FOREX: EURCHF Rises to Cycle Highs, USDMXN Hits 2-Year Low

News that mediatory discussions with Iran remain ongoing has factored into a pullback in oil, supporting wider risk sentiment in recent trade.

• This came after intensification in U.S.-Iran missile fire and Iran deeming the Strait of Hormuz closed until further notice pushed oil higher and weighed on bonds through Asia/early London trade.
• Futures trade as low as 87.43, before recovering to trade -20 at 87.72 last.
• Initial support and resistance located at 86.95 and 88.07, respectively. A bearish technical cycle remains in place.
• Yields 2-5bp higher, curve flattens.
• 10s haven’t challenged last week’s highs (4.981%), last ~4.91%. With last week’s highs providing the initial bearish targets across the curve.
• An FT source report pointed to some on the MPC disliking the BoE’s “fragmented that emphasises the individual views of rate setters at the expense of a collective voice”. A reminder that the BoE only reshaped its communication policy in recent times, following the Bernanke review.
• Elsehwere, FT reports suggested that “Andy Burnham is exploring holding an expanded Budget this autumn, combining the fiscal statement with a departmental spending review that would set out his political strategy and priorities until the next general election.”
• Hawkish BoE dissenter Pill will speak later today (19:00), although the topic of ‘Financial, regulation, innovation, and growth” may limit scope for meaningful comments on the traditional elements of monetary policy. A reminder that Pill reaffirmed his hawkish stance in comments provided last week.
• BoE-dated OIS pricing 33bp of hikes through year-end vs. ~29bp late yesterday, first hike fully discounted through the end of the November MPC

• USD:The recent lack of conviction in G10 FX markets has once again been on show Monday, as the early greenback bid tied to further strikes in Iran reverses across the European morning. This turn lower has been somewhat assisted by reports suggesting that talks with mediators remain open despite the escalation, leaving the DXY marginally in the red, around 100.85.
• JPY: Despite the greenback pullback, USDJPY remains 0.25% higher on the session at 162.10. This is in part reflective of a Reuters sources story which stated that GPIF has no immediate plans to change its target asset allocations – tempering expectations following Finance Minister Katayama’s comments last week. A bull cycle in USDJPY remains intact and the key short-term resistance and the bull trigger to watch is 162.84, the Jun 1 high.
• AUD/NZD: The most notable move across the G10 has been the extension lower for AUDNZD. On top of the hawkishly interpreted RBNZ hike last week, we flagged a trendline break last week that may have added to the downside momentum. Positioning dynamics are also likely a factor weighing on the cross, as spot pierces below 1.20 this morning. This narrows the gap to the early June lows at 1.1984, and should the move really start to accelerate, 1.1799 is an obvious target further out.
• EUR/GBP: Separately, after near enough matching initial support at 0.8508 on Friday and overnight, EURGBP has bounced back towards 0.8540 this morning. The move threatens to end the streak of lower session lows for the cross, although bearish conditions remain firmly intact, and initial firm resistance is at 0.8583, the 20-day EMA.

• Norwegian manufacturing industrial production rose 0.7% M/M in May, helping 3m/3m growth up to an 11-month high of 1.5% (vs 0.5% prior). Sequential growth was seen in both petroleum-related and non-petroleum related manufacturing industries, with the latter seeing 3m/3m growth recover to 1.0% (vs 0.2% in April, 0.9% in March).
• Headline IP fell 1.0% M/M, and 1.3% 3m/3m (vs -0.4% prior), owing to a 7.2% M/M fall in crude extraction.
• Services production – which was released last week on schedule – saw 1.0% M/M growth in May, with 3m/3m growth rising to 3.1% (vs 2.5% prior). Sequential growth was seen across major categories.
• Norwegian market participants will be hoping that May CPI-ATE is released this week. Technical issues at the stats office prevented release last Friday. Headline inflation was significantly below consensus and Norges Bank forecasts at 2.7% Y/Y, with analysts highlighting energy and food components as downside contributors.
• Analyst estimates we have seen place CPI-ATE at 2.8-3.0% Y/Y, which would be well below the 3.3% June MPR forecast. However, details remain important with focus on the extent to which this outturn was driven by volatile items or more underlying components.