OIL: Weekly Gains Significant; China Calls for Diplomacy

The BBDXY has had a range today of 1218.99 - 1220.02 in the Asia-Pac session; it is currently trading around 1219. The USD has found demand back toward the 1215 area and is looking to push back above 1220 as US yields extended higher overnight. Risk though is starting to see green shoots emerge hinting at a potential upswing to come but this move in US yields is taking precedence for the moment. I suspect only one of those trades will prove correct, the USD’s direction will be closely correlated to which emerges the stronger. While the support toward 1205-1210 area continues to hold, the bulls technically still remain in control. I remain skewed toward fading a dip, though it looks like we might have to do some work and a range trade in the short-term is most likely. 

• WSJ via BBG - Israel Believes Iran Moved Nuclear Centrifuges Into Pickaxe Mountain. https://blinks.bloomberg.com/news/stories/TIJ9D9PV4WE8
• Ben Hunt on X: “It's the one question you should always ask yourself ...Why am I reading this now?”
• Ben makes a valid point as Trump and the Media lay the groundwork for an attack. Is Nuclear an option ? What does that mean for risk ? 
• EUR/USD -  Asian range 1.1397-1.1410, Asia is currently trading 1.1405. The pair is drifting back to the lower end of its recent range. On the day, the pair continues to chop around sideways in a 1.1380-1.1480 range. I remain skewed in favour of fading rallies with the first resistance toward 1.1420-1.1450 and then the more pivotal 1.1500-1.1550 area, looking for the pair to turn lower again at some point. A sustained push back below the 1.1380 area is needed to try and reassert the downward momentum. 
• GBP/USD - Asian range 1.3370-1.3390, Asia is currently dealing around 1.3380. The pair has made a complete reversal from the 1.3550 highs putting in an ugly bearish shadow on the Daily chart to end last week. On the day, the bears look to be back in control and I suspect sellers reemerge back toward 1.3425-1.3455 looking for the move lower to regain momentum. 
• Data: UK June CPI, US MBA mortgage applications

Fig 1: GBP/USD Spot Daily Chart

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

• China bonds are seeing a modest rally today with yields down around -0.5bps.  
• The 10-Yr edged lower to 1.73% as the demand dynamic for bonds remains strong given the reopening of the 10-Yr due May 15, 2036.  
• Expectations are high for this reopening following the most recent 10-year benchmark government bond auction hit a massive, all-time record bid-to-cover ratio of 7.23.
• 10-Yr bond futures are up +.05 today at 109.225 to move back above the 20-day EMA of 109.14.  
• Looking ahead there is a further 10-Yr reopening scheduled for Friday alongside a 5-Yr CNY130bn auction.  

The NZD/USD had a range today of 0.5823-0.5834 in the Asia-Pac session; it is currently trading around 0.5825. The NZD has again stalled just above the 0.5850 area as the broader US dollar reacted to the move in US yields. On the day, I suspect dips will likely continue to be supported in the short-term with the first support back toward 0.5790-0.5810, the price action over the next couple of days will be important. I have been skewed toward fading this move but I am cognisant of it potentially challenging higher than I expect as a market still positioned quite short is squeezed and liquidity is at a premium. 

• (Bloomberg) - “Kiwi Dollar Priced for Perfection as Rate Bets Turn More Hawkish. The kiwi’s remarkable rally has pushed interest-rate expectations toward an increasingly demanding destination, leaving the currency with little room for disappointment.”
• “Four or even five hikes over the next year would be an increasingly high hurdle for policymakers to clear, given the economy is burdened by a deeply negative output gap. Without clearer evidence that activity is turning higher structurally, the current policy path embedded in markets risks proving overly optimistic.”
• Options : Closest significant option expiries for NY cut, based on DTCC data:  0.5840(NZD380m). Upcoming Close Strikes : none - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 39 Points

Fig 1: NZD/USD Spot Daily Chart

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