Investors don't wait for details to celebrate US-Iran agreement

The prospect of a deal between the US and Iran has bolstered risk-taking appetites today, even though the details are the agreement are not clear and Washington and Tehran seem to have different interpretations of what has been agreed.  Brent and WTI are near two-month lows. Stocks and bonds have rallied. The dollar has been sold and the PBOC set the dollar’s fix at a new three-year low.

At the end of last week, the US government ordered Anthropic to remove complete access to its new Fable 5 and Mythos new AI. The implications continue to be discussed. The US also added several large Chinese companies, including Alibaba, Baidu, and BYD to list of companies with alleged military ties. The most immediate implications are to restrict Pentagon procurement, but Beijing argues it is in violation of the recent agreement between Trump and Xi. Lastly, we note that Swiss voters rejected the referendum to cap the country’s population at 10 mln 55% to 45%. Still, the referendum does not appear to resolve the immigration issue.  

Prices 

G10

The euro consolidated ahead of the weekend between about $1.1555 and $1.1590. It recorded an ostensibly bullish outside up day on June 11 on hopes of a Middle East settlement. Support near $1.15 held on two tests last week and boosted its significance. It opened near $1.1570 today and reached a little above $1.1620. Since the high was recorded, the euro has consolidated and found support a little below $1.16, where options for 1.43 bln euro expire today. Nearby resistance is seen in the $1.1640-50 area. 

The dollar consolidated against the yen ahead of the weekend. It was capped near JPY160.60 in the middle of last week and fell to about JPY159.60 on the optimism on June 11 and held above the 20-day moving average (~JPY159.70 today) and has not settled below it in a month. Yet, it still recovered ahead of the weekend and settled above JPY160 for the seventh time in the past two weeks. It is in about a quarter of a yen range around JPY160 today, where options for about $960 mln expire today.

News before the weekend that the UK economy contracted by 0.1% in April took sterling to the session low near $1.3385. It recovered quickly to the session high near $1.3425 before consolidating. It approached that area again near midday in NY and it held again. It has been lifted to $1.3460 today, a six-day high. The next technical target may be the $1.3480-$1.3500 area.

The Canadian dollar spent Friday’s session consolidating the loss from the previous session that saw it trade at levels not seen snice the end of last November. The greenback reached nearly CAD1.4025. It spent session ahead of the weekend below CAD1.40 and was sold to almost CAD1.3950 today. Last Thursday’s range is key (~CAD1.3930-CAD1.4025). 

The Australian dollar posted an ostensibly bullish key upside reversal on the June 11 risk-on fueled advance. Follow-through ahead of the weekend was limited to about 5/100 of a cent. Still, the consolidation looks favorable. Buying today lifted the Aussie to the lower end of a band of resistance that extends from $0.7090-$0.7120. A convincing move above there would negate the bearish head and shoulders pattern we have been tracking. There are about A$1 bln options at $0.7075 and another A$485 mln at $0.7085 that expires today.

EM

The risk-on mood helped lift the Mexican peso to its best level in nearly a month at the end of last week. The greenback was sold to MXN17.1770 and about MXN17.1575 today. In the previous week, the dollar traded above MXN17.50 for the first time in a month. It has a five-day slide in tow, matching the longest losing streak since January. Five of the eight top performing emerging market currencies were from LATAM last week. The Mexican peso was in eighth place, while the Colombian peso’s 3.3% (continued favorable response to recent first round of the presidential election) was the strongest. The Colombian peso is at level not seen since early 2021. Colombia’s central bank meets at the end of the month, and the swaps market is pricing in a 50 bp hike.

The offshore yuan consolidated in the first part of last week and strengthened in the last couple of sessions. The dollar was sold to a marginally new the three-year low today near CNH6.7555. The PBOC set the dollar’s fixing ahead of the weekend at a new three-year low (CNY6.8109) and a little lower today (CNY6.8088). 

The Indian rupee traded firmly ahead of the weekend, helped by the lower oil prices and a smaller than expected rise in the May CPI. Indian inflation rose to 3.93% in May up from 3.48% in April. Inflation rose for the seventh consecutive month and was already at 3.21% before the Middle East war began. Helped by the tentative agreement between the US and Iran and the drop in oil prices, the rupee rose to its best level in over a month today. The dollar gapped lower and was sold to INR94.4525 before recovering and reached the session high in late turnover, near INR94.7740 and settled around INR94.7160. The pre-weekend low was INR94.9475. 

Other markets

Equities finished last week on firm tone. Still, Japan, China, Hong Kong, South Korea and Taiwan and Singapore among the largest bourse posted weekly declines. Regional markets were firmer today. Several large bourses in the Asia Pacific regions rallied more than 2%. Europe’s Stoxx 600 rose nearly 1.7% last week and is up 0.60today. The S&P 500 bottomed last Tuesday at its lowest level in a little more than a month and recovered to trade at three-day highs ahead of the weekend. US indices are poised to gap higher at the open. 

Benchmark 10-year yields fell last week, arguably dragged lower by the drop in oil prices. The 10-year JGB fell 10 bp last week, and in Europe, only UK, Italy, and Greek yields were down slightly more. The 10-year Treasury yield fell a little more than eight basis points. Yields have fallen further today. The 10-year JGB yield was off almost 4.5 bp, while European yields mostly 4-5 bp lower. The 10-year US Treasury is down 3-4 bp to almost 4.44%. 

Gold fell to almost $4000 last week, completely unwinding the rally since late last November that had carried the now-tarnished yellow metal to nearly $5600 at the end of January. While it traded firmer ahead of the weekend and reached slightly above $4245, it still fell by 2.5% last week but gapped higher today to reach $4345. Silver also gapped higher today and it is pushing above $70. Initial resistance is around $72.50. 

July WTI fell by almost 3.5% ahead of the weekend to bring the weekly loss to about 6.5%. It traded as low as $83.20 at the end of last week, a level not seen since April 21. It gapped lower today and traded below $80 for the first time since April 17. 

Data

The US reports May industrial output and manufacturing production, and the NY Fed’s June manufacturing survey is due. The manufacturing ISM and PMI rose to four-year highs in May. After rising 0.7% in April, industrial output is expected to have risen by about 0.2% in May. Manufacturing production also is anticipated to have slowed after rising 0.6% in April. Manufacturing jobs increased by 25k in the first five months of the year. The sector lost nearly 160k last year. Recall that there are around four times more service sector jobs than manufacturing. 

Canada reports May housing starts and April manufacturing and wholesale sale. The reports tend not to move the exchange rate, and the implications for monetary policy are marginal at best. 

The eurozone reported a 0.1% increase in April industrial production after a 0.2% rise in March was revised to 0.4%. Over the first four months of the year, eurozone industrial output is flat compared with a 1.2% increase in the Jan-Apr 2025 period. The aggregate trade April trade surplus (seasonally adjusted) was 1.3 bln euros, down from 13 bln euros in April 2025. Through April, the eurozone trade surplus stood at 19.7 bln vs. 70.4 bln euros in the first four months of last year. 

The Reserve Bank of Australia meets the first thing tomorrow. After three rates hikes so far this year, and Governor Bullock acknowledging that they have begun having the desired impact, there is little doubt but that the RBA will leave policy unchanged. 

At the end of last week, Japan confirmed industrial output rose in April for the first time in three months. Earlier today, we learned that tertiary industry activity (services) rose by 1.3%, which was also the first increase since January and was twice as strong as the median forecast in Bloomberg’s survey projected. The Bank of Japan’s two-day meeting also concludes tomorrow. The market has high confidence of a 25 bp hike, even though Governor Ueda is sick and in a hospital. We suspect that a rate hike may make material intervention more rather than less likely.

Tomorrow is the one day a month that China releases bevy of data, including retail sales, industrial production, fixed asset investment, unemployment, and house prices. Beijing reported that the economy grew by 1.3% quarter-over-quarter in Q1 26, the fastest since Q4.24.  However, the economy appears to have slowed and growth this quarter may be near 1.0% (due mid-July).