FED: US TSY 9Y-11M NOTE AUCTION: HIGH YLD 4.538%; ALLOTMENT 71.34%

President Trump is meeting with his national security team today to discuss a way forward in the Iran war, possibly including resuming military action as a means to pressure Iran, Axios reported.

• Negotiations appear to have hit an impasse after Trump publicly rejected Iran’s counter proposal to end the war.
• Trump reiterated to reports that Iran cannot have a nuclear weapon, and said the ceasefire was on “life support.”
• Two U.S. officials told Axios that Trump is leaning toward some form of renewed military action, with one option being a resumption in “Project Freedom” to guide ships through the Strait of Hormuz.
• This is a risky strategy as it forces Iran either to relinquish its control of the Strait of Hormuz or engage with ships trying to cross, leading to further escalation. It is unclear if many tankers will heed the call to transit while the Iranian threat remains.
• Another option is an even higher risk option which is favoured by the Israelis according to Axios: sending U.S. special forces to seize the uranium. Such an operation would take days or weeks and Trump is naturally said to be hesitant.
• Trump has repeatedly called for Iran to hand over its enriched Uranium stockpiles to the U.S.
• The U.S. had waited 10 days for the proposal, and earlier indications suggested the U.S. was optimistic that Iran would give ground on the key nuclear issue.  However, the proposal appears to have rejected many of Trump’s demands and refused to make concessions on its nuclear programme, Axios added
• Any collapse in the ceasefire is likely to be met with a response by Iran, which continues to threaten the wider energy and water desalination infrastructure of U.S. Persian Gulf allies. These risks will also have to be carefully considered along with whether renewed strikes can realistically push Iran into acquiescing to U.S. demands vis a vis their nuclear programme.

• RES 4: 1.1996 High Jan 29
• RES 3: 1.1929 76.4% retracement of the Jan 27 - Mar 13 bear leg
• RES 2: 1.1857 High Feb 18 
• RES 1: 1.1797/1849 High May 06 / Apr 17 and the bull trigger 
• PRICE: 1.1782 @ 16:27 BST May 11
• SUP 1: 1.1655 Low Apr 30 and a key short-term support 
• SUP 2: 1.1590 Low Apr 8
• SUP 3: 1.1505 Low Apr 6 and a key S/T support
• SUP 4: 1.1443/11 Low Mar 30 / Low Mar 13 & 16 and the bear trigger

EURUSD remains in consolidation mode. Key support to watch lies at the 50-day EMA, at 1.1691. A clear break of it is required to suggest scope for a stronger short-term reversal and open 1.1505, the Apr 6 low. While the EMA support holds, the trend structure is bullish. A stronger recovery would refocus attention on 1.1849, the Apr 17 high and bull trigger. Clearance of this hurdle would confirm a resumption of the uptrend that started mid-March.

• The USD index initially firmed on Monday owing to the latest rejection of a new Iran peace offer, deemed by the US administration as ‘totally unacceptable’. However, with the impact mainly evident in higher energy prices, the broader impact on risk was rather negligible. This allowed the DXY to unwind these gains and leave adjustments for the major pairs very moderate.
• Greenback strength was most notable against the Japanese yen as post-intervention price action continues to garner the most attention within a broadly subdued currency space. USDJPY has re-established itself back above 157.00, while strong short-term resistance remains towards last week’s highs just shy of 158.00, put in just before the second bout of intervention.
• A resilient Chinese yuan will be contributing to the resulting bearish BBDXY price action, which follows China inflation data that was stronger than forecast, particularly on the PPI side. USDCNH has broken to fresh cycle lows on Monday, now operating at the lowest level since February 2023.
• Alongside the move higher for crude futures, the Norwegian Krone is the outperformer across the G10, prompting a 0.45% adjustment lower for EURNOK back to last week’s lows at the 10.80 mark. Norway April CPI-ATE inflation was in line with consensus and Norges Bank's March MPR forecast at 3.2% Y/Y (3.0% prior). Overall, details confirm Norges Bank's decision to hike rates next week, but don't meaningfully shift the monetary policy outlook going forward.
• Following last week’s more meaningful break of the 0.7200 handle, AUDUSD has consolidated well above this psychological level. The pair continues to trade in a very constructive manner, assisted by the ongoing resilience of the Chinese yuan and optimistic equity sentiment despite the ongoing Middle East conflict.
• The trend needle in AUDUSD continues to point north and last week’s fresh cycle high at 0.7278 confirms a resumption of the medium-term uptrend. Further out, scope is seen for a move towards 0.7336, the top of a bull channel drawn from the Apr 9 ‘25 low.
• Tuesday’s focus will be on US inflation data, while German ZEW figures and details of Australia’s federal budget will also be released.