NZD: NZD/USD - Bounces Off 0.5900, With USD Under Pressure Can It Move Higher?

The AUD/USD had a range Friday night of 0.6570- 0.6591, Asia is trading around 0.6570. The pair found good supply again towards 0.6600 capping any move higher, but AUD continued to hold onto its gains in the crosses. CFTC Data does not show any real reduction in the short positions, the price action at the end of last week suggested there was some paring back of these so it's interesting to see it has not had an impact yet. Risk is opening on the backfoot this morning as the world has to again digest Trump's next round of tariffs this time on Europe and Mexico. AUD/USD needs a clear break above 0.6600 to gain momentum for a push higher until then it looks back to the range.

• (Bloomberg) -- “The US government is pressing Japan and Australia to clarify their roles in the event of a US-China war over Taiwan, a move that upsets America’s two key allies in the region, the FT reported.“
• “(Bloomberg) -- “Anthony Albanese touted deeper economic and trade cooperation with China during the Australian PM’s first visit to the country since his re-election in May.” 
• The AUD/USD continues to hold above its support around 0.6500, looks like it's back to the 0.6500 - 0.6600 range and it should now take its cues from the USD. Watching to see if the market can build on this outperformance and break above 0.6600.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.6560(AUD631m July 15), 0.6495(AUD611m July15), 0.6700(AUD611m July 16).
• CFTC Data shows Asset managers added to their shorts slightly -38252, the Leveraged community pared back their shorts to -19061.
• Data/Event: NAB Business Confidence, RBA Cash Rate

Fig 1: AUD CFTC Data

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

TYU5 reopens at 110-26, up 0-03 from closing levels in today’s Asia-Pac session.

• Friday night the US 10-year yield had a range of 4.3577% - 4.4253%, closing around 4.41%. 
• Treasury yields tested higher on Friday night on inflation fears; this was led by the long-end which saw the yield curve steepen (2s10s +4.46 at 52.016, 5s30s +4.11 at 97.462).
• MNI FED: Chicago's Goolsbee: Latest Tariffs Require Caution. Chicago Fed President. Goolsbee tells the Wall Street Journal in an interview Friday that this week's latest round of tariff announcements could force him and the FOMC to wait for longer before having enough clarity to cut rates. 
• MNI US INFLATION: CPI Seen Picking Up In June, Core Goods Eyed For Early Tariff Hit. June CPI is the highlight of next week's US data slate, with MNI's early roundup of analyst expectations showing an anticipated acceleration in the main measures of inflation. Both core and headline CPI are seen rising to the mid 0.20s% M/M, from May's readings of 0.13% for core and 0.08% for headline. 
• The 10-year yield is again testing the 4.40/45% pivot with its wider 4.10% - 4.65% range. The market is clearly worried about inflation and the CPI this week will be a critical input into the market's thinking. A sustained close back above the 4.45% area could see more longs pared back, above here and the focus will turn back to the 4.60% area.

Fig 1: 10-Year US Yield Hourly Chart

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

The global bank expects more USD weakness, it updates its FX forecasts and some key trade recommendations below. 

J.P. Morgan: "Look for more USD weakness predicated on the same combination of cyclical (US moderation, tariffs) and structural (valuations, fiscal, flow dynamics, policy uncertainty) factors we’ve been flagging.

Some signals have become less USD-bearish or even bullish, which could signal consolidation in the near term, but we consider these less relevant over the medium term. The underlying macro landscape is undergoing a significant shift, which means model dislocations can get larger.

Stay bullish on EUR/USD and cyclical G10 FX (Antipodeans vs USD, Scandis vs EUR). Tactically neutral on EM FX while maintaining a medium-term more constructive stance. The risk of broad and outsized tariffs has resurfaced; if implemented, they pose global growth risks not priced and would result in defensives outperforming (CHF, JPY). Stay long JPY and initiate new CHF longs.

G10 Key targets: EUR/USD 3Q 1.19 (1.17) to signal still-bullish view; 1.22 peak unchanged. GBP downgraded on weak domestic data and renewed focus on fiscal. EUR/GBP 0.89 (0.87); GBP/USD 4Q 1.36 (1.40). USD/JPY 1y 139, AUD/USD 0.68 both unchanged.

EM: USD/CNY 1y 7.10, USD/BRL 5.75, USD/MXN 19.40 (all unchanged). HUF upgraded and favoured in CEE; EUR/HUF 385 (400)
New trade : Buy CHF vs GBP, EUR basket."