- Stronger and stronger. Dollar strength remains hard to fade, underpinned by continued US macro resilience and renewed geopolitical tensions (US-Iran), which have nudged markets toward a mild risk-off bias.
- Blowout payrolls gain. On the data front, US non-farm payrolls rose 172k, smashing expectations, and crushing the case for Fed rate cut any time soon, which might start having a more negative impact on global risk appetite.
- Equity momentum falters. The S&P500 index might be set to snap a 9-week winning streak, weighed by weakness in AI-linked names and, alongside growing acceptance of a higher-for-longer rate backdrop.
- Oil stays elevated. Ongoing swings tied to Middle East developments have kept energy prices elevated, sustaining inflation pressures and pushing global bond yields higher.
- Volatility compression. Still, cross-asset volatility has declined markedly over the past two months, with rates, FX, and equities all trading below their 10-year averages. Such inertia may not last much longer.
- Japan intervention signal. Japan’s FX reserves fell by ~$76bn in May, pointing to large-scale intervention – likely funded via US Treasury sales to support the yen.
- Central bank bonanza. A packed policy calendar looms with the BoC and ECB decision next week followed by the BoJ, RBA, Fed, and BoE the week after. Focus also turns to US CPI, expected above 4%, reinforcing the case for further Fed tightening and higher yields.
Global Macro
US beats, Euro lags and prices stay sticky
US factories. US manufacturing surprised to the upside, with ISM Manufacturing at 54.0 vs 53.3 expected, while S&P Global Manufacturing came in at 55.1 vs 55.3 expected, so the broad signal was still one of solid factory expansion. At the same time, ISM Prices Paid eased to 82.1 vs 85.5 expected, but that still left it at an extremely elevated level, i.e., the growth story improved faster but it’s still burdened by unusually hot input costs and supply frictions.
Euro prices. Euro area CPI (May flash) printed 3.2% y/y, exactly in line with expectations, but it still accelerated from 3.0% in April, so the inflation direction remained unhelpful. More importantly, core inflation rose to 2.5% vs 2.4% expected, while services inflation accelerated to 3.5%, which tells you price pressure broadened beyond the pure energy story. Europe gave you no disinflation relief this week, even though the growth side still looks soft.
Services split. The US services picture was still expansionary, with ISM Services at 54.5 vs 53.7 expected, but the S&P Global Services PMI softened to 50.7 vs 50.9 expected, so the level stayed positive while momentum looked less impressive on the private survey side. Europe was weaker but not as bad as the flash had implied: the Eurozone Composite PMI was revised up to 48.5 vs 47.5 expected, and the UK Composite PMI was revised up to 49.7 vs 48.5 expected.
Labor. The May jobs report landed firmly on the strong side. Nonfarm payrolls rose 172,000, well above the 88,000 consensus, while the prior two months were revised up by a combined 93,000. The revisions make the underlying trend look stronger even before factoring in May’s gain. The unemployment rate held at 4.3%, and labor force participation stayed at 61.8%. In short, this was another solid print for a labor market that still looks resilient.
Week ahead
Policy pulse
- Central banks take the stage. Next week marks the start of a slate of central bank policy meetings amid a still fragile geopolitical backdrop. For EMEA, the ECB is first on the agenda, with a hike expected by markets. The nature of the hike appears to be pre-emptive, an “insurance” move that is not necessarily going to be effective at reining in inflation expectations, but is instead more symbolic in nature, signalling the Bank’s readiness.
- Hawkish risks build. All eyes will be on the US Consumer Price Index (CPI) report. Following a solid labour market snapshot this week, further evidence of accelerating price pressures as a result of the conflict would reinforce hawkish repricing expectations for the Fed.
- Upstream price pressures build. In the US, May’s Producer Price Index (PPI) will be released, a measure of price changes further up the value chain, i.e. prices received by firms before they reach the consumer. Amid conflict-driven increases in energy prices and an AI capex cycle in full swing, this layer of pricing is certainly under growing pressure.
- Sentiment stays underwater. The University of Michigan sentiment index is also due next week. Despite a still resilient US macro backdrop and a stabilising labour market, consumer sentiment in the US remains at multi-year lows, as reflected in the index. This theme is particularly relevant as we approach the midterm elections in November.
FX views
Strong data, capped dollar support
USD Stuck in 99-99.50 range. The dollar index (DXY) has remained confined to a tight range since mid-May, with 99.00–99.50 defining the bounds. Conflicting signals out of Hormuz, despite ongoing talks, have contained the dollar’s safe-haven bid, while oil prices – closely tracked by the USD – remain capped below USD 100 per barrel. Beyond geopolitics, Fed expectations have re-emerged as a secondary driver. Markets price roughly one Fed hike by year-end, although support for the dollar has so far remained limited. As a result, the DXY has anchored above 99 rather than staged a more sustained rally. The next Fed meeting in two weeks could prompt a firmer support as markets assess Kevin Warsh’s first press conference as Chair. For now, uncertainty around his policy independence continues to weigh on conviction, which may be limiting clearer support from rates for the dollar. We therefore expect the current 99.00–99.50 range to hold absent a material shift in Hormuz. On a breakout, we target 100.00 on the topside and 98.50 on the downside.
EUR Waiting on direction. EUR/USD traded broadly flat this week, with price action largely paralysed by conflicting signals around the Middle East. The pair continues to be driven primarily by oil and broader risk sentiment, with the lack of a clear de-escalation path keeping FX conviction limited. Rate differentials remain a secondary driver and, while modestly USD-supportive, their impact remains more subdued in the current oil-led environment. In the euro area, a softer macro backdrop offsets the ECB’s hawkish bias, limiting scope for sustained tightening expectations beyond a potential insurance hike next week. In the US, resilient data supports the dollar, though markets remain cautious ahead of the Fed meeting in two week’s time. Technically, EUR/USD remains range-bound, with support at 1.16 and resistance at 1.1650–1.1670. The base case is continued consolidation within this range. A break higher, potentially driven by de-escalation, could open 1.17, while renewed tensions would likely push the pair toward 1.1550, with scope to extend toward 1.15.
GBP Compressed volatility. Sterling has remained broadly range‑bound this week, but the underlying tone is one of fragility rather than strength. GBP/USD continues to oscillate in a tight 1.34–1.35 band, with price action shaped almost entirely by external forces. Resilient global equities have provided intermittent support via the risk channel, but this has been offset by higher oil prices – a persistent drag given the UK’s energy sensitivity. As a result, cable is holding steady, though without clear directional conviction, reflecting a balance of opposing macro drivers. Inertia has also been evident in GBP/EUR, with the cross confined to a narrow 1.15–1.16 range and retaining only a modest upside bias. This largely reflects the euro’s more deeply embedded structural headwinds, including weaker growth dynamics and ongoing energy vulnerabilities. However, sterling lacks a convincing domestic anchor of its own; with UK macro momentum fading and political risk still lingering, its upside remains constrained. Overall, GBP appears more passively supported than fundamentally strong, leaving it without a clear catalyst for sustained appreciation.
CHF Pressure is building. The franc has come under pressure this week, with USD/CHF up 1% and EUR/CHF up 0.7%. This is largely reflecting moves in the front end of the rates complex rather than a fundamental shift in the franc story. With the SNB expected to remain on hold near zero, short‑dated rate differentials are being driven primarily by the euro side, where higher short-end yields have lent support to the cross. At the same time, broader dollar strength – linked to firmer Fed expectations- has weighed on low‑yielding currencies. As with the yen, the franc is increasingly exposed to the unwinding of “debasement trades” that previously drove inflows into gold and alternative stores of value. A continued correction in those assets could see USD/CHF test the 0.80 area. Domestically, however, the narrative remains supportive. Swiss activity data continue to signal resilience, while the real effective exchange rate has eased from extreme highs, reducing immediate intervention pressure. This leaves CHF fundamentally underpinned, even as external flows dominate near‑term price action.
CAD Still under pressure. USD/CAD has climbed to its highest level since early April as Canada’s growth backdrop keeps deteriorating and strengthens the case for the Bank of Canada to stay on hold through year-end. A rate gap of roughly 120 basis points still favors the US dollar, so the macro bias remains tilted against the Loonie even with CUSMA extension talks moving in a constructive direction. Even though the job market posted strong gains in May, a hotter than expected jobs report in the US keeps the macro relevant picture in favor of US yields, keeping the USD/CAD under pressure. Next week’s BoC meeting is likely to focus more on the statement and press conference than on the hold itself. The options market is sending the same message, with demand for USD/CAD calls rising faster than demand for puts since May. In other words, traders are still paying up for upside protection in the pair, which points to the most bearish Loonie positioning in more than two months. The pair is trading around 1.39 and sits above the 20-day, 50-day, 100-day, and 200-day moving averages, clustered near 1.379, 1.376, 1.372, and 1.381. That moving-average alignment confirms a strong bullish structure and suggests the late-May push was a breakout, helped by stronger US Dollar. The pair is now pressing into the 1.39 area, with 1.397, highest level of 2026 standing out as the next major resistance zone. On the downside, initial support sits in the 1.381 to 1.379 band.
AUD Aussie slips as growth stays firm but momentum fades. AUD/USD sits near a one-week low despite solid growth. A US-brokered Israel–Lebanon truce lifted risk mood, but mixed headlines capped gains. Australia’s economy still runs hot: Q1 GDP rose 0.3% q/q, with annual growth at 2.5%, the fastest since Q1 2023. Even so, demand for the Aussie looks less convincing. Technicals lead here. AUD/USD hovers near the 50-day EMA (0.7128). A break lower opens the 100-day EMA at 0.7041. A bounce would refocus on the 21-day EMA at 0.7157. We note AUD positioning has eased from recent highs, pointing to weaker conviction behind Aussie strength. The crosses reinforce that picture: AUD/JPY is at 1-week low, AUD/EUR, AUD/GBP trades at two-week lows whereas AUD/CNY sit at one-month low. Watch NAB business confidence and building approvals next.
CNH Yuan edges firmer as services rebound. USD/CNH stays under pressure as improving China data supports the yuan. Services activity picked up strongly, with the PMI at 54.4 in May and the composite at 54, showing broader momentum. New export orders returned to growth, while cost pressures continue to rise at a measured pace. A steadier risk backdrop also helps sentiment toward the yuan. Price action remains key. USD/CNH trades about 0.3% above its recent low (6.7581). To regain upside traction, it must clear the 21-day EMA at 6.7886. Above that, focus shifts to the 50-day EMA (6.8177) and then the 100-day EMA (6.8673). Failure to break higher keeps the near-term bias lower. Market participants will focus next on upcoming trade balance, CPI and PPI.
JPY Yen stays weak despite stronger policy signals. USD/JPY pushes higher as the Yen fails to gain traction. Even with a more assertive tone from the Bank of Japan, the currency remains soft. Markets appear to have already priced near-term policy moves, limiting the yen’s reaction. Market is currently pricing in 93% likelihood of rate hike in June. Technically, momentum favours USD/JPY upside. The pair edges toward 160.00, with resistance at 160.72. Dips should find support near the 21-day EMA (159.20) and 50-day EMA (158.72). Holding above these keeps the upward trend intact; a break higher would reinforce positive momentum. Crosses like AUD/JPY, GBP/JPY and SGD/JPY sit near long-term highs, underlining sustained weakness in Yen. Focus next on GDP, current account and industrial production.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
