The US dollar experienced a significant rally during the Federal Reserve’s press conference yesterday, as interest rates surged in reaction to what many interpreted as a hawkish stance, particularly in light of Chair Powell’s framing. Today, there has been a lack of significant dollar sales, yet the technical damage sustained across numerous pairs remains unrectified. The Bank of Japan, the Swiss National Bank, and Sweden’s Riksbank have confirmed their policies remain unchanged, aligning with expectations. Focus now shifts to the Bank of England and the European Central Bank. Neither will change positions, but their perspective on the risks is crucial. Our analysis suggests that both will reflect a notable absence of urgency. The conflict seems to have escalated following the assault on the South Pars gas field, which is operated in partnership by Iran and Qatar. Reports indicate that President Trump is advocating for restraint; however, it appears that the situation has already escalated beyond control. In light of the strategic maneuvers and confrontations involving Iran during the negotiations, particularly following the US assertion of having neutralized Iran’s nuclear capabilities last June, discerning the genuine situation from potential war tactics proves to be quite challenging. May WTI remains within the range established yesterday, while the front month Brent contract has reached new highs today.

The euro swiftly declined from its session peak of approximately $1.1555 during early North American trading, reaching new session lows around $1.1450 amid Fed Chair Powell’s press conference. Follow-through selling registered at less than a tenth of a cent, while the euro found stability in Europe. The technical damage incurred is significant. It needs to regain a position above $1.15 to mitigate the situation, with over 2 billion euros in options set at that level expiring today, alongside an additional 1.3 billion euros in options expiring tomorrow. The dollar strengthened in relation to the yen. The movement nudged above the recent highs (~JPY159.75) to JPY157.90, likely aided by the 6-10 bp rise in US rates. The absence of sustained dollar buying was evident today, leading to a retreat of the dollar to nearly JPY159. Options totaling approximately $410 million at JPY159.50 are set to expire today, alongside an additional tranche nearing $690 million at JPY159. The JPY160 level is quite apparent, suggesting that there may not be any substantial stops or options positioned at that point. The greenback might require an ascent past the JPY160.40 level to indicate a potential breakout.

Sterling encountered significant resistance yesterday at the $1.3380 technical target we highlighted earlier. Following the four-day peak, sterling experienced a decline, trading near $1.3250. Follow-through selling experienced minimal movement, restricted to just a few hundredths of a cent. The situation has stabilized in European turnover, yet it appears to be stalling as we approach the outcome of the BOE meeting near $1.3300. Options for GBP885 million, set at $1.3350, are set to expire today. The market exhibited minimal response to the Bank of Canada’s choice to maintain its current stance, while the U.S. dollar regained strength, reaching new session highs around CAD1.3740, following the FOMC meeting and subsequent press conference. It experienced a slight increase today but retreated from nearly CAD1.3750. Clearing it would aim for the CAD1.3800 region.

The performance of the Australian dollar was subpar. It achieved a four-day peak close to $0.7125, coinciding with the expiration of options worth A$885 million today, before reversing direction and closing beneath Tuesday’s low (~$0.7050). It fell beneath $0.7020 in the final transactions of the day. This level was maintained today, and the Australian dollar has risen above $0.7060 during the European session. It may require a move above $0.7075 to alleviate the pessimism stemming from yesterday’s bearish outside down day. A failure to do so may indicate a movement back towards the lower boundary of this month’s range, approximately $0.6945-55.