FX Daily Research
Trump said Iran wants to meet and “settle”, but he also said the choice may be settlement or “finish it off”. The White House has not made a final decision, yet reported options now include heavier airstrikes, ground forces to seize Iranian islands near Hormuz and bombing a fortified site that could support covert nuclear work. CENTCOM conducted new waves against capabilities used to attack commercial shipping, Treasury added sanctions, and Trump signalled strikes could expand next week.
The spillover is no longer confined to Hormuz. Explosions hit a US base in Kuwait; Kuwait said it intercepted four cruise missiles and 21 drones, with material damage but no injuries. Hezbollah is reportedly preparing escalation against northern Israel pending Tehran’s approval, while Houthis are laying groundwork to threaten Bab el-Mandeb. Iran says it never welcomed war and must use diplomacy, but its Foreign Ministry said there are no negotiation plans now; the reported Qatar trip by senior Iranian officials was denied. US-mediated Israel–Lebanon talks produced an outline for withdrawal from a pilot area, a narrow stabilising offset.
Regime implication: The base case shifts from fragile diplomacy to conflict-active with a diplomatic tail. Escalation supports oil, gold and tactical USD/CHF while pressuring EUR, equities and high-beta FX; verified talks and restored shipping would reverse that chain.
Core PPI rose 0.2% m/m and headline PPI fell 0.3%; the supplied calendar shows misses versus 0.3% and 0.0%. DXY fell toward 100.35 and markets reduced the July hike scenario to 10.16%. Together with the broad CPI miss and last week’s 57K NFP, the inflation print removes another pillar of near-term USD strength even as TIC purchases and Empire State manufacturing show resilience.
Warsh says the balance sheet should be as small as possible outside crises, the labour market is in good shape and recent inflation measures are imperfect; he also sees corporate earnings broadening and AI capex retaining alternative uses. Cook says waiting is prudent but one month of CPI/PPI is not a trend, with tariffs, Middle East energy and AI investment as upside risks. Williams calls policy well-positioned but gives no rate direction. The Beige Book reports prices rising moderately, with price growth the same or slower in every district. Trump, Vance and Hassett all favour lower rates or at least no hike, adding political pressure without changing the Fed’s formal reaction function.
Regime implication: USD is structurally bearish from 57K NFP plus two soft inflation reports, but Warsh/Cook caution and conflict haven demand preserve a tactical floor rather than a clean one-way short.
The BoC held the overnight rate at 2.25% as expected and judged current policy appropriate to sustain the recovery and return inflation to 2%. Macklem said growth has resumed after stalling over the past year, Q2 looks solid and the Bank believes the pick-up is sustainable as consumers remain resilient and businesses adapt. The projection is still cautious: GDP growth is 0.7% in 2026 and 1.8% in both 2027 and 2028, while US trade policy and the re-escalated Middle East conflict keep uncertainty high.
The key conditionality is oil. The BoC expects inflation to stay elevated in June and return to 2% in early 2027 only if oil declines and stabilises around USD70–75 per barrel; Macklem noted that the futures curve had already moved higher since the forecast was finalised. The Bank will look through direct energy effects, but the longer oil stays elevated, the greater the spillover risk into other goods and services. Macklem said another oil rise feeding inflation could require consecutive hikes, while decisions will be taken one at a time and CAD weakness has not been a major rate-setting factor.
Regime implication: CAD is neutral and explicitly oil-dependent. Sustained oil strength improves Canada’s terms of trade and raises the BoC hike tail; falling oil restores the hold/disinflation baseline, while a severe global risk-off move can still let USD haven demand overwhelm the CAD oil benefit.
Sterling outperformed and GBP/USD reached 1.3558 as reports converged on Shabana Mahmood becoming Chancellor under incoming PM Burnham. Markets associate her with fiscal conservatism; Burnham also played down a wealth tax for now. This extends last week’s fiscal-relief theme and keeps GBP supported into today’s GDP and output data, although Mahmood’s limited economic-policy experience remains a risk.
Germany plans a EUR13.3B energy-relief package for 2027 and is considering debt-brake reform, while Merz says Germany’s credit rating is not at risk. ECB officials remain vigilant: Moulin wants readiness for any inflation outcome, Nagel urges caution with decisive action if needed, and Panetta says euro-area inflation near 3% may remain above that level until early 2027, with energy, tighter financial conditions and geopolitical uncertainty only partly priced. Eurozone industrial production missed at -0.2% m/m and -1.2% y/y in the notable-update feed.
Regime implication: GBP retains a bullish relative-value edge over EUR: UK fiscal fear is easing while Europe carries the larger imported-energy and industrial-growth exposure.
US stocks finished mixed. Most major indices closed green, but the Nasdaq 100 reversed early gains after ASML’s strong quarter was offset by EUV lithography guidance below consensus, weighing on semiconductors. Communication Services and Consumer Discretionary led, Energy and Utilities lagged, and soft PPI supported the broader market. Apple is reportedly pursuing chip-company acquisitions for AI servers, while Warsh said earnings are broadening and AI capex can be repurposed.
China registered Apple Intelligence with Alibaba’s Qwen integration, even as Washington considers further executive action on China-linked open-source AI models and US firms increasingly adopt cheaper Chinese open-weight systems. That mix sustains AI capex but raises policy, supply-chain and margin risk. Russia–Ukraine remains unresolved: Trump says Moscow may be ready for a deal, but Russia rejects a post-war multinational force as intervention.
Regime implication: Rates relief and earnings breadth favour ES; NQ still offers a larger squeeze when yields fall, but ASML, chip concentration and regulatory fragmentation justify lower conviction.
Oil settled slightly higher in choppy trade as US–Iran rhetoric dominated. EIA crude stocks fell 1.693M, close to the supplied -1.8M calendar forecast but smaller than the 3.0M prior build reversal implied by expectations. Trump expects oil to yo-yo; the White House is weighing another Jones Act waiver extension, and the EU will keep the Russia oil-price cap unchanged until 23 July.
The physical tail risk is widening through Hormuz, Kuwait and the possible Bab el-Mandeb channel, while Ukraine’s attacks on Russian refineries have tightened diesel and crack spreads. That is a stronger near-term oil impulse than the modest inventory draw alone.
Regime implication: Oil is tactically bullish while shipping risk broadens, but 74% retail longs and fading managed-money exposure warn that diplomacy can trigger a sharp downside reset.
Last week’s 57K NFP remains the core labour signal. The broad CPI miss was followed by Core PPI at 0.2% and headline PPI at -0.3%; July hike odds fell again. Strong TIC purchases and Empire State manufacturing prevent a recession narrative, while the expanding Iran campaign supplies only a tactical haven bid.
Berenberg, CIBC and Natixis say broad CPI cooling removes urgency for July; ING expects a prolonged pause as housing, wages and tariff pass-through fade. CACIB stresses Warsh’s zero tolerance and a 10s30s flattener if strong data/oil reprice the front end. MUFG says the near-50% July-hike pillar disappeared and long-USD positioning leaves more downside, though high real yields and geopolitics slow it. Reuters/LSEG confirms lower yields and USD after CPI; today’s softer PPI strengthens that merged view.
Fed 28 July — Hold 89.84% / Hike 10.16%; prior Hold 83.43% / Hike 16.57% (Hold +6.41pp, Hike -6.41pp).
Industrial production fell 0.2% m/m and the Iran shock raises Europe’s imported-energy bill. Germany’s EUR13.3B relief plan and stronger long-bond auction demand cushion the hit, but Panetta warns that inflation near 3% may stay elevated into early 2027 while growth remains soft.
Danske Bank expects a July hold but a final 25bp September hike. ING says EUR rates cannot follow the dovish US move because Brent and TTF dominate ECB pricing, although industrial output lacks momentum. MUFG finds near-term reserve selling from the energy shock but strong 12–24m and 10y allocation plans if EU safe-asset capacity expands. UniCredit highlights Brent near USD85 and TTF above EUR50, while its French political work adds a medium-term risk premium.
ECB 22 July — Hold 82.96% / Hike 17.04%; prior Hold 75.76% / Hike 24.24% (Hold +7.20pp, Hike -7.20pp).
Last week’s fiscal-rule reassurance remains the main GBP theme. Burnham’s likely selection of Mahmood as Chancellor and his wealth-tax restraint add a fiscally conservative signal, while weaker USD inflation supports cable. Today’s GDP/output pack is the immediate validation risk.
J.P. Morgan says GBP has done a lot, but the Chancellor shift makes risk/reward less negative; real money and hedge funds continued buying. MUFG records reserve-manager plans to raise GBP exposure by net 12% over 12–24 months and 14% over ten years, suggesting gilt yield compensates fiscal risk. The notable-update evidence is stronger than the limited UK-specific macro in the institution pack, so fiscal credibility remains the governing thesis.
BoE 29 July — Hold 82.43% / Hike 17.57%; prior Hold 80.10% / Hike 19.90% (Hold +2.33pp, Hike -2.33pp).
China GDP and fixed investment missed sharply, but industrial production and retail sales beat as AI/high-tech manufacturing and exports stayed strong. The net signal is weak domestic demand rather than a hard landing; soft US inflation and retail shorts support a risk-on squeeze.
CACIB, Danske and ING merge around the same China view: 4.3% GDP and collapsing investment require more fiscal support, but high-tech production, exports and some housing stabilisation prevent a hard-landing call. MUFG Asia stays cautious on energy-importing Asia but recognises strong exports. Westpac notes AUD led after soft US CPI and iron ore recovered; J.P. Morgan would add AUD/USD on soft US inflation and holds AUD/NZD longs.
RBA 10 August — Hold 80.01% / Hike 19.99%; prior Hold 77.71% / Hike 22.29% (Hold +2.30pp, Hike -2.30pp).
No domestic release changed the picture. China weakness is a beta drag, but NZD retains a 71.99% September hike scenario while the Fed and RBA move further toward hold. Retail remains heavily short NZD/USD.
Reuters/LSEG recorded NZD near a one-month high after soft US inflation. J.P. Morgan reports systematic NZD buying in seven of eight sessions but hedge-fund selling, and prefers AUD/NZD because NZ card spending softened. Westpac notes NZ business confidence improved but fuel costs remain a concern. The merged view supports NZD against USD, not necessarily against AUD.
RBNZ 1 September — Hike 71.99% / Hold 28.01%; prior Hike 72.24% / Hold 27.76% (Hike -0.25pp, Hold +0.25pp).
Manufacturing and wholesale sales beat forecasts, the BoC held 2.25%, and Macklem described Q2 as solid with a sustainable pick-up. The Bank projects 0.7% growth in 2026 and 1.8% in 2027–28. Its inflation path back to 2% in early 2027 assumes oil falls and stabilises around USD70–75; because the futures curve has already moved higher, persistent oil is now the decisive CAD variable.
ING expected no rush to tighten but saw oil supporting CAD; J.P. Morgan stayed broadly bearish and preferred buying USD/CAD near 1.40 despite an oil bid. MUFG saw scope for modest CAD gains from spreads and crude but warned about the output gap, mixed growth and aggressive year-end hike pricing. The actual BoC message is more conditional than outright hawkish: it validates the oil-support channel and consecutive-hike tail without making tightening the base case.
BoC — Hold 84.99% / Hike 15.02%; prior Hold 86.81% / Cut 13.19%. The alternative scenario changed from Cut to Hike after the decision; Hold fell 1.82pp while a 15.02% hike tail replaced the prior 13.19% cut tail.
Machinery orders collapsed 12.4%, overwhelming the tertiary-activity beat. USD/JPY held around 162 despite softer US inflation, and Japan added a BoJ-autonomy footnote to its revised fiscal draft. Policy and intervention risk remain asymmetric near the highs.
CACIB argues growth strategy requires much larger public-private investment and says pension assets could shift above the current 25% JGB allocation, a long-run domestic-flow support. J.P. Morgan says authorities’ structural-flow signal is too important to be short JPY and expects action above 163; its Japan team says manufacturing sentiment held up on AI demand. MUFG shows Q1 reserve-manager JPY selling was the third-largest on record, explaining present weakness even as future intervention risk rises.
BoJ 30 July — Hold 94.73% / Cut 5.27%; prior Hold 94.84% / Cut 5.16% (Hold -0.11pp, Cut +0.11pp).
No domestic data changed the setup. Regional escalation into Kuwait, Hezbollah and Bab el-Mandeb increases CHF hedge value, while lower Fed hike odds reduce USD/CHF rate support; risk-on diplomacy would quickly unwind the haven premium.
J.P. Morgan remains bearish CHF and added USD/CHF after the soft-CPI dip, citing Warsh’s inflation resolve and hedge-fund CHF selling; real money and systematic accounts were CHF buyers. MUFG finds reserve managers bought CHF in Q1 despite negative valuation, the largest buying since Q4 2024, although CHF remains only 0.24% of reserves. The conflict backdrop balances the bearish desk call.
SNB 23 September — Hold 89.38% / Hike 10.62%; prior Hold 89.92% / Hike 10.08% (Hold -0.54pp, Hike +0.54pp).
Soft CPI/PPI and lower Fed hike odds support non-yielding gold, while widening Iran spillover preserves haven demand. The main counterweight is a strong retail-long crowd and the risk that persistent oil inflation revives real yields.
Reuters/LSEG recorded spot gold up 1.36% to USD4,054.46 after CPI, with hostilities tempering but not reversing the rally. MUFG shows 82% of central banks hold gold, over 30% plan to add in 12–24 months and more than 40% net plan to add over ten years; most survey respondents expect USD5,000–6,500 by June 2027. Syz reinforces the soft-CPI/rates channel, while Berenberg says de-escalation would remove the need for Fed tightening.
Fed-linked scenario — Hold 89.84% / Hike 10.16%; prior Hold 83.43% / Hike 16.57% (Hike -6.41pp). No separate gold policy scenario was supplied.
Oil settled slightly higher, and the EIA draw of 1.693M was close to the calendar’s -1.8M forecast. The decisive input is geopolitical: US options now include seizing Iranian islands, while Kuwait and possible Bab el-Mandeb spillover broaden the threatened supply chain.
MUFG Middle East sees markets shifting from a temporary shock toward prolonged disruption, with Brent near USD86 and WTI near USD80. ING favours energy exporters while shipping and refined products stay tight. Syz highlights surging diesel cracks and Russian refinery throughput down to 3.8mb/d from 5.3mb/d at the start of 2026. UniCredit records Brent USD85 and TTF above EUR50; Westpac says crude stayed on an upward trend despite volatility.
Fed-linked scenario — Hold 89.84% / Hike 10.16%; prior Hold 83.43% / Hike 16.57%. No oil-specific monetary-policy scenario was supplied.
The US macro backdrop is duration-friendly: 57K NFP, soft CPI/PPI and only 10.16% July hike odds. Equities were mixed as most indices closed green, but NQ reversed with ASML guidance and semiconductor weakness. Warsh sees earnings broadening and AI capex retaining alternative uses.
Reuters/LSEG and Natixis report S&P 500 +0.4% and Nasdaq +0.9% on soft CPI and strong bank earnings; current updates then show NQ underperforming as ASML reversed. Syz points to record foreign inflows, powerful bank earnings and a USD50B buyback, but warns primary dealers are net short corporate bonds for the first time since 1998. Westpac says lower yields help while semiconductor volatility and Iran cap upside.
Fed 28 July — Hold 89.84% / Hike 10.16%; prior Hold 83.43% / Hike 16.57% (Hold +6.41pp).
| CCY | Section 2 Bias + Short Summary | COT — Leveraged Funds | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| USD | 57K NFP plus soft CPI/PPI dominate; Iran is a tactical floor.Research Score: -1 | -8.34% vs -10.28% (+1.93pp); improving but still a meaningful net short.COT Score: -1 | USD 53.9% long; below 55%.Retail Score: 0 | Bearish (-2) |
| EUR | Industrial contraction, lower ECB hike odds and energy-import exposure.Research Score: -1 | -5.72% vs -4.13% (-1.59pp); net short worsened.COT Score: -1 | EUR 64.7% long.Retail Score: -1 | Strong Bearish (-3) |
| GBP | Fiscal relief, Chancellor credibility and reserve demand.Research Score: +1 | +6.35% vs +5.52% (+0.84pp); net long increased.COT Score: +1 | GBP 82.1% short.Retail Score: +1 | Strong Bullish (+3) |
| AUD | China drag conflicts with soft-US-rate and squeeze support.Research Score: +1 | +14.49% vs +14.72% (-0.23pp); large net long, only marginally softer.COT Score: +1 | AUD 67.6% short.Retail Score: +1 | Strong Bullish (+3) |
| NZD | RBNZ premium offsets China sensitivity.Research Score: +1 | -23.96% vs -22.92% (-1.04pp); net short worsened.COT Score: -1 | NZD 69.7% short.Retail Score: +1 | Slight Bullish (+1) |
| CAD | BoC hold, firmer Q2 confidence and the oil-linked consecutive-hike tail balance growth caution.Research Score: 0 | -23.62% vs -25.43% (+1.80pp); improving but deeply net short.COT Score: -1 | CAD 61.6% long.Retail Score: -1 | Neutral / Oil-dependent (positioning overlay -2) |
| JPY | Capex shock and carry dominate; intervention is squeeze risk.Research Score: -1 | -22.63% vs -26.30% (+3.67pp); improving but deeply net short.COT Score: -1 | JPY 79.4% long.Retail Score: -1 | Strong Bearish (-3) |
| CHF | Haven and reserve demand balance bearish desk flows.Research Score: 0 | -6.70% vs -9.13% (+2.42pp); improving but still net short.COT Score: -1 | CHF 59.9% long.Retail Score: -1 | Bearish mechanically (-2); conflict override |
| Market | Section 2 Bias + Short Summary | COT | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| Gold | Disinflation, central-bank demand and war risk; retail crowd caps chase.Section 2 Score: +1 | Managed Money +31.24% vs +32.50% (-1.25pp); strong net long despite fading.COT Score: +1 | XAUUSD 64% long.Retail Score: -1 | Slight Bullish (+1) |
| Oil | Supply-route escalation dominates, but reversal risk is extreme.Section 2 Score: +1 | Managed Money +3.36% vs +4.25% (-0.89pp); small fading net long inside ±5%.COT Score: 0 | WTI/XTIUSD 74% long.Retail Score: -1 | Neutral score / Bullish regime (0) |
| Nasdaq / NQ | Rates relief offsets chip concentration and ASML risk.Section 2 Score: 0 | Leveraged Funds -19.30% vs -24.63% (+5.34pp); short improved but remains large.COT Score: -1 | NAS100 56% short.Retail Score: +1 | Neutral (0) |
| S&P 500 / ES | Broader earnings and lower yields make ES cleaner than NQ.Section 2 Score: +1 | Leveraged Funds -18.37% vs -18.32% (-0.05pp); large net short, essentially unchanged.COT Score: -1 | SP500 58% short.Retail Score: +1 | Slight Bullish (+1) |