US TSYS: Modestly Richer Ahead Of FOMC Blackout

After falling close to 5% on Tuesday, oil prices are moderately lower in today’s APAC session. WTI is down 0.6% to $75.62/bbl, off the intraday trough at $75.35, while Brent is 0.3% lower at $78.70/bbl after reaching $78.38. Prices turned following the G7 commitment to tighten sanctions on Russian oil & gas.

• Both benchmarks continued to trade below key support levels but remain above the next levels to watch. Optimism on the reopening of the Strait of Hormuz scheduled for Friday and the expected resultant increase in oil supply continue to pressure crude prices.
• The memorandum of understanding between the US and Iran should allow not only the reopening of the Strait of Hormuz but also lifting of sanctions on Iran for oil, banking and transport. Then there is a 60-day period to negotiate a final agreement, which could easily be derailed given how far apart the two side are, the G7’s insistence Iran never has nuclear weapons and ongoing heightened tensions between Israel and Iran-backed Hezbollah.
• Bloomberg reported that there was another large US crude inventory drawdown last week of 8.3mn barrels, according to API data. The official EIA data released later today will be monitored as destocking has been used globally to fill the supply gap left by the Iran War.
• Today’s focus will be on the Fed’s decision and updated forecasts. It will also be the first press conference for new Chair Warsh. It is forecast to leave rates unchanged but given gasoline prices are turning down, optimism regarding the inflation outlook may be voiced. In terms of data, May retail sales, pending home sales and April inventories print.
• The ECB’s Lagarde and Cipollone speak. Also, euro area May CPI and UK May CPI/PPI are released.

The BBDXY has had a range today of 1204.47 - 1205.18 in the Asia-Pac session; it is currently trading around 1204. The break higher in the USD looks to have lost all upward momentum, the MOU has seen it top out and test the 1205 breakout area. The market is much more comfortable selling US dollars, though its inability to follow through and extend lower has been interesting. Is it the market just playing it cautious and waiting for confirmation of traffic back through the Straits or something more ? I suspect the former. On the day, with the upward momentum lost I suspect the dollar headwinds should keep it trading heavy in the short-term. There are potential stumbling blocks though, Israel being chief among them but for now at least the market will be looking for a positive outcome. The first support is around 1203-1205 and then the 1197-1200 area, the Dollar needs to hold above here if it has any chance of moving higher again. A sustained break back below 1195-197 and the market will again start to turn its focus toward the year's lows between 1175-1185. The FOMC tomorrow morning could hopefully add some volatility, can the MOU allow Warsh to be dovish in his first meeting as Chair ?

• EUR/USD -  Asian range 1.1608-1.1617, Asia is currently trading 1.1610. The pair continues to stall toward its first resistance as the broader Dollar looks unable to build on its recent reversal for now. The market is more comfortable selling US dollars, and while the pair holds above its 1.1400-1.1500 support it should keep those Bears interested. On the day, the first resistance remains around 1.1600-1.1620 and then the 1.1650-1.1700 area. Until we have confirmation of ships flowing through the Straits and a peace deal being honoured, I suspect we might do some work up there. The 1.1400-1.1900 range going back well over a year now continues to hold. 
• GBP/USD - Asian range 1.3424-1.3435, Asia is currently dealing around 1.3430. The pair has topped out above 1.3450 for now as the USD weakness failed to extend. On the day, the first resistance is toward the 1.3450-1.3500 area which should offer some resistance initially. It looks like 1.3300-1.3500 for the moment. 
• Data/Events: UK May CPI, ECB Wage Tracker, Eurozone May CPI (F), US MBA Mortgage Applications, US May Retail Sales, Fed Rate Decision

Fig 1: GBP/USD Spot Daily Chart

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

The NZD/USD had a range today of 0.5825-0.5838 in the Asia-Pac session; it is currently trading around 0.5826, -0.10%. The NZD found demand toward the 0.5800 area again yesterday but has since lost all momentum and drifted a little lower in a very quiet Asian session. The NZD has held the lows of its recent 0.5800-0.6000 range and with a MOU that lower band could remain well supported while the USD bears wait patiently on the side. On the day, it looks like we could continue to drift in a 0.5780-0.5900 range while the market looks for confirmation that a peace will hold, Lebanon remains a hurdle. Should we see traffic start flowing back through the Straits of Hormuz next week, this could potentially see the broader US dollar complex come back under pressure again. The FOMC tomorrow morning could potentially add some volatility, can the MOU allow Warsh to be dovish in his first meeting as Chair ?  

• "NZ MAY GOVT. BONDS HELD BY FOREIGNERS RISE TO 59.6%" - BBG (prior 58.9%)”
• MNI - NZ Weak Sentiment Measured Before Middle East Stabilisation: Westpac consumer confidence fell sharply in Q2 to 80.4 from Q1’s 94.7, the lowest since Q3 2023. Geopolitical uncertainty weighed on sentiment but cost-of-living pressures are a major concern, exacerbated by higher fuel prices. Also wholesale rates have increased mortgage costs before the RBNZ actually tightens. Sentiment suggests a slowing of private consumption growth in Q2 but card transactions are holding up.
• Options : Closest significant option expiries for NY cut, based on DTCC data:  0.5750(NZD450m), 0.5800(NZD405m). Upcoming Close Strikes : 0.5885(NZD300m June 18 ), 0.5890(NZD514m June 18 ) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 44 Points

Fig 1: NZD/USD Spot Daily Chart

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