AUSSIE 10-YEAR TECHS: (U6) Bullish Theme

The NZD/USD had a range overnight of 0.5829 - 0.5888, Asia is currently trading around 0.5870. The NZD found decent demand toward 0.5800 and bounced overnight as the USD pulled back on hopes of an imminent deal. The situation in the Middle-East remains fluid as ever and overnight it flipped back towards a potential positive outcome relieving pressure on the broader risk complex. Technically the false break looks to have negated the upward momentum in the short-term but the market is a little lost now while this protracted Middle-East negotiation plays out. On the day, I suspect the 0.5885-0.5915 area could see sellers initially but I suspect we could be chopping around sideways in this 0.5800-0.6000 range until we get some clarity in which direction this conflict is heading.

• Options : Closest significant option expiries for NY cut, based on DTCC data:  none. Upcoming Close Strikes : 0.5750(NZD524m May 22) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 50 Points
• Data/Event: Trade Balance NZD

Fig 1: NZD/USD Spot Daily Chart

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

The AUD/USD had a range overnight of 0.7100-0.7174, Asia is currently trading around 0.7150. The AUD support around 0.7100 proved to be solid and when reports of an imminent agreement in the Middle-East came out it bounced sharply. That initial report has since been watered down and reports of "a new round of negotiations will be held in Islamabad after the Hajj season". It was too much to ask for the USD to break higher while there remains potential for some sort of a deal which the market is crying out for. Unfortunately this again leaves the market in limbo and is likely to chop around in its wider range until we get a clear confirmation of the next steps in this conflict. Though while this protracted negotiation plays out the Straits remain closed and the world continues to live off reserves. On the day, I suspect sellers will return toward 0.7180-0.7210 but it looks like the 0.7080-0.7280 range will probably contain us until we get clarity on how this moves forward, keeping the USD bears engaged.

• MNI IRAN: Al Arabiya Points To Imminent Agreement Between Iran & The U.S. Al Arabiya sources report "work is underway to put the finishing touches on a draft agreement between Washington and Tehran .The Pakistani Army Chief may visit Iran tomorrow to announce the final formula of the agreement".
• MNI - Potential limiting factor for markets comes on the back of Al Arabiya sources noting that "a new round of negotiations will be held in Islamabad after the Hajj season" (which is May 25-27) suggesting a potential phasing/stepped round of negotiations/agreements despite the initial optimism in the report pointing to a fairly imminent agreement between Iran and the U.S. 
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes :  0.7100(AUD478m May 25), 0.7100(AUD921m May 26), 0.7160(AUD869m May 22) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 60 Points
• Data/Event: S&P Global Australia PMI’s, Consumer Inflation Expectation, Employment Change

Fig 1: AUD/USD spot Daily Chart

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

Spot USD/CNH couldn't test above 6.8200 as broader USD sentiment faltered through Wednesday US trade. The pair tracks near 6.8000 early Thursday, after gaining a little over 0.20% versus the USD for Wednesday's session (largely matching USD index falls). Risk traded sharply higher in Wednesday US trade, on the back of Al Arabiya source reports that suggested the final details were being put together for a US-Iran agreement, which could be announced as soon as this week. Oil futures were down sharply, benchmarks off over 5%. Spot USD/CNY finished up at 6.7988, while the CNY CFETS basket tracker edged a little higher to 100.54. 

• For spot USD/CNH moves above the 20-day EMA upside resistance point, which rests near 6.8120/25, can't be sustained. Arguably more important resistance rests at the 50-day EMA, which is just above 6.8405. On the downside, recent cycle lows rest at 6.7816 from May 14.
• Near term USD sentiment, which CNH will take cues from, is likely to be dictated by the US-Iran outlook. US-CH yield yield differentials fell sharply amid declining UST yields, with the move supported by lower oil futures. Any headlines around a deal will likely see the USD sell-off in kneejerk fashion, while no announcement or fresh push back from either side should see USD support emerge.   
• Locally, our policy team noted: "China’s Loan Prime Rate held steady in May, though weaker-than-expected April credit and economic data suggested elevated oil prices are beginning to drag on the economy, increasing pressure on the People’s Bank of China to ease policy further in H2."
• Also via BBG: "China scaled back government spending at its fastest pace in six months in April, a move that contributed to an unexpected slowdown in the economy across the board."
• On the data front, today we get Apr Swift payments in CNY, while FDI is due for Apr over the next few days.