There have been no further developments to fuel optimism about the Strait of Hormuz. Polymarket shows little change in the assessment that there is around a 35% chance that the Strait is open by the end of next month and 47% chance opens by the end of July. Still Brent and WTI are trading with a slightly heavier today. Equities are mostly firmer as are bonds. Most of the preliminary May PMI estimates have shown the impact of the war with softer readings and higher prices.
The dollar is trading with a firmer bias, recovering from yesterday’s losses in the North American afternoon. A poor employment report and the weak PMI have the Australian dollar the weakest of the G10 currencies after it led the pack yesterday. The dollar continues to straddle the JPY159 area, but Japanese rhetoric has not escalated. The PBOC set the dollar’s reference rate today at a new multiyear low.
Prices
G10
• The euro tested the lower end of the range of support we identified in the $1.1580-$1.1600 area before recovering to new session highs (~$1.1645) amid a flight of fancy after President Trump indicated that negotiations with Iran were in the final stages. Oil tumbled and rates fell. Still, the feeling of “Groundhog Day” could not be shaken that the euro consolidated mostly between $1.1620 and $1.1640 in the North American afternoon. The euro reached the session low today, near $1.1595 after the disappointing French PMI but was already recovering before the German figures shortly after the French report. It stalled near $1.1635.
• The Japanese yen strengthened yesterday for the first time in eight sessions. Not, we think, coincidentally that US 10-year yields dropped by about 8.5 bp yesterday, the largest single day decline since February 5. The greenback eased to a two-day low near JPY158.60 and recovered to almost JPY159 in afternoon turnover. The dollar remains firm but is subdued in a JPY158.80-JPY159.10 range.
• Sterling posted an outside up day on Monday, consolidated on Tuesday, and posted an outside up day yesterday. It traded on both sides of Tuesday’s range and settled above it high. Sterling reached a new four-day high near $1.3465. The session low, near $1.3415 today was recovered before the soft PMI. It recorded the session high shortly thereafter, around $1.3455 before stalling, where options for about GBP935 mln expire today. The (50%) retracement of the losses since the month’s high on May 1 is around $1.3480. A move above there could target the $1.3510-20 area next.
• The Canadian dollar was the only G10 currency that did not rise against the US dollar yesterday. Even the Norwegian krone, which is more sensitive (higher correlation) with oil managed to eke out a small gain (~0.10%). The greenback reached almost CAD1.3780, a new high since April 15. For the past four consecutive sessions, the US dollar has traded above CAD1.3760, which is roughly the (50%) retracement the sell-off since the high for the year was posted at the end of March near CAD1.3965. However, it has not settled once above it. The US dollar is trading inside yesterday’s range but firmly today. The market may take another run at chart resistance in the CAD1.3800-15 area.
• The Aussie rebounded smartly yesterday. The nearly 0.65% gain put it atop the G10 performers. It posted its lowest settlement in a month on Tuesday slightly above $0.7105 and rallied to almost $0.7175, a few hundredths of a cent below Tuesday’s high. It is trading well within this week’s range today and confined to $0.7100-$0.7160 range. A convincing move above $0.7200 would suggest the downside correction may be over.
EM
• The three factors that seem to drive the Mexican peso favored gains yesterday. First, the dollar was broadly weaker, and the JP Morgan Emerging Market Currency Index rose. Second, US rates fell. Third, risk-on was featured with strong gains in US equities. After setting a new two-week high slightly above MXN17.43, the dollar reversed low and fell to almost MXN17.26, a little through Tuesday’s low. Still, the broad consolidation continues. The dollar is trading between MXN17.29 and MXN17.3650 so far today. There seemed to be little reaction to Moody’s decision to cut Mexico’s sovereign rating to Baa3, which matches Fitches earlier move. S&P is one notch better at BBB.
• The dollar has moved mostly sideways against the offshore yuan so far this week. The range has been roughly CNH6.7960 and CNH6.8215. The dollar is in the lower end of that range today. The weakness of the dollar may have encouraged the PBOC to lower the dollar’s reference rate today (to a new multiyear low, CNY6.8349) after raising it yesterday for the third time in four sessions.
• The Reserve Bank of India intervened more aggressively today to support the rupee, including reportedly in the offshore market. That and more threats of action to stem the pressure, including rate hikes, helped trigger a short squeeze. The dollar gapped lower today after posting a record high yesterday. It peaked near INR96.9650 yesterday and fell to the low of the week near INR96.04 today.
Other Markets
• The rally in US equities and the favorable response to Nvidia’s earnings helped arrest the four-day slide in the MSCI Asia Pacific Index. Most of the large bourses outside China and India were higher. The last-minute deal between Samsung and its employees avoided a strike and a South Korea-flagged oil tanker made it through the Strait of Hormuz yesterday. The Kospi rallied by nearly 8.5% and Taiwan’s Taiex jumped almost 3.4%. Japan’s Nikkei gained a little more than 3%. Europe’s Stoxx 600 is rising for the fourth consecutive session. If sustained it would match the longest advance of the year. US index futures are narrowly mixed.
• Benchmark 10-year yields fell sharply yesterday in Europe’s afternoon. Most yields fell between 9 and 13 bp, The UK, Italy, and Greece led the charged with 13-14 bp declines. The 10-year US Treasury yield fell a little more than nine basis points to 4.57%. Asia Pacific bonds played catch-up today while European bond yields have edged lower, though the 10-year Gilt yield is off a little more than four basis points. The 10-year US Treasury yield is a little softer, near 4.57%.
• Gold made a marginal new low yesterday since the end of March near $4475 and set a new session high shortly before midday in NY a little below $4553. It reached almost $4571 today before being turned back. It needs to overcome the $4590-$4600 area to boost confidence that a low is in place. Silver held above Tuesday’s low (~$73.10) yesterday and settled around 3.25% higher. It reached nearly $77 but is now slightly lower on the day. A move above the $80-$81 area would lift the technical tone.
• July WTI tumbled from almost $103 to $97 in the first hour after the news broke of President Trump’s comment on Iran. It consolidated choppily for the remainder of the session and posted its lowest settlement in four sessions. It is consolidating in the lower end of yesterday’s range. It was capped a little above $100 and found support near $97.25. The 20-day moving average is a little below $97. It has not settled below for a month.
Data
• In a 75-minute window, the US reports weekly jobless claims, April housing starts and permits, the May Philadelphia Fed business survey and the preliminary PMI. Housing starts are expected to slow after jumping 10.8% in March. Although the US economy appears to be re-accelerating this quarter, it may not be picked up by the Fed survey or the composite PMI. The Atlanta Fed’s GDPNow sees the US economy tracking 4% annualized growth this quarter, which is accurate, would be the most since the end of 2021.
• Mexico is expected to report a rebound in March retail sales (0.5%) after falling by 0.9% in February. Still, with Q1 GDP in hand (the 0.7% quarterly contraction is subject to revision tomorrow), the retail sales report is unlikely to have much impact.
• The eurozone reported a March current account surplus of 14.86 bln euros. That brings the Q1 surplus to 80.6 bln euros compared with almost 75 bln euros in Q1 25 and nearly 117 bln euros in Q1 24. However, the flash PMI appeared to draw more interest. Manufacturing ticked down (51.4 vs. 52.2) while services contracted (46.4 vs. 47.6), with the composite slipping to 47.5 from 48.8 to remain below the 50 boom/bust level for the second consecutive month. It spent all last year above 50.
• The UK’s preliminary PMI, on the heels of the disappointing employment report earlier this week, seemed to show an economy losing its forward momentum. The 0.6% growth in Q1 matched the strongest since Q1 24. The manufacturing PMI was unchanged at 53.7, but the services PMI tumbled to 47.9 from 52.7. The composite fell to 48.5 (from 52.6). The composite stood at 51.4 at the end of last year.
• Australia saw the preliminary May PMI and the April employment data earlier today. The PMI softened. Manufacturing eased to 50.2 (from 51.3), and services to 47.7 (from 50.7). The composite fell to 47.8 (from 50.4) but held well above the shockingly poor March reading of 46.6 (which looks like a fluke). The unemployment rate jumped to 4.5% from 4.3%, while the participation rate slipped to 66.7% from 66.8%. Australia loss 18.6k jobs, in April (vs median forecast in Bloomberg’s survey for a gain of 15k. The March series was revised to show 23.3k jobs were created vs. 17.9k initially estimated. Full-time positions slipped by 10.7k after rising a revised 63.4k in March.
• Japan reported that the April surplus narrowed by half from April while the preliminary May PMI slowed. Japan’s trade balance often deteriorates in April (16 of the past 20 years), and this year was not an exception. Through April, Japan recorded a JPY184 bln trade deficit compared with a JPY1.8 trillion deficit in the first four months of 2025. The IMF projects Japan’s current account surplus to fall to 3.8% of GDP this year from 4.9% last year. The PMI does not draw much attention in Japan. The manufacturing and services PMI slowed but both remain above 50. The composite is at 51.1 (vs. 52.2 in April and an average of 53.3 in Q1 26).
• India’s preliminary May PMI held up the best. The services PMI actually edged up to 58.9 from 58.8. The manufacturing PMI eased to 54.3 from 54.7. The composite ticked lower to 58.1 from 58.2.
Reviewed by Marc Chandler
on
May 21, 2026
Rating:
