The US dollar recovered in late turnover ahead of the weekend and has extended its recovery today in holiday-thin trading. Japan, China, and UK markets are closed. The ceasefire in the US-Iran war looks fragile as Washington says it will begin escorting ships out of the Strait of Hormuz and Tehran threatens to attack the ships. June WTI is trading above the pre-weekend high and 10-year benchmark yields are jumping.
Washington announced two measures at the end of last week. It first announced tariffs on European vehicles would be raised to 25% from 15% and that at least 5k troops would be removed from Germany. The tariff increase was said to be in response to Europe’s failure to implement the trade agreement that requires it to purchase $750 bln of US energy. US troops in Germany were never sufficient to defend it against a Russian invasion but served as a tripwire that would trigger US military might. The removal of 5k troops unwinds the increase after Russia’s invasion of Ukraine in 2022. Yet, the context in which it was done gives the appearance of punishment for Chancellor Merz’s criticism of US war on Iran.
Prices
G10
• The euro posted an ostensibly bullish outside up day last Thursday and follow-through buying ahead of the weekend lifted it to $1.1785, and eight-day high. However, the upside momentum stalled as the resistance in the $1.1790-$1.1800 area was approached and the US announced an increase in tariffs on EU vehicles to 25% from 15% from its failure to fully implement the trade deal, according to President Trump. The US also announced intentions to withdraw at least 5k troops from Germany. The euro pulled back to new session lows near $1.1715 in late thin dealings before the weekend. In thin holiday trading, it slipped slightly through $1.1690. If sustained, a move back below $1.1700 would disappoint the bulls. Options for around 925 mln euros at $1700 expire today.
• The yen rose to its best level since the Middle East war began with the help of what appears to be material intervention. The dollar recorded a low of JPY155.50 before the weekend. The area corresponds with a technical retracement of the dollar’s rally from the January low. Tokyo markets do not re-open until Thursday. The dollar is consolidating today. It has held above JPY155.70 and below JPY157.25, as it has been confined to the pre-weekend range. Without signaling a change in policy, and without US support, Japanese officials did manage to arrest the yen’s slide and reinforce the importance of the JPY160 area. Previous support around JPY157.50-JPY158.25 may now serve as resistance.
• Sterling reached almost $1.3660 before the weekend, its best level since February 16. However, it reversed lower and settled below $1.3600 nemesis. In the waning hours of last week’s activity, it fell to almost $1.3570. This weakened the technical tone and follow-through selling took it slightly below $1.3525 today. A convincing break $1.3530 could signal a return to the $1.3450 area.
• The Canadian dollar reached its best level since March 10 before the weekend. The greenback settled near CAD1.3640 on the eve of the war on Iran and reached CAD1.3550 at the end of last week. The US dollar took out the trendline connecting the January and March lows (~CAD1.3580) but settled above it. The US dollar approached CAD1.3620 today. Options for $380 mln at CAD1.3615 expire today. The previous band of support that extends to CAD1.3620 may offer resistance.
• The Australian dollar reached almost $0.7230 before the weekend, its highest level since June 2022. The central bank meets tomorrow and is widely seen delivering its third hike of the year. It is consolidating between about $0.7165 and $0.7225 so far today. The Aussie seems vulnerable to “buy the rumor, sell the fact” activity.
EM
• The Mexican peso rose at the end of last week. The practically flat performance was the best in Latam on Friday. Still, the peso finished last week with a modest loss (~0.45%) for the third consecutive week. It is trading softer today. The dollar has reached MXN17.5525 in Europe. Last week’s high was around MXN17.5840. Mexico is expected to announce today new measures to boost investment by cutting red-tape, after reporting last week its largest quarterly economic contraction in a year (-0.8% quarter-over-quarter). The Brazilian real gained about 0.5%. The Colombian peso was the weakest emerging market currencies last week, with about a 2.25% draw down. It was punished after the central bank left its policy rate at 11.25%. There was speculation of as much as a 75 bp increase. The national election at the end of May may keep pressure on the currency.
• China’s mainland markets will re-open Wednesday. The dollar is trading within its recent ranges against the offshore yuan. It found support today near CNH6.8155, while the April low was recorded near the middle of the month around CNH6.8060. The greenback has recovered to around CNH6.8250.
• The Indian rupee remains out of favor. It reached a record low last Thursday before Friday’s holiday. The pullback in oil prices may offer some support to the rupee. With the help of intervention, the rupee recovered last Thursday. The dollar reversed lower after reaching INR95.3335. It fell to INR94.82 today before rebounding back above INR95.0880 to near session highs in late turnover.
Other Markets
• Equities are mixed. China and Japanese markets were closed but most of the other markets rallied today, with Taiwan and South Korea’s main indices surged 4.6%-5.1%, respectively. The holiday has thinned European turnover and the Stoxx 600 is slightly softer. The US Nasdaq and S&P futures are trading with a firmer bias.
• Benchmark 10-year yields are jumping 4-6 bp in Europe. The 10-year US Treasury yield is up nearly four basis points to almost 4.41%. Last week’s high was a couple of basis points higher and high for the year was recorded in late March near 4.48%. The 30-year yield briefly poked above 5% last Thursday for the first time since last July. The market does not look finished.
• Gold reached a three-day high before the weekend, near $4660 and is approached last week’s low (~$4510) today, which was also April’s low. A break of $4495 could signal losses toward $4400. Silver has been sold through the pre-weekend low (~$73) before finding support ahead of last week’s low near $72.
• June WTI briefly traded below $100 on news that the US would escort some ships out of the Strait of Hormuz. However, Iran is not capitulating and the contract recovered to new session highs (~$107.45) late in the European morning.
Data
• The US reports March factory orders but the strong durable goods orders reported last week (and will be updated today) point to robust capex that may be fueled by AI and data centers. The replenishing of the US arsenal has yet to filter into the data. NY Fed President William is the first official to speak since last week’s meeting. Cleveland Fed President Hammack, who dissented last week, wanting to adopt a neutral statement speaks on Thursday and may be the most interesting this week.
• Mexico reports March worker remittances and IMEF surveys, while S&P’s manufacturing PMI is also due. The highlight this week is the April CPI figures on Thursday followed by the central bank’s rate decision several hours later.
• The eurozone saw April’s final manufacturing PMI. It was confirmed at 52.2, near a four-year high. Of note, Spain’s manufacturing March PMI was not above the 50 boom/bust level. Yet, its Q1 GDP of 0.6%, reported last week, was a little better than expected and better than Germany (0.3%), France (flat), and Italy (0.2%). Spain’s April manufacturing PMI jumped to 51.7 from 48.7. Italy’s April manufacturing PMI was the strongest among the “Big 4” standing at 52.1 vs.51.3 in March.
Reviewed by Marc Chandler
on
May 04, 2026
Rating:
