FX Daily Research
June inflation surprised lower across every major gauge: headline fell 0.4% m/m and core was flat, taking annual rates to 3.5% and 2.6%. Yields and USD fell immediately, while FX peers, gold and equities recovered. Warsh refused to declare mission accomplished, stressed that one report should not be cherry-picked, and repeated the 2% commitment; Goolsbee called the print encouraging but wants several similar months. Warsh also described solid activity, moderate consumption, low unemployment and steady job creation, while Barr's AI paper highlighted uncertain distributional effects. The regime shift is therefore not Fed easing, but a sharp reduction in imminent-hike risk that reinforces last week's 57K NFP as USD's main structural ceiling.
Trump said Hormuz must remain open and threatened heavier strikes on Iranian power plants and bridges unless Tehran negotiates. The US restored a full blockade on ships tied to Iranian ports or cargo, but replaced the proposed 20% safe-passage fee with Gulf trade and investment deals after talks with Saudi Arabia, the UAE, Qatar, Bahrain and Kuwait. US forces struck Iranian military targets; explosions were reported near Bandar Abbas and Bushehr, while Iran and the IRGC claimed attacks on US naval vessels, facilities in Kuwait and Bahrain and commercial tankers off Oman. Tehran says the strait will not fully open while US attacks continue, yet its deputy foreign minister left negotiations and tolerance on navigation possible. Oman's effort to secure a long-term freedom-of-navigation arrangement keeps a narrow diplomatic exit alive, but the current transmission remains higher oil/freight risk and fragile risk sentiment.
US stocks closed green after reversing pressure linked to weak preliminary IBM Q2 earnings because the CPI downside surprise pulled yields and USD lower. This contrasts with the prior session, when Reuters, SEB and MUFG recorded a 0.79% S&P 500 fall, a 1.55% Nasdaq decline and a 2.07% tech-sector drop as oil surged; energy had gained 3.16%. The memory/semiconductor unwind remains live after SK Hynix fell sharply, although Meta's Louisiana data-centre commitment now exceeds USD50bn and Intel announced a USD5.7bn AI-driven Ireland investment. Strong early bank earnings and lower Fed-hike odds support ES/NQ, while Hormuz, chip restrictions and earnings concentration keep NQ the higher-beta expression.
USTR Greer is reportedly pressing Europe to ease rules on US technology companies; US officials said very few Nvidia H200 chips had reached China or Hong Kong and raised Dutch semiconductor-equipment sales with the Netherlands. Trump said oil partnerships with Iraq would be announced soon, while Iraq's prime minister said US troops would leave by 30 September. The updated Russia sanctions bill reduces possible tariffs on the five largest buyers of Russian oil and gas to a maximum 100% from a blanket 500%, allows presidential waivers and may add Iran and Hezbollah. These measures temper the long-run supply shock but widen policy uncertainty for European growth, China tech and global semiconductors.
BRC sales and the leading index softened, yet last week's fiscal relief and expanded spending/Budget context remain the principal GBP narrative. SEB says credibility hinges on the chancellor choice, financing and adherence to fiscal rules: a growth-positive programme with contained gilt-swap spreads can strengthen sterling, while bonds-for-shares, energy exposure or unfunded expansion would lift the fiscal premium. MUFG's reserve-manager survey reinforces the bullish demand channel—planned GBP allocations rose to net +12% over 12–24 months and +14% over ten years. Regime implication: GBP remains the preferred pro-cyclical long, but gilt credibility is the hard invalidation.
Last week's 57K NFP remains the main USD theme. NFIB and TIC were strong, but softer weekly ADP and a broad CPI downside surprise drove yields and USD lower; Hormuz escalation supplies only a tactical haven floor.
SEB and ING read the flat core CPI and -0.4% headline as broad disinflation; ING expects wage cooling and a prolonged Fed pause into next summer. Danske Bank still sees tight labour/cost pressures, AI capex and tariff refunds as reasons for a later hike and keeps a tactical EUR/USD short, but the cool CPI weakens its immediate trigger. Scotiabank warned against treating Waller as FOMC consensus, while MUFG separates a Q1 conflict-led reserve increase from structural diversification: central banks plan net -3% USD allocations over 12–24 months and net -8% over ten years. Reuters, UniCredit and Natixis reinforce that oil/geopolitics can support USD tactically, but data and policy reaction remain decisive.
Scenario Distribution — Fed 28 July — Hold 83.43% / Hike 16.57%; prior Hold 56.71% / Hike 43.29% (Hold +26.72pp, Hike -26.72pp).
German WPI contracted more than expected and Europe remains exposed to the Hormuz energy shock, but the soft US CPI pushed EUR back above 1.1400 and narrowed the immediate US rates advantage.
ING says the two-year swap gap had already tightened about 15bp and could keep EUR/USD afloat, but warns Brent at USD90–100 and TTF at 55–60/MWh could drive EUR/USD toward 1.10. Danske Bank sees markets overpricing ECB tightening (57bp versus its single 25bp September call) and targets 1.1100 in tactical EUR/USD shorts. Against that, MUFG finds reserve managers planning net +17% EUR allocations over 12–24 months and +21% over ten years, potentially lifting EUR reserve share toward 24–25% if EU safe-asset capacity deepens. SEB, Reuters and UniCredit keep the energy/fiscal-risk discount in view.
Scenario Distribution — ECB 22 July — Hold 75.76% / Hike 24.24%; prior Hold 65.87% / Hike 34.13% (Hold +9.89pp, Hike -9.89pp).
Weak BRC sales and the leading index are near-term drags, but last week's fiscal relief remains the dominant anchor. Bailey's resilience comments did not disturb the carry story.
SEB calls sterling mixed but says credible financing, growth-positive reforms and contained gilt-swap spreads can strengthen GBP; the risks are an expansionary agenda, bonds-for-shares issuance and an energy-driven fiscal premium. UniCredit similarly sees little value in gilts while the UK remains highly energy-dependent. Yet MUFG shows reserve-manager plans for GBP rising to net +12% over 12–24 months and +14% over ten years—the strongest confirmation of the user's fiscal-relief thesis. Reuters records sterling's sensitivity to Gulf risk, but that is a tactical check rather than the core trend.
Scenario Distribution — BoE 29 July — Hold 80.10% / Hike 19.90%; prior Hold 79.88% / Hike 20.12% (Hold +0.22pp, Hike -0.22pp).
Consumer sentiment and business confidence improved, China delivered much larger trade surpluses, and the leading index stayed positive. Hormuz risk remains the main external drag.
MUFG finds reserve managers were modest outright AUD buyers in Q1, reinforcing a positive valuation effect. ING argues FX rewards currencies with hawkish domestic flexibility as well as commodity exposure, although it sees NZD as the cleaner rates story. Scotiabank notes commodity currencies can outperform when oil rises even if the broader risk tape is weak. Together the institutions support AUD on China, reserves and commodities, with escalation beta the key cap.
Scenario Distribution — RBA 10 August — Hold 77.71% / Hike 22.29%; prior Hold 76.78% / Hike 23.22% (Hold +0.93pp, Hike -0.93pp).
Business confidence rose to 8 from -4 while visitor arrivals fell. The positive rates impulse and relative domestic improvement remain stronger than the tourism miss.
ING calls NZD the best-performing G10 currency in the Gulf re-escalation because markets reward last week's hawkish RBNZ repricing; it also cautions that year-end tightening expectations may be too aggressive before 2Q CPI and that AUD can recover versus NZD if escalation persists. MUFG includes NZD in a broader commodity-FX channel but treats domestic policy flexibility as the differentiator.
Scenario Distribution — RBNZ 1 September — Hike 72.24% / Hold 27.76%; prior Hike 76.29% / Hold 23.71% (Hike -4.05pp, Hold +4.05pp).
Oil is a powerful cushion, but CAD has no fresh domestic beat and faces today's BoC decision with weak underlying positioning. The currency therefore remains the cleaner short in non-escalation scenarios.
Scotiabank says BoC hike pricing has been mechanically pulled by its correlation with WTI rather than a full domestic reassessment. MUFG records modest Q1 reserve-manager buying of CAD, and Reuters notes oil-linked resilience, but neither removes the weak domestic/COT backdrop. Institutional evidence therefore treats crude as a cushion, not an automatic reversal.
Scenario Distribution — BoC 14 July — Hold 86.81% / Cut 13.19%; prior Hold 89.26% / Cut 10.74% (Hold -2.45pp, Cut +2.45pp).
Soft US CPI and lower yields strengthened JPY tactically, but Japanese industrial production missed and the energy-import shock remains adverse.
MUFG reports Q1 reserve-manager JPY sales of roughly USD45bn—the third-largest episode in the COFER series—and notes planned allocations fell to net +5%. It also highlights verbal support for domestic asset allocation and possible GPIF review. SEB notes Katayama's tax-free JGB proposal supported JPY, while Reuters frames lower US yields as the immediate driver. The result is mechanically bearish JPY with meaningful intervention/allocation squeeze risk.
Scenario Distribution — BoJ 30 July — Hold 94.84% / Cut 5.16%; prior Hold 94.98% / Cut 5.02% (Hold -0.14pp, Cut +0.14pp).
Milder-than-expected PPI deflation and attacks across Gulf shipping/bases support CHF, even as zero rates limit the carry case.
MUFG finds CHF reserve holdings rose 6.8% in Q1 despite adverse valuation, driven by the largest outright buying since Q4 2024; it explicitly says the Middle East conflict benefits CHF while hurting EUR. SEB and Reuters support the haven transmission, although tiny reserve share and SNB intervention capacity cap the structural upside.
Scenario Distribution — SNB 23 September — Hold 89.92% / Hike 10.08%; prior Hold 86.96% / Hike 13.04% (Hold +2.96pp, Hike -2.96pp).
Gold recovered as soft CPI weakened USD and real yields, while attacks on tankers and Gulf assets preserve haven demand. The earlier oil-led higher-for-longer pressure has eased, not disappeared.
World Gold Council says June's 11% price decline and 8% H1 USD loss reflected hawkish Warsh messaging, higher real yields, ETF outflows and bearish options. Chinese ETFs still added 29t in H1 to 277t/AUM RMB243bn; June SGE withdrawals rebounded 36% m/m to 87t, while H1 withdrawals of 598t were 12% lower y/y and 27% below the ten-year average. The PBoC bought 15t in June, 40t in H1, taking reserves to 2,346t after 20 consecutive monthly increases. ING, Reuters, MUFG and SEB all described the pre-CPI bearish channel—higher oil, USD and real yields around USD4,000. The actual CPI miss reverses that immediate rates impulse, while the large retail/COT long still limits upside quality.
Scenario Distribution — Fed-linked scenario — Hold 83.43% / Hike 16.57%; prior Hold 56.71% / Hike 43.29% (Hike -26.72pp).
Selective blockade enforcement, strikes on Iranian infrastructure, attacks on tankers and threats to regional exports keep a material supply premium in Brent/WTI. Trade deals replacing the 20% fee slightly reduce the tail risk.
ING says Brent's 9.6% jump above USD83 reflected a blockade more important than the earlier waiver suspension and argues prices may not yet be high enough to force de-escalation. Reuters recorded Brent near USD82.95 and WTI USD77.71 as reduced Hormuz flows revived supply fear. MUFG, SEB and UniCredit merge the same oil-to-inflation, yields and growth channel. Iraq partnerships and the softer Russia-sanctions tariff cap improve longer-run supply optionality but do not neutralise today's maritime risk.
Scenario Distribution — No oil-specific monetary-policy Scenario Distribution is supplied; Fed scenario is Hold 83.43% / Hike 16.57% versus prior 56.71% / 43.29%.
The US macro backdrop improved for duration: CPI missed broadly, hike odds collapsed and equities reversed green. NFIB, TIC and early bank earnings show resilience, but 57K NFP, Hormuz and chip restrictions keep growth and concentration risks live.
Reuters recorded the pre-CPI damage—S&P 500 -0.79%, Nasdaq -1.55%, tech -2.07% and energy +3.16%—and identifies memory/semi volatility as the NQ fault line. Scotiabank reports a solid start to bank earnings. SEB links the earlier equity weakness to rising global yields and oil. Reuters also highlights Meta's USD50bn-plus Louisiana data centre and Intel's USD5.7bn Ireland investment, preserving the AI capex channel despite SK Hynix's sharp reversal. The merged view favours ES for breadth and NQ for a larger rates-relief squeeze, with NQ carrying more geopolitical and semiconductor beta.
Scenario Distribution — Fed 28 July — Hold 83.43% / Hike 16.57%; prior Hold 56.71% / Hike 43.29% (Hold +26.72pp, Hike -26.72pp).
| Currency | Section 2 Bias + Short Summary | COT | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| USD | 57K NFP and soft CPI dominate; Hormuz is only a tactical floor.Research Score: -1 | -8.34% vs -10.28% (+1.93pp)COT Score: -1 | USD 54.0% shortRetail Score: 0 | Bearish (-2) |
| EUR | Soft USD offsets weak WPI, lower ECB-hike odds and energy exposure.Research Score: 0 | -5.72% vs -4.13% (-1.59pp)COT Score: -1 | EUR 63.7% longRetail Score: -1 | Bearish (-2) |
| GBP | Fiscal relief, carry and reserve demand outweigh soft consumption.Research Score: +1 | +6.35% vs +5.52% (+0.84pp)COT Score: +1 | GBP 68.4% shortRetail Score: +1 | Bullish (+3) |
| AUD | Domestic/China improvement and reserve buying beat the RBA pause risk.Research Score: +1 | +14.49% vs +14.72% (-0.23pp)COT Score: +1 | AUD 62.7% shortRetail Score: +1 | Bullish (+3) |
| NZD | Confidence and 72.24% hike pricing outweigh the tourism miss.Research Score: +1 | -23.96% vs -22.92% (-1.04pp)COT Score: -1 | NZD 66.4% shortRetail Score: +1 | Bullish (+1) |
| CAD | Higher cut risk and weak fundamentals dominate; oil is a cushion.Research Score: -1 | -23.62% vs -25.43% (+1.80pp)COT Score: -1 | CAD 55.3% longRetail Score: -1 | Bearish (-3) |
| JPY | Production miss and reserve selling outweigh soft-US-yield relief.Research Score: -1 | -22.63% vs -26.30% (+3.67pp)COT Score: -1 | JPY 71.1% longRetail Score: -1 | Bearish (-3) |
| CHF | Haven regime and reserve buying beat lower SNB-hike odds.Research Score: +1 | -6.70% vs -9.13% (+2.42pp)COT Score: -1 | CHF 61.4% longRetail Score: -1 | Bearish (-1) |
| Market | Section 2 Bias + Short Summary | COT | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| Gold | Soft CPI and haven risk support gold, but the long is crowded.Research Score: +1 | Managed Money +31.24% vs +32.50% (-1.25pp)COT Score: +1 | XAUUSD 69% longRetail Score: -1 | Bullish (+1) |
| Oil | Blockade and tanker attacks support price, but positioning is reversal-prone.Research Score: +1 | Managed Money +3.36% vs +4.25% (-0.89pp)COT Score: 0 | WTI 74% longRetail Score: -1 | Neutral (0) |
| Nasdaq / NQ | Lower hike odds create a squeeze, with semiconductor risk still high.Research Score: +1 | Leveraged Funds -19.30% vs -24.63% (+5.34pp)COT Score: -1 | NAS100 56% shortRetail Score: +1 | Bullish (+1) |
| S&P 500 / ES | Rates relief and earnings breadth support ES; COT remains short.Research Score: +1 | Leveraged Funds -18.37% vs -18.32% (-0.05pp)COT Score: -1 | SP500 53% shortRetail Score: 0 | Neutral (0) |