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Scotiabank strategists Shaun Osborne and Eric Theoret highlight renewed Euro (EUR) weakness versus the Dollar (USD), driven by widening negative Eurozone–US yield spreads and a hawkish repricing of Fed expectations while European Central Bank (ECB) views stay steady. Short-term EUR/USD technicals are bearish, with deeply oversold RSI and little support ahead of 1.12, while the bank looks for a near-term 1.1300–1.1400 range and minor resistance above 1.1450.

Negative spreads and oversold technicals

"The EUR is weak and entering Wednesday’s NA session with a 0.4% decline vs. the USD, a mid-performer in an environment of continued USD strength."

"The EUR’s latest weakness is fundamentally-driven, reflecting a renewed widening in deeply negative yield spreads."

"The outlook for relative central bank policy remains a headwind for the EUR, largely driven by the recent hawkish re-pricing of Fed expectations as those for the ECB have remained largely unchanged."

"A narrow estimate of the EUR’s fair value, based solely on the 2Y Germany-US yield spread, has largely mirrored the recent decline in spot."

"EUR/USD short-term technicals: Bearish – the RSI is deeply oversold below 30 and spot is extending its recent bearish break with little in terms of material support ahead of 1.12. Short-term price action would now suggest minor resistance above 1.1450. We look to a near-term range bound between 1.1300 and 1.1400."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• WTI falls to $69.70, its lowest level since the start of the Israel-Iran conflict in early March.
• Rising traffic through the Strait of Hormuz fuels expectations of a gradual recovery in Gulf Oil flows.
• Markets are also pricing in a potential increase in Iranian supply following the temporary easing of US sanctions.

West Texas Intermediate (WTI) US Oil extends its sharp decline on Wednesday, trading around $69.70, down 4.40% on the day at the time of writing and hitting its lowest level since March 2. The US Crude benchmark has now erased much of the geopolitical risk premium built up since the outbreak of the Israel-Iran war and is moving closer to pre-conflict levels around $67.

Selling pressure intensified as concerns about prolonged disruptions to Gulf energy exports continued to fade. Maritime tracking data showed an increase in the number of vessels crossing the Strait of Hormuz, signaling a gradual normalization of trade flows, although traffic remains below pre-conflict levels.

Meanwhile, diplomatic efforts regarding the future of the Strait of Hormuz continue to advance. Qatar and Oman have launched an initiative aimed at bringing together Iran, Gulf states and Iraq to establish a long-term framework for managing the strategic waterway. Gulf countries are expected to defend the principle of free transit, while Tehran may propose fees related to security, navigation and environmental protection.

Bearish sentiment was also reinforced by the US decision to grant a temporary 60-day waiver allowing international buyers and American refiners to legally resume purchases of Iranian Crude Oil. The move has boosted expectations of higher global Oil supply in the coming weeks.

However, several analysts argue that the sell-off may be overdone. Analysts at ING note that Oil volumes currently moving through the Strait of Hormuz remain well below pre-conflict levels, adding that the Oil market continues to show signs of tightening despite improving logistical conditions. Meanwhile, analysts at TD Securities point out that floating Crude inventories in the Gulf have declined sharply in recent weeks, which could limit the ability to sustain current flow rates over the longer term.

Investors are also monitoring developments in negotiations between Washington and Tehran over nuclear inspections. US President Donald Trump stated that Iran had agreed to allow inspectors from the International Atomic Energy Agency (IAEA) to return, while Iranian officials said that no timetable had yet been established, leaving uncertainty over the durability of the ceasefire agreement.

ING’s Francesco Pesole says AUD/USD remains under pressure from the tech-led equity sell-off, given the Australian Dollar’s high correlation with semiconductor stocks. Domestically, hotter core inflation should keep Reserve Bank of Australia communication hawkish, even without further hikes. Pesole stays optimistic on a move well above 0.70 in H2, though he flags near-term downside toward key supports.

Core CPI supports but risks stay

"AUD/USD is taking a breather just above 0.690 this morning after plunging on the tech sell-off. AUD has the highest correlation in G10 with the Philadelphia Semiconductor index, meaning downside risks remain elevated in the near term if AI valuation concerns persist."

"Domestically, the picture for AUD remains strong, but is hardly relevant for near-term moves, considering the challenging external environment. Overnight, Australian headline inflation unexpectedly slowed from 4.2% to 4.0%, but the trimmed mean (the main core measure) accelerated from 3.4% to 3.6%."

"This second measure is what matters the most for the Reserve Bank of Australia. While we don’t expect another hike from the bank, this print should encourage a still hawkish tone in upcoming communication."

"We remain optimistic on an AUD/USD recovery well above 0.70 in the second half of the year on the back of strong AUD fundamentals and our dovish Fed call. But in the short term, downside risks persist. The pair is close to key supports at 0.690 and the 0.683 March low."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• GBP/JPY edges lower as the Japanese Yen outperforms on hawkish BoJ signals.
• BoJ policymakers remain inclined toward further rate hikes, according to the latest Summary of Opinions.
• Weak UK PMI data and dovish-leaning BoE commentary weigh on the Pound.

GBP/JPY trades on the back foot on Wednesday as the Japanese Yen (JPY) outperforms its major peers following hawkish signals from the Bank of Japan (BoJ). At the time of writing, the cross is trading around 212.90, down 0.20%.

BoJ Governor Kazuo Ueda reiterated the central bank's tightening bias in remarks delivered by Deputy Governor Ryozo Himino on Wednesday. "With underlying inflation moving towards 2% and financial conditions remaining accommodative, we expect to continue increasing the interest rate and adjusting the degree of monetary accommodation in response to economic activity, prices and financial conditions," Ueda said.

The BoJ's latest Summary of Opinions showed that a majority of policymakers remain inclined toward further rate hikes.

However, the BoJ's gradual pace of policy normalization and the still-wide interest-rate differential with other major economies continue to act as headwinds for the Yen, limiting deeper losses in Yen crosses.

Despite broad intraday strength, the Japanese Yen has struggled to gain traction against the US Dollar (USD), which has strengthened sharply on growing expectations that the Federal Reserve (Fed) could raise interest rates later this year. Traders remain wary of another intervention by Japanese authorities as USD/JPY continues to trade above the 160.00 mark.

Meanwhile, the British Pound (GBP) remains under modest pressure as traders reassess the Bank of England's (BoE) monetary policy outlook following less hawkish remarks from BoE policymaker Alan Taylor and weaker-than-expected flash PMI readings released on Tuesday.

BNY’s Geoff Yu observes that recent US Dollar (USD) strength reflects United States (US) exceptionalism rather than fresh cross-border buying, as underweights have already been reduced. In contrast, cross-border investors are selling USD CAST (Corporate Asset-Backed Securitization Trust) at the fastest pace this year despite higher yields. Yu links ongoing CAST liquidation to conflict-related funding needs and warns a reversal could signal fading enthusiasm for current investment themes.

Dollar strong but CAST flows weak

"The dollar did not see aggressive cross-border buying around last week's Fed meeting and IMM dates, largely because hedge reduction has been underway since late April. Our data show that cross-border dollar underweights moved from roughly 10% above their rolling 12-month average (holdings score -1.10) to around 20% below (holdings score -0.80) by the end of last week."

"We therefore view recent dollar strength as a reflection of renewed U.S. exceptionalism rather than fresh positioning demand, particularly as currency valuations appear more attractive than their equity market counterparts."

"However, we are not seeing the same interest in cash and short-term instruments (CAST), despite rising U.S. yields. This asset class is typically highly sensitive to rate expectations and often benefits during periods of market stress as investors raise cash."

"Instead, cross-border investors are liquidating CAST at the fastest pace of the year, even with higher yields and a generally supportive risk backdrop. Aggregate flows remain much more stable, suggesting domestic demand is offsetting foreign selling."

"A reversal in CAST outflows would be notable. It could signal that enthusiasm for the current investment themes is beginning to fade and that investors prefer to rebuild cash reserves rather than deploy additional capital."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Scotiabank strategists Shaun Osborne and Eric Theoret note USD/CAD continues its grind higher, with the Canadian Dollar (CAD) in a near straight-line decline since early May as wider US–Canada yield spreads drive weakness. Short-term technicals are described as neutral/bullish, with a break above the upper 1.41 area opening 1.43–1.45, though an extremely overbought RSI suggests any correction could be meaningful.

Overbought rally eyes 1.43–1.45

"The big dollar grind higher has extended a little more this morning but the CAD is one of the more resilient major currencies to the USD’s advance on the day."

"It has been a straight line decline for the CAD since it peaked at 1.3550 on May 1 and it has lost ground daily 80% of the time since then."

"Wider US/Canada yield spreads remain the primary driver of the CAD’s latest slump. That looks quite rich."

"Neutral/bullish—Bullish because the trend is your friend and the push through the upper 1.41 area paves the way for further gains towards 1.43/1.45."

"Neutral because the USD has not looked this overbought in I don’t know how long. The daily RSI is not quite off the charts but, at 88.4, it has not been higher in at least 20 years. The correction, when it comes, should be meaningful. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

TD Securities’ Ryan McKay and Bart Melek highlight ongoing selling pressure in WTI Crude as CTA liquidation nears completion while high crude flows through the Strait of Hormuz keep sentiment bearish. They note Iranian shipments now dominate Hormuz transits and floating crude in the Gulf has dropped sharply, implying flows may soon slow. Meanwhile, global inventories are drawing quickly and product cracks remain strong.

CTA selling nears end as balances tighten

"Relentless crude oil selling. While our gauge of CTA selling in crude oil has been a slow drip, and is likely coming to a conclusion, crude flows exiting the Strait at a clip of 6-6.5m b/d in the last two weeks continues to see the market turn extremely bearish."

"However, Iranian flows are now representing nearly half of those Hormuz transits, while oil on water in the Mideast Gulf is falling sharply, dropping nearly 30m barrels in this timeframe."

"With only 40m barrels of floating crude remaining in the Gulf, these elevated flow rates should only last another week, after which time Iranian flows and increased production will be relied on, suggesting a notable reduction in flows."

"Meanwhile, global inventories continue to drawdown at a fast pace, and with SPR flows and US exports likely to slow into July, draws may begin to pick up pace ex-US."

"Elsewhere, petroleum product crack spreads remain robust as markets tighten and demand remains strong, which will likely see refiners continue to run hot."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)