US TSYS: Futures Slightly Weaker After Another Price Data Induced Rally

Oil prices fell over 4% on Monday on news that the US and Iran had reached a memorandum of understanding that would allow for negotiations on a lasting peace to take place over the next 60 days and importantly permit the Strait of Hormuz to reopen toll free over that time. It is due to be signed on Friday. While it is a relief for energy markets, talks will have to cover difficult issues such as sanctions relief, frozen assets, reparations, ongoing free passage through the Strait and Iran’s nuclear ambitions.

• WTI has started Tuesday slightly higher at $81.39 after falling 4.4% to $81.16 yesterday. The slight pickup may be some normalization after Monday’s move but could also be related to reports of explosions in the Hormuz area which the Iranians said could be because of “traffic management”.
• Brent fell 4.8% to $83.17 to be 8.5% lower in June. It reached a trough of $82.40, holding above key support at $81.45. The latest move is an extension of the current corrective cycle but a break below this level would strengthen the short-term bear theme.
• With around 600 vessels waiting to traverse the Strait and oil & gas output curbed, the impact of the conflict on Middle East supply is likely to be felt over at least the rest of 2026 and that is if an agreement is formed after 60 days of talks.
• Canada’s new oil sands project at Blackrod produced its first crude at the end of May and is expected to increase output to 30kbd by late 2027, according to International Petroleum (Bloomberg). With ongoing Middle Eastern uncertainty, there is likely to be increased investment in new supplies outside the region.

Spot USD/CNH tracks near 6.7590 in early Tuesday dealings, slightly up form Monday lows (6.7556). Tight ranges prevailed as Monday's session unfolded, with CNH finishing a touch higher for the session (+0.06%). The USD BBDXY index lost ground for Monday, but spent most of the US session edging up from lows. Equity sentiment was firm amidst the US-Iran peace deal announcement, while oil futures held large losses. Spot USD/CNY finished up at 6.7576, while the CNY CFETS basket tracker lost ground to 101.39, down a further 0.09%. 

• For spot USD/CNH, little has changed from a technical standpoint, with downtrend conditions remaining firmly in play. Near term focus will be on a test under 6.7500, while all key EMAs continue to track lower. The 20-day is around 6.7785, with this resistance point largely capping gains in the pair going back to early Apr.
• USD/CNH risk reversals are no longer trending higher, showing a flatter trend recently, with the 1 month still positive at 0.1225. The 1 month implied vol remains near cycle lows, last close to 2.145%.
• From late yesterday, in terms of May FX settlement data, via BBG: "Banks settled a total of $244b foreign currency and sold a total of $208b, resulting in a surplus of $35.8b", (against a surplus of $40.1bn in Apr).
• Today we have on the data front, May new and used home prices. The recent m/m decline has been negative in recent months, but not to same extent we saw in 2025.
• Also out is May activity figures, with retail sales expected to print -0.2%y/y, per the consensus (prior +0.2%). IP growth is expected at +4.4%y/y, versus prior 4.1%.   

The USD/JPY range overnight  was 160.03-160.40, Asia is currently trading around 160.35. The pair remains strongly supported on dips and its brief pullback below 160 did not last very long. The MOF/BOJ have seemingly drawn a line in the sand above 160 but the market is attempting to push them into a corner. Japanese officials will be seriously concerned by yesterday's price action and it feels like they are going to need to do something again if they want this ‘red line’ to hold. A move back above 160-161 would be very problematic for them as it could see the pair really begin to accelerate higher if they are not around to stop it. On the day, the first support is toward 159.00-159.50 and then the 158.00 area. The CFTC positioning shows the market is again sitting very short Yen as they continue to press the Japanese officials resolve, so they are vulnerable should the USD come back under pressure. The underlying story regarding Yen weakness remains the same though and core positions are reflecting that. The BOJ meeting today will also be key to that story; can they be hawkish enough to add to the current USD headwinds. 

• MNI - A broad consensus sees the BoJ raising rates by 25bp to 1.00% tomorrow, continuing gradual normalisation from early 2024 as inflation proves more persistent and wage dynamics improve, with policy still accommodative but moving toward neutral. Most expect a gradual tightening cycle beyond June, but views differ on speed and terminal rate 
• The main divergence is balance sheet policy: some expect an end or pause in JGB tapering around 2027 to stabilise yields, which could flatten the curve and be seen as dovish; communication risks (Ueda absence, FX sensitivity, fiscal stance) and future guidance are now as important as the June hike itself. 
• Options : Close significant option expiries for NY cut, based on DTCC data: 157.00($1.33b), 158.00($2.21b). Upcoming Close Strikes : 155.00($1.74b June 18 ), 158.00($1.51b June 18 ), 161.00($1.4b June 18 ) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 48 Points
• Data/Event : BOJ

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P