IRAN: Reported Explosions Due to Confrontation With Violating Vessel

• RES 3: 133.15 - High Feb 24 ‘26
• RES 2: 131.80 - 38.2% retracement of the Feb - Mar Bear Leg
• RES 1: 130.67 - 50-dma (cont)
• PRICE: 128.97 @ 16:26 BST May 12
• SUP 1: 128.60 - Low Apr 27
• SUP 2: 129.27 - Low Mar 27
• SUP 3: 129.06 - 1.500 proj of the Aug 6 ‘24 - Mar 26 - Apr 7 ‘25

JGBs continue to fade, erasing much of the mid-April recovery in the process. Nonetheless, there remains a sizeable gap with the recent pullback lows. Price remains well below the 50-dma, a break above which is needed to highlight a stronger short-term reversal and signal scope for any recovery. Interim supports rest at 128.71 and below at 129.06.

• In the face of higher US yields overnight thanks to the higher CPI, gold fell -0.46% to close at US$4,713.
• Bullion continues to trade within tight ranges and again is wedged between the 50-day EMA of $4,725 and the 20-day EMA of $4,686.
• The ST momentum indicators such as 14-day relative strength index are now broadly neutral, whilst the MACD suggests that some positive momentum still remains in prices.  
• CPI is now above the FED's targets - re-affirming that rates are on hold for the near term adding additional barriers to gold's ability to rally from here as it is caught in an interesting push pull between inflationary pressures and yields.  
• Turkey’s central bank likely added $2.8 billion to its net foreign exchange reserves, excluding swaps, during the week of May 8 to take the total to $39 billion, QNB Turkey estimates.
• The outlook for gold in the near term seems uncertain.  The safe haven bid and positive impact from central bank buying seems to have dissipated as hawkish rate expectations overpower.  The outlook in the US for inflation remains poor.  The possible reason for the reticence of FED members to start talking hawkish is the new chairman coming in.  However at some stage the FED is going to turn hawkish and that suggests some headwinds for gold coming.  

Spot USD/CNH couldn't get back above 6.8000 as Tuesday trade unfolded, but equally on the downside we couldn't make fresh headway sub 6.7900. CNH finished up little changed for the session, outperforming a 0.30-0.35% rise in the BBDXY and DXY indices. Broader downtrend conditions persist in USD/CNH, with all key EMAs trending lower (the 20-day now sub 6.8200). The pair tracks just under 6.7900 in early Tuesday Wednesday trade. Technically, there isn't much in the way of support between current levels and the 6.7000-6.7500 region. Spot USD/CNY finished up at 6.7969, while the CNY CFETS basket tracker finished up at 99.76, continuing to gain modest ground amidst yuan outperformance. 

• Near term focus for the yuan remains on Trump's trip to China, with a meeting with China President Xi at 10:15am (Beijing time) tomorrow kicking off proceedings. There is expected to be a wide range of topics covered around trade, Taiwan and the Iran conflict.
• For USD/CNH we have seen a decent dip in risk reversals recently, in favour of CNH, see the chart below for 1mth to 1yr tenors, although we are above late 2025 lows for these metrics.
• We have seen the CNY fixing trend outperform a more resilient USD backdrop, while USD/CNH is also quite depressed relative to US-CH yield differentials. The market may be mindful of any surprise outcome of Trump's trip that biases the yuan firmer. Via BBG from overnight: "China may commit to yuan strengthening while US may offer some concessions on tech and Taiwan, according to Rory Green, chief China economist at TS Lombard."
• Outside of any Trump/Xi meeting outcomes, near term focus will likely rest on USD/CNY fixing outcomes, once Trump departs China.   

Fig 1: USD/CNH Risk Reversals tracking Lower As Trump China Trip Nears 

Source: Bloomberg Finance L.P./MNI