US Dollar Threatening to Break Higher snbchf.com

by
Marc Chandler
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The US dollar is trading quietly against the major currencies. The euro is holding above $1.17 and sterling is holding above $1.35, but the market does not appear done probing these support areas. The greenback has also traded as close to JPY158 as possible without going over. This is where the Bank of Japan may have intervened last week. In the UK, Prime Minister Starmer’s rivals are preparing to mount a challenge.

China has promised to buy more of the B-3—beans, beef, and Boeing. Trump and Xi have exchanged platitudes, and Beijing has again cautioned that Taiwan is core interest. While Xi has repeated the typical mantra of opening up China more for foreign business, it is the foreign businesses that are trying to de-risk from China. A new “board of trade” is expected to be established, though such forums have existed in the past with little to show. The PBOC set the dollar’s reference rate at a new three-year low today.

Prices

G10

• The euro traded at the lower end of this month’s range yesterday and briefly traded below $1.17 before the one-billion-euro option expired. Options for a little more than 1.7 bln euros expire there today, too. After the low was recorded, a little before the North American banks go going, the euro was unable to push much above the $1.1720 area, Tuesday’s low. The month’s low was recorded on May 5 near $1.1675, a little below the 200-day moving average (~$1.1685).

• The market is gingerly dancing around the area that may have seen BOJ intervention last week. The dollar reached JPY157.90 yesterday. According to Bloomberg’s pricing, the dollar peaked slightly below JPY157.95 last Wednesday. It apparently edged a little closer to JPY158 today without going over. Our reading of the macro-picture and technical indicators suggest officials will likely be challenged. The daily momentum indicators are turning higher. Options at JPY158 for $1 bln expire today. Still, market participants will tread carefully and a move above JPY158 may slow near the 20-day moving average (~JPY158.25).

• Sterling was sold through $1.35 yesterday for the first time this month, though it was back above it before the options struck there expired. Its attempt to recover stalled around $1.3530. Recall that sterling rallied from the year’s low on March 31 (~$1.3160) to two-and-a-half-month high on May 1 (~$1.3660). Options for GBP1.2 bln at $1.3570 expire today, but sterling has not been above $1.3535 today. The nickel rally looks tired. The five- and 20-day moving averages are falling and the momentum indicators have turned down. A convincing move through $1.35 targets the $1.3440-50 area.

• The US dollar was confined to a narrow range of around 15 pips on either side of CAD1.3700 yesterday and remains within it today. Options for around $340 mln at CAD1.3715 expire today. The upside breakout we have been anticipating seems to be at hand. The next technical target is around CAD1.3750.

• The Australian dollar traded firmly yesterday. It moved to the upper end of the range that was set last Wednesday, slightly below $0.7280. Yet the Aussie still posted a new high close in nearly four years and still looks to be among the strongest of the major currencies, though the momentum indicators remain over-extended. It is trading little changed today in a roughly $0.7240-$07265 range.

• The Mexican peso traded firmly yesterday, leaving the greenback trapped in the recent trough (~MXN17.16-MXN17.3250). We favored an upside break for the dollar, but the momentum indicators are less clear. A break of the MXN17.16 area could spur a test on last month’s low (~MXN17.1275). The peso did not seem to have been impacted much by S&P’s cut of the sovereign outlook to negative from stable of its BBB rating, which matches an earlier move by Moody’s. The dollar is trading between MXN17.16 and MXN17.2050 today.

• The dollar continues to bleed lower against the yuan. It is not hemorrhaging, but a steady trickle. Coming into today, the dollar has not risen against the offshore yuan for ten consecutive sessions. It has in this run, fallen by less than 1%. The dollar eased to a new low near CNH6.7850 today. Beijing is delivering a tortoise, and its critics want a hare. The dollar’s fix was set at a new three-year low near CNY6.84 today. It seems that many want to dismiss it as cosmetic for the Trump-Xi meeting, but the general trend has been unfolding for months. That said, given our near-term constructive dollar outlook, the yuan may begin consolidating.

• The Indian rupee felt to new record lows today before stabilizing amid news that the government is considering reducing taxes levied on foreign investors in the local bond market. After reaching almost INR95.9590, the dollar pulled back and settled near INR95.7690.

Other Markets

• Equities are mixed but mostly firmer today. Japanese and Chinese stocks retreated but other large Asia Pacific markets rose, including Taiwan, South Korea, Australia, and India. Europe’s Stoxx 600 is advancing about 0.5%, which puts the benchmark higher on the week. US index futures also enjoy a firmer today.

• Benchmark 10-year yields are mostly softer with the sell-off in the JGBs the notable exception. The yield rose four basis points to 2.61%, a new high. European yields are 3-4 bp lower, and despite the political pressures in the UK, Gilts are participating fully in today’s advance. The 10-year Treasury yield is 1-2 bp lower to hover near 4.45%.

• Gold trading quietly yesterday inside Tuesday’s range (~$4638.60-$4773.55) and it is trading inside yesterday’s range today as the consolidative phase continues. Silver, however, has been trending higher and approached $90 yesterday, which it has not traded above for two months. It too is trading within yesterday’s range but has held below $89 so far today.

• June WTI reached session highs yesterday in mid-morning in NY around $103.65 and steadily surrendered its gains and slipped back to almost $100.75. It briefly dipped below $100 to $99.60 today before returning to $102.35. It is trading heavier in late European morning turnover to approach $100.50.

Data

• The US reports April import and export price indices today. The US appears to be experiencing a positive terms of trade shock as export prices are rising roughly twice the pace of import prices. That said, the import/export prices tend not to elicit much of a market reaction and today they compete with weekly jobless claims and April retail sales for attention. April retail sales are expected to show that the US consumers continue to shop despite weak confidence and inflation offset wage gains. Softer auto sales were likely offset by higher gasoline prices. The median forecast in Bloomberg’s survey is for a 0.5% rise in retail sales, and 0.3% excluding autos and gasoline. Core retail sales, which exclude those two categories, and food services and building materials, is projected to rise by 0.4% after 0.7% in March.

• Canada reports April existing home sales. Economists surveyed by Bloomberg project the rise monthly increase since last October.

• The UK economy grew 0.6% in Q1 26 and Q4 25 growth was revised to 0.2% from 0.1%. There was sequential quarterly improvement in most of the components but capex and trade. The economy ended the quarter on a firm note as the monthly March GDP print was for 0.3% growth rather than the -0.1% contraction projected by the median forecast in Bloomberg’s survey, though the February GDP was shaved to 0.4% from 0.5%. Industrial output for 0.3% in March as did the index of services activity. Construction jumped 1.5% (though the February series was revised to 0.5% from 1.0%. The trade balance deteriorated with and without precious metals.

• China’s April lending figures were weaker than expected. Aggregate financing, which is the comprehensive measures increased by CNY621 bln (~$91 bln) in last month. This is almost half of the growth reported in April 2025. New loans declined by CNY15.3 bln, while the median projection was for an increase of CNY300 bln. April tends to be a weak month on seasonal factors. Government financing accounted for the bulk of the credit expansion.

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About Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

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