The dollar initially extended its gains against most of the G10 currencies but was sold in Europe and will begin the North American session lower except against the Japanese yen. Japan’s Prime Minister Takaichi has reconsidered her initial reluctance and has endorse a supplemental budget to help households and businesses cope the with commodity shock. With the US-China summit over, President Trump’s rhetoric toward Iran has escalated following reports that Iranian drones targeted a nuclear facility in the UAE. July WTI reached a contract high near $104.35 today. We suspect the concrete outcome of the Trump-Xi meeting many not be known until the US decides on the $14 bln arms package to Taiwan. Yet even to consider the arms package as negotiable can not set easy in the capitols of the US allies and at the same time the US has announced a troop withdrawal from Germany and has halted the rotation into Poland.
The dollar’s setback in Europe has stretched the intraday momentum indicators and North American participants may see the dip as a new buying opportunity. There are few large option expirations today to note. First, there are almost 1.3 bln euros at $1.1650 (today’s high has been about $1.1645). There are a little more than 2 bln euros of options that expire there tomorrow. And at $1.1600, there are 3.75 bln euros of options that expire today. Turning to the Japanese yen, where the market seems to be challenges Japanese officials, there are $4.7 bln options at JPY159 that expire today.
Prices
G10
• The euro was sold below $1.1620 in the European morning before the weekend and spent most of the North American session below $1.1640. Its 1.4% weekly decline was the largest in two months. It fell every session last week. It made new lows for the week in late dealings ahead of the weekend and settled below the lower Bollinger Band. The losses were extended to slightly below $1.1610 in the Asia Pacific session before recovering to reach $1.1645 in Europe. If the session high is not in place, it seems nearly so. The next technical area of support is $1.1580-$1.1600. There are 3.75 bln euro in options that expire at $1.1600 today and nearly 1.3 bln euros at $1.1650. Tomorrow, options for a little more than 2.0 bln euros at $1.1650 expire.
• The dollar rose for the past five sessions against the Japanese yen and reached JPY158.85 before the weekend. The gains have been extended today to almost JPY159.10, its best level since the BOJ reportedly intervened on April 30. The dollar recorded a bullish outside up day last Thursday by trading on both sides of Wednesday’s range and settled above its high. Follow-through buying materialized Friday though the market knows it is tempting material intervention again. The dollar closed above the 20-day moving average for the second consecutive session before the weekend and surpassed the (61.8%) retracement of the intervention-spurred losses. Options for $4.7 bln at JPY159 expire today.
• The recovering dollar and the political drama as Labour looks to dump Starmer who led them into a strong victory two short years ago. Sterling, like the yen and euro fell every day last week. Sterling’s roughly 2.2% decline last week broke the five-week rally and was the largest weekly loss since November 2024. Sterling fell to $1.3315 before the weekend. It settled below the lower Bollinger Band for the second consecutive session. It edged a little closer to $1.33 today before rebounding to almost $1.3385. The lower Bollinger Band is near $1.3365 today. The pre-weekend high was slightly above $1.3400, and this may be enough to cap it today.
• Although the Canadian dollar was the best performing G10 currency against the US dollar last week, its 0.55% decline was sufficient to push its to its lowest level in a month. The US dollar reached slightly through CAD1.3765 before the weekend, overshooting a little the (50%) retracement of its losses since the March 31 high (~CAD1.3965). The greenback has held below the pre-weekend high and returned to around CAD1.3735. The Canadian dollar has fallen for the past eight consecutive sessions. The US dollar settled a little above the upper Bollinger Band (~CAD1.3760 today). In January and March when it did, the greenback was near a high. Initial support is seen near CAD1.37. Canadian markets are closed for Victoria Day today.
• The upside momentum had been stalling even though the Australian dollar reached a new three-year high on May 6 near $0.7280. The broad US dollar gains proved too much, and the Aussie broke down before the weekend. It reached $0.7140, the lowest level in10 days. Follow-through selling pushed the Australian dollar to a new low for the month today, near $0.7120. The Aussie caught a bid that lifted it back to almost $0.7170. While a marginal new high is possible, the $0.7180 area may cap it.
EM
• The dollar forged a base against the Mexican peso around MXN17.16. After coiling most of last week, the greenback sprang higher ahead of the weekend. It traded a little above MXN17.40, the dollar’s best level since May 5. It is consolidating quietly today between roughly MXN17.29 and MXN17.37. The MXN17.4225 area corresponds to the (61.8%) retracement of this month’s decline. Similarly, the dollar based around BRL4.88 before jumping higher beginning in the middle of last week. It reached nearly BRL5.0820 before the weekend, its best level since April 9. A new funding scandal hit the Bolsonaro family. The next technical area of note is around BRL5.1050-BRL5.1200. Domestic political concerns and the doubts over the independence of the central bank have seen the Colombian peso sell-off for the past three weeks. The dollar rose in each session last week and reached almost COP3821 before the weekend. The high for the year was recorded in early January near COP3839.
• The PBOC may be willing to accept a stronger yuan, but the greenback’s broader strength makes for an opportune time to consolidate. The US dollar reached CNH6.8165 before the weekend, its best level since May 6 and slightly in front of the 20-day moving average. The dollar’s rise before the weekend snapped an 11-session drop. The dollar reached CNH6.8215 today before pulling back to almost CNH6.7975. The dollar can rise toward CNH6.85 without inflicting much technical damage. The PBOC set the dollar’s fix at CNY6.8435 (CNY6.8415 before the weekend and multi-year low last Thursday at CNY6.8401).
• Rising oil prices and higher global interest rates continues to drag the Indian rupee lower. Counting today, it has fallen for seven sessions. The dollar reached a record high of about INR96.3925 in late dealings. The central bank has begun investigating foreign investments by Indian companies.
Other Markets
• Equities fell heavily before the weekend and have yet to stabilize. Nearly all the bourses, but South Korea, Singapore, and India fell in the Asia Pacific region, while Europe’s Stoxx 600 is off about 0.25% after dropped nearly 1.5% before the weekend. US Nasdaq futures are off slightly while the S&P futures are off about 0.3%.
• Benchmark 10-year yields soared at the end of last week. The US, Germany, Japan, and UK saw their benchmark yield rise to the highest in more than a year. The 18 bp increase in the 10-year Treasury yield was second most in the G10 after the 20 bp increase in the 10-year JGB. Yields have begun the week with a firmer bias. Japan’s Prime Minister Takaichi has endorsed a supplemental budget in response to the rise in commodity prices and this weighs on supply concerns. While the 10-year JGB yield edged up to 2.71%, the long-end of the curve, the 30- and 40-year yields rose 6-9 bp. European benchmark yields are mostly a little firmer. The 10-year Gilt yield is an exception, off 2 bp. The 10-year US Treasury yield is almost a basis point firmer near 4.60%. The 30-year Treasury yield is a bit firmer at 5.13%.
• Rising rates and a stronger dollar pressed gold and silver lower before the weekend. Gold reached almost $4774 last Tuesday and probed $4512 ahead of the weekend. It slipped below $4500 today for the first time since the end of March. It recovered to almost $4560 in early European activity but stalled. A close below $4500 could target $4400. Silver was turned back after it approached $90 in the middle of last week. It settled the week below $77. Follow-through selling today saw it dip below $74 before steadying.
• July WTI settled at two-week-highs, a little above $101. It set a new contract high today around $104.35. The previous contract high was recorded on April 30 (~$103.80), the same day that the Bank of Japan reportedly intervened to support the yen.
Data
• It is a lighter week for US data. The May New York Fed’s service survey poses little more than headline risk. Its manufacturing survey, reported at the end of last week, softened to 7.3 from 11.0. Services were already under-performing in April at -14.0. The March TIC data is due toward the end of the session. Contrary to a common narrative of the drying up of foreign interest in US stocks and bonds, the TIC data showed foreign investors bought a net $1.41 trillion of US paper assets in 2025, up from $1.22 trillion in 2024 and almost $840 bln in 2023. It is a volatile series, and every quarter last year saw one month of net liquidation. In Q1 26, January saw a net outflow, but it was more than made up for by the $184.50 bln net inflow in February.
• Australia ordered the largest shareholders in critical minerals company to liquidate their stakes due to national security issues. Of the six largest owners, five are registered in China/Hong Kong, and one in the British Virgin Islands. The companies were given two weeks to divest. The six investors own a little more than a quarter of the company. The Australian government’s effort to reduce foreign ownership of the company began in 2024.
• Japan reports Q1 26 GDP first thing tomorrow. With less of a drag coming from inventories and a small contribution from net exports, the Japanese economy is expected to have expanded by about 0.4% after 0.3% growth in Q4 25. The annualized pace is projected to rise to 1.6% from 1.3%. Consumption and business spending are expected to slow. The GDP deflator may moderate to around 3.1% from 3.4%, according to the median forecasts in Bloomberg’s survey.
• China reported disappointing April real sector data earlier today. According to Beijing, the economy grew by 1.3% quarter-over-quarter in Q1 26 for a 5.0% year-over-year pace. The second quarter began poorly. Retail sales and industrial production slowed. Retail sales rose by 0.2% year-over-year after rising 1.7% in March. Industrial output rose 4.1% year-over-year, down from 5.7% in March. After falling, perhaps due to the anti-involution campaign (over-investment) in the last four months of 2025, fixed asset investment appeared to have stabilized in March but fell 1.6% in the year-to-date year-over-year measure after rising 1.7% in March. Despite years of efforts, the Chinese property market remains a drag. House prices continue to fall, property investment is contracting, and residential property sales are running almost 16% below last year’s sales through April.
Reviewed by Marc Chandler
on
May 18, 2026
Rating:
