFG's commodity analysts predict the possibility of further production cuts in the latter half of this year.

Regarding the impact on oil-related currencies, MUFG believes the performance of the Canadian Dollar (CAD) is unlikely to be significantly affected in the near term by these developments.

• USD/JPY well off Monday's 140.45 high after ISM data missed thoroughly

• Prices down by the 10-DMA and tenkan at 139.66/58, low is at 139.25 on EBS

• That low is a 61.8% Fibo of the rebound from Thur's low to Monday's high

• Bigger issue may be biggest spec long position since 2022's 151.94 peak

• Thur's 138.44 swing low by the 23.6% Fibo at 138.27 is now key support

• Treasury yields shed earlier rise, with 2-yr yields now down 2bp

• NFP surge was already somewhat suspect due to weak household survey, et al

• ISM services employment index at 49.2 points to a contraction

• New orders were also off sharply at 52.9 from 56.1

• Prices paid at 56.2 vs 59.6 is still high enough to worry the Fed

• But the Fed's June skip guidance last week is now even more likely

• July hike, and dollar gains, would be written off if June NFP finally miss

For more click on FXBUZ