The markets have navigated the challenges posed by US tariffs and the conflict in the Middle East. A new disruption has emerged—unwinding tech investment. The S&P and Nasdaq are set to open lower, while South Korea’s Kospi experienced a 10% decline today, despite maintaining an impressive year-to-date increase of nearly 95%. The risk-off sentiment has resulted in a decline in yields and an appreciation of the dollar. The euro has reached a new low for the year, trading just above $1.1400. The yen stands out as the sole G10 currency maintaining its position today, as Japan’s finance minister emphasises discussions with US Treasury Secretary Bessent, who has remained reticent regarding the exchange rate during the Bank of Japan’s interventions in April and May. With the BOJ rate hike delivered this month (but not in April), we have suggested that Japanese efforts may receive increased support from the US, similar to the situation in January.
The euro has reached new lows for the year today, trading slightly below $1.1400. The previous low for the year was established in mid-March at approximately $1.1410. A break of the 1.1390, last August’s low, could signal a test on the 1.1340 area. The intraday momentum indicators are extended; however, the prior support in the $1.1420-25 range may now present resistance. The yen has approached the low observed in early July 2024, which prompted significant intervention by Japanese officials. The dollar approached JPY161.95 yesterday. It marked the greenback’s sixth increase in seven sessions. It is characterised by a two-way market, and there has been an increase in volatility. One-month implied volatility stands at approximately 8%, reflecting an increase of about 0.5% compared to its level at the time of the BOJ’s intervention at the end of April. Finance Minister Katayama has emphasised discussions with US Treasury Secretary Bessent, which seems to be contributing to the stabilisation of the yen today, although the decline in US yields may also be a factor. The dollar has remained approximately half a yen below JPY161.75.
Sterling demonstrated resilience amid the political turmoil that is set to result in the appointment of the seventh UK prime minister in a decade. It rebounded from approximately $1.3180 and approached nearly $1.3275 during early North American trading yesterday before entering a phase of consolidation. It is exhibiting a softer trading performance today, yet remains confined within the range established yesterday. It has thus far maintained a position above 1.3200, yet has spent minimal time exceeding the 1.3250 level observed at yesterday’s close. The stronger-than-anticipated Canadian CPI did not halt the ongoing depreciation of the Canadian dollar. It declined for the eighth consecutive session yesterday as US rates increased and the premium over Canada expanded. The US dollar remains robust, yet it is trading below yesterday’s peak, which was around CAD1.4195, marking the highest point since April 2025. The US dollar appears to be extended, yet there remains no indication of a peak.
The Australian dollar is experiencing a further decline today. After barely settling above 0.7000, the Aussie has been sold to almost 0.6940 today, marking its lowest level since early April. It has convincingly breached the trend line that links the lows from mid-December, January, and March. It registered a value marginally exceeding $0.7000 today. The break of 0.6980 is an ominous technical signal. It provides additional momentum to the potential head and shoulder top that has been developing (targets ~$0.6680). Given the stretched momentum indicators, perhaps the 200-day moving average, near 0.6885, would offer an initial target.