USD flows: Watching volatility, USD/EM, for pointers (DXY, AUD, EUR, GBP)
FX moves slow into various big figure correction levels, but USD squeeze remains the risk
Watching background pointers such as MOVE, USD/EM for broader risk aversion
Ongoing sense of an impasse on Iran, Trump warning ‘they better get moving, FAST, or there won't be anything left of them’, and drone incidents in UAE and Saudi Arabia as Iran media highlights a lack of US concessions in response to its proposals. Oil still nudging back up, $112 high for front month so far today, with $115~ highs next above.
Yield breakouts remain one focus in this context, with further pressure overnight with the Japan long end gapping up (4.2%~ high for JGB 30s after the break of the 4% mark) with fresh JGB supply part of the Budget response to the Iran crisis and energy price shock.
G7 meeting kicks off in France Mon-Tue with global imbalances, global bond volatility and Iran on the agenda though generally low expectations of anything substantive to emerge.
Not a huge amount of follow through on the FX side as yet after Friday’s sharper action, AUD/USD slowing on the day into the first main 0.71 support, EUR/USD similarly into 1.16. Some steadying in oil related pairs too after the dollar position squeeze. It needs the next ramp up in volatility to keep the position paring and dollar squeeze action dominating. In that respect, worth keeping an eye on the MOVE bond volatility index which is threatened to lift higher out of the May base and could accelerate if it clears resistance around 80s and the highs just above. Also worth keeping an eye on USD/Asia and USD/EM more broadly for further signs of dollar driven action, with overnight trade again seeing regionals widely pressured.