Forex News

• The Canadian Dollar fails to benefit from stronger-than-expected trade data released for May.
• The US Dollar remains supported by Fed policy expectations and persistent geopolitical tensions.
• Markets now await the Federal Reserve meeting minutes for fresh clues on the interest rate outlook.

USD/CAD trades around 1.4205 on Tuesday at the time of writing, virtually unchanged on the day, as investors balance encouraging Canadian economic data against a US Dollar (USD) that remains supported by monetary policy expectations and ongoing geopolitical tensions.

Canada released stronger-than-expected trade figures. Merchandise exports rose 0.9% in May, while imports edged down 0.2%, allowing the trade surplus to widen to CAD$4.24B from an upwardly revised CAD$3.41B in April. This marks Canada's third consecutive monthly trade surplus. Meanwhile, the Ivey Purchasing Managers Index (PMI) eased to 59.7 from 61.3 but remained firmly in expansion territory, signalling that economic activity continues to grow.

Despite the upbeat domestic data, the Canadian Dollar (CAD) struggles to gain traction, although higher Oil prices are providing some support. West Texas Intermediate (WTI) US Oil is up 2.47% for the day at the time of press, trading around $70.30 per barrel after renewed tensions near the Strait of Hormuz following attacks on commercial vessels. As a major Oil exporter, Canada generally benefits from stronger energy prices.

In the United States (US), the latest labor market data continues to point to a gradual slowdown in hiring. The four-week average of the ADP Employment Change declined to 21K from 24.25K, following June's weaker-than-expected Nonfarm Payrolls (NFP) report. However, the figures have done little to alter expectations that the Federal Reserve (Fed) will maintain a restrictive monetary policy stance.

New York Fed President John Williams said monetary policy is "in a good place," while noting that inflation remains too high and risks to the labor market are broadly balanced. According to the CME FedWatch tool, markets see a 75% chance that the Fed will leave interest rates unchanged at its July meeting, while expectations for a September rate hike have eased slightly.

Scotiabank analysts believe the Canadian Dollar is currently trading close to its fair value, although they note that the US Dollar remains overbought. Meanwhile, RBC, Societe Generale and NBC all argue that the Canadian Dollar's near-term upside remains limited despite gradually improving domestic fundamentals.

Investors are now focused on the release of the Federal Open Market Committee (FOMC) meeting minutes on Wednesday, which could provide fresh insight into the Fed's policy outlook and help determine the next direction for both the US Dollar and the USD/CAD pair.

National Bank of Canada ’s (NBC) Stéfane Marion and Kyle Dahms highlight the Japanese Yen (JPY) trading near multi-decade lows around 161 per USD, even as long-end yield differentials move in Japan’s favour. They see stretched short yen positioning, rising intervention risk near 162–163, and gradual BoJ normalization limiting further weakness. Their forecast has USD/JPY easing to 158 by year-end and toward 155 by mid-2027.

Intervention risk caps yen losses

"The yen remains near multi-decade lows despite some improvement in long-end yield spreads. Cautious BoJ normalization and fiscal concerns continue to limit support, while intervention risk around the 162–163 area and crowded yen shorts make further yen weakness look less likely. A sustained yen recovery likely requires lower U.S. yields or a more forceful BoJ."

"Positioning makes the setup more asymmetric. Non-commercial speculative positions remain deeply short yen, leaving the currency vulnerable to a sharp squeeze if intervention, softer U.S. data or a more hawkish BoJ surprise forces investors to reduce carry exposure"

"We therefore see the yen as weak, but less likely to further slide. Our year-end target is 158 for USD/JPY, compared with 161 currently. The slight appreciation is also a view that further depreciation should be harder from here, given improving long-end differentials, stretched positioning and rising intervention risk."

"A move toward 155 by mid-2027 is realistic, but it likely requires more help from the U.S. side, either softer U.S. data, lower Treasury yields, or a clearer narrowing in front-end rate spreads."

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

• EUR/GBP attempts to stabilize after sliding to a more than one-year low.
• Technical indicators suggest sellers remain in control despite the rebound.
• The break below 0.8600 keeps the near-term technical outlook bearish.

EUR/GBP trades with a positive bias on Tuesday as sellers take a breather following the recent selloff that pushed the cross to a more than one-year low. At the time of writing, EUR/GBP is trading around 0.8550 after rebounding from an intraday low of 0.8533, its lowest level since June 2025.

Selling pressure intensified after EUR/GBP recently broke the key 0.8600 level, a multi-month support zone. Despite the intraday rebound, technical indicators continue to favor sellers, suggesting the near-term bias remains bearish.

The economic calendar is relatively light across Europe this week, leaving traders focused on comments from European Central Bank (ECB) and Bank of England (BoE) officials for fresh policy clues.

ECB Governing Council member Fabio Panetta said on Tuesday that the "outlook remains fragile," adding that "upside inflation and downside growth risks remain."

Attention now turns to BoE policymaker Catherine Mann, who is scheduled to speak later on Tuesday.

Technical Analysis:

On the daily chart, EUR/GBP keeps a bearish near-term tone as it holds below both the 100-day and 200-day Simple Moving Averages (SMAs) at 0.8664 and 0.8696, respectively.

The pair has recently bounced from oversold territory, with the Relative Strength Index (RSI) recovering toward the 30 zone, while the low Average Directional Index (ADX) around 18 hints at a weak but persistent downtrend rather than an impulsive sell-off.

On the topside, initial resistance emerges at the horizontal barrier near 0.8600, ahead of the 100-day SMA at 0.8664 and the 200-day SMA at 0.8696, which together form a broader cap on recovery attempts.

On the downside, the next meaningful support sits at 0.8500, where a break would likely extend the bearish sequence toward fresh lows despite the tentative improvement in momentum.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Scotiabank strategists Shaun Osborne and Eric Theoret note the British Pound (GBP) is slightly softer against the US Dollar (USD) after encountering resistance near 1.3400, with limited fresh data and Bank of England (BoE) news. The RSI recovery suggests improving momentum, but multiple resistance levels between 1.3420 and 1.3520 constrain upside. They look for GBP/USD to trade in a 1.3350–1.3450 range in the near term.

Momentum improves but upside capped

"The pound is soft and also entering Tuesday’s NA session with a fractional 0.1% decline vs. the USD after finding some near-term resistance around 1.3400."

"Fundamental releases have been limited and developments out of the BoE have been limited to media reports of a proposed easing in bank capital rules. Political developments have been limited with markets waiting for fresh news on the looming leadership transition from PM Starmer to the ‘leader-in-waiting’ Burnham."

"In terms of fiscal risks, the UK’s OBR (Office for Budget Responsibility) has underscored the challenges facing the UK and specifically the cost (£100bn) of stabilizing the national debt around current levels (95% of GDP)."

"Neutral/bullish—the RSI’s recovery has extended through the neutral threshold at 50 and momentum appears to be pushing further into bullish territory. The 50 and 200 day MA’s (both around 1.3400) had been flagged as offering the potential for near-term resistance and appear to be doing so."

"The daily chart offers dense resistance at several levels (1.3420, 1.3450. 1.3500, 1.3520) ahead of 1.3600. We look to a near-term range bound between 1.3350 and 1.3450."

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

Federal Reserve (Fed) Bank of New York President John Williams said on Tuesday that the United States (US) economy continues to show steady, trend-like growth, while the labor market remains stable. Speaking in an interview with Fox Business, Williams noted that monetary policy is well positioned to achieve the Fed’s goals, although future decisions will depend on incoming data and risks.

Key takeaways:

Williams said he sees steady trend-like growth for the US economy.

The job market is showing stability, with risks looking pretty balanced.

The retreat in energy prices is good news and should continue to cool inflation.

Inflation is still quite high, but Williams feels more positive about the near-term outlook due to lower energy prices.

The Fed is likely near the peak impact of tariffs.

Monetary policy is well positioned to achieve the Fed’s goals.

What happens next with monetary policy will depend on data and risks.

Monetary policy is in a good place.

Expects continued strong investment in artificial intelligence.”

Williams keeps Fed in a "good place" as inflation tone softens but stays hawkish

Fed’s Williams delivered a moderately constructive message, with the 5.6/10 FXS Speechtracker score running slightly below his 5.8/10 historical average, signaling a marginally less impactful tone relative to the established baseline. The emphasis on steady trend-like growth, a stable job market, and retreating energy prices helping to cool inflation is tempered by the acknowledgment that inflation remains “quite high” and that policy decisions will stay data- and risk-dependent, reinforcing a cautious but not dovish stance.

The FXS Fed Sentiment Index slipped by 0.34 points to 125.38, indicating a modest pullback in perceived hawkishness following the speech. Despite the decline, the index remains firmly above the neutral 100 mark.

Commerzbank’s Barbara Lambrecht says Aluminium’s recent correction has likely run its course, with prices rebounding as Chinese and LME inventories fall sharply and Gulf smelter outages persist. The Australian Ministry expects primary Aluminium to be significantly undersupplied this year and next, though longer term it sees strong non-Chinese capacity growth, especially in Indonesia, tempering the structural outlook.

Tight market now, capacity boom later

"Stocks could fall below 900 Tsd. tons this month. Aluminium stocks registered on the LME have also been falling significantly since the end of October and have dropped below 300 Tsd. tons for the first time since October 2022."

"Also, in its latest market outlook, the Australian Department of Resources and Energy considers price levels in the market to be well supported. Whilst China has partially offset production losses in the Gulf region, longer-term outages are expected due to damage to the region’s aluminium smelters."

"For example, the Al Taweelah smelter in the United Arab Emirates, with a capacity of 1.6 million tons per year, is likely to be out of operation for 12 months, although the operator announced yesterday that it is working on a faster timeline. The Australian Ministry therefore expects the market for primary aluminium to be significantly undersupplied this year and next."

"In the longer term, however, the Ministry is more pessimistic: whilst demand would remain well supported by the transition to renewable energy and electrification, and there is also a trend towards replacing the more expensive copper with aluminium in the automotive sector, supply – outside China – would also rise sharply: Capacity is growing rapidly, particularly in Indonesia, thanks to increased investment by Chinese investors."

"Capacity is set to expand from 1.3 million tonnes today to 5.3 million tonnes by 2031. At first glance, this is similar to recent developments in the nickel industry, but the scale is different: China retains its dominant market position."

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

Geoff Yu notes Japan’s Growth Strategy Minister Minoru Kiuchi rejected reports that the government is trying to push interest rates lower or pressure the Bank of Japan (BoJ). He emphasizes continued coordination with the BoJ, while recent data show firm nominal wage gains but weaker real earnings, soft household spending, and improving coincident indicators, with the Japanese Yen briefly firmer versus the Dollar.

Policy stance steady, data send mixed signals

"Japan’s Growth Strategy Minister Minoru Kiuchi has rejected media reports that Prime Minister Sanae Takaichi’s government is trying to push interest rates lower, saying there is “absolutely no truth” to claims that fiscal expansion is aimed at pressuring the BoJ.He said the omission of “fiscal consolidation” from the draft basic policy guidelines was not intended to weaken fiscal discipline, but to present fiscal sustainability more concretely and verifiably."

"The remarks come as markets scrutinize whether the administration’s pro-growth agenda and large-scale investment plans could constrain further BoJ rate hikes."

"Kiuchi reiterated that the government expects close coordination with the BoJ and appropriate monetary policy conduct."

"Japan’s real earnings rose 1.4% y/y in May, below the 1.7% estimate and April’s revised 1.9% y/y figure."

"Japanese household spending fell 0.4% y/y in real terms in May, the sixth straight negative month, from -0.5% in April."

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

TD Securities’ Ryan McKay argues that Crude Oil is far from oversupplied, with high-frequency global and Chinese balances still pointing to tightness. McKay expects ongoing market deficits, inventory drawdowns and the rebuilding of buffers to keep prices elevated, projecting a recovery toward $90/bbl and possible extension toward $100/bbl as structural tightness persists.

Structural tightness and deficit outlook

"Our high-frequency estimates of global and Chinese supply-demand balances, along with Middle Eastern production, continue to point to market tightness despite increased flows through the Strait of Hormuz. Ongoing market deficits, inventory drawdowns, and longer-term rebuilding of market buffers should see prices recover toward $90/bbl, with potential for a move toward $100/bbl."

"Flows through the Strait of Hormuz have increased notably since the signing of the MoU [Memorandum of Understanding], as stranded tankers have quickly rushed for the exit. This has seen a flush of supply in the market that is being mistaken for a supply glut. However, looking forward, as the market becomes reliant on production increases rather than floating storage, flows are likely to tighten again."

"All pre-war slack has been removed from the system, and every conceivable and unexpected lever of flexibility has been pulled to avoid catastrophe. The market has priced this avoidance as a combination of relief and optimism, while also placing an overexaggerated focus on the near-term temporary supply and the start of a supply recovery. While the right tail outcomes for crude pricing have thinned, prices should still settle higher than pre-war levels, given the fundamental damage that has taken place."

"Based on this production recovery profile, we continue to expect market deficits of roughly 2.5-3m b/d in crude and at least 1-2m b/d in products through July and August, before the market moves into a more balanced state in September. We expect these deficits to persist despite higher flows, as a slowdown in SPR releases and lower U.S. exports driven by domestic inventory tightness offset part of the increase in supply."

"In this sense, a system that remains structurally stretched relative to recent history will warrant structurally higher prices."

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