Forex News

Rabobank strategists Bas van Geffen and Lyn Graham-Taylor note that the European Central Bank (ECB) is reportedly considering raising the minimum reserve requirement from 1% to 2%, primarily as a cost-reduction measure. They say this change would roughly offset the additional interest costs of the June rate hike and likely have minimal impact on the policy stance, while affecting Eurozone money market dynamics.

Reserve ratio shift and liquidity effects

"The ECB is reportedly considering raising the minimum reserve requirement from 1% to 2%."

"This seems to be driven by a cost-reduction exercise. The change would roughly offset the additional interest costs of the June rate hike."

"Implications for the policy stance are probably minimal. But increasing the reserve requirement would accelerate the switch from abundant to ample liquidity by 4 to 5 months."

"This could see a further cheapening of repo rates, and it may put further narrowing pressure on short-dated swap spreads."

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

MUFG’s Derek Halpenny notes that EUR/USD could benefit from US Dollar weakness and a still-hawkish European Central Bank. Derek Halpenny highlights that LNG prices remain elevated versus pre-conflict levels, keeping Eurozone inflation risks higher. MUFG sees the ECB remaining biased toward further rate hikes as it monitors energy price developments.

LNG prices keep ECB on alert

"The bias will favour further US dollar weakness following the payrolls report but EUR could also be supported by the rates curve maintaining pricing for another hikes as US yields fall back on easing Fed rate hike expectations."

"Inflation risks may have subsided in Europe, but the level of risk remains higher than before the conflict."

"While Brent crude oil has completely reversed the post-conflict surge, LNG prices remain more elevated, at 40% above pre-conflict levels."

"More likely the ECB will be monitoring energy prices and the scale of retracement since the ceasefire extension was agreed and the Strait of Hormuz reopened is not yet enough to eliminate energy-related inflation risks. That will keep the ECB biased toward hiking rates again."

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

Societe Generale strategists note that South Africa’s National Treasury will tap existing rand-denominated sukuk bonds as part of its current fiscal year funding plans, with issuance size and timing still unknown. They recall South Africa’s 2023 Islamic-debt tap of ZAR20.4bn that drew strong demand, and observes that the Rand benefited from post-NFP Dollar weakness even as USD/ZAR implied volatility rose on protest risks.

Rand supported as sukuk tap looms

"South Africa’s National Treasury will tap existing rand-denominated sukuk bonds as part of its funding plans for the current fiscal year."

"Details on issuance size and timing are not yet known, but South Africa last tapped the Islamic-debt market in 2023, raising ZAR20.4bn ($1.2bn) in an offering that attracted almost twice the targeted amount."

"The rand benefited from the post-NFP decline in the USD, though USD/ZAR overnight implied volatility rose to early-May levels as traders braced for potential violence during countryside anti-immigration protests"

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

ING analysts Warren Patterson and Ewa Manthey say LME Aluminium fell towards $3,000/t as markets unwound the geopolitical risk premium from earlier Middle East tensions. An update from Emirates Global Aluminium showed 7% of pots at Al Taweelah restarted, reinforcing expectations that Gulf supply disruptions are temporary and that lost production will gradually return, easing availability concerns.

EGA restart eases supply fears

"LME aluminium came under renewed pressure yesterday, with the three-month price falling towards $3,000/t as the market continued to unwind the geopolitical risk premium built up during the Middle East conflict."

"Sentiment was weighed down by an update from Emirates Global Aluminium (EGA). It said that around 7% of production pots at its Al Taweelah smelter have been restarted, highlighting steady progress in restoring output following the missile and drone attacks earlier this year."

"The update reinforced expectations that supply disruptions in the Gulf will prove temporary. Concerns over lost Middle Eastern production and shipping disruptions through the Strait of Hormuz helped lift prices sharply earlier this year. But recovering output and easing regional tensions have steadily improved the supply outlook."

"While a significant portion of Al Taweelah's capacity remains offline and a full recovery will still take time, the latest update reinforces expectations that lost supply will gradually return to the market. This is easing concerns over aluminium availability."

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

• EUR/USD extends on Friday but remains capped below 1.1475.
• Soft US employment figures have cooled Fed tightening hopes and are weighing on the US Dollar.
• The Euro is likely to meet significant resistance ahead of 1.1500.

The Euro (EUR) trades higher for the second consecutive day on Friday, with the US Dollar (USD) on its back foot in the aftermath of the disappointing US Nonfarm Payrolls (NFP) report released on Thursday. The EUR/USD pair, however, is struggling to breach resistance at 1.1475 so far.

US economy produced 57K net jobs in June, according to NFP figures, just above half of the 110K expected by the market, while May’s reading was revised down to 129K from the 172K previously estimated. These figures have cooled market hopes of immediate Federal Reserve (Fed) interest rate hikes and sent the US Dollar lower against its main peers.

Beyond that, data from the Eurozone has been Euro-supportive on Friday. June’s final HCOB Services Purchasing Managers’ Index (PMI) has been revised up to a 49.4 reading from the previously estimated 48.9, pushing the Composite PMI up to 50 from the 49.5 reading shown at the preliminary estimates. German and Spanish services activity has been stronger than previously thought in June, while Italian and French services figures were revised lower,

Technical Analysis: Bulls are likely to be tested ahead of 1.1500

EUR/USD trades at 1.1455, maintaining a constructive near-term, yet with upside attempts capped below the 1.1475-1.1500 area. Momentum supports the bullish tone, with the Relative Strength Index (14) hovering in the low 60s and the Moving Average Convergence Divergence (MACD) line modestly positive.

Bulls, however, are likely to meet significant resistance ahead of 1.1500, where the June 8, 11 and 17 lows meet the 38.2% Fibonacci retracement of the May-June downtrend. If these levels give way, the next target is at the June 15 and 16 highs around 1.1620.

On the downside, Wednesday's low in the 1.1360 area is likely to hold bears, ahead of the horizontal floor at 1.1333 (June 24 low). A break of that level would expose the late-May 2025 low at 1.1210.

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

TD Securities strategists expect the ISM Services index to retreat in June after May’s gain, pointing to broad-based slowing in US activity and new orders while employment remains in contraction. They note softer June Payrolls, with leisure and hospitality jobs hit by seasonal factors and the unemployment rate falling on lower participation. Weaker data have challenged recent long Dollar positioning and reduced pricing for 2026 Federal Reserve hikes.

Services cooling and jobs softening

"We look for the ISM services index to partly give back May's ~1pt gain, dropping to 54.0 in June (cons: 54.2). We anticipate broad-based slowing, with activity and new orders explaining most of the cooling while employment likely stayed in contraction territory."

"Prices paid are expected to fall as well, as the index moved persistently higher along the March-May surge in energy prices."

"Payrolls softer than expected, led by weak leisure & hospitality jobs driven lower by seasonal adjustments."

"Job gains appear on the path back to breakeven.UE rate declined to 4.2% due to lower participation."

"Still-stable labor market will keep Fed's focus on inflation. Pricing for 2026 hikes declined, pushing yields lower. The recent buildup in long USD positioning is challenged by weaker data."

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