Key takeaways
- We look for consolidation in most G10 currency pairs, as global trade uncertainty recedes…
- …but further progress in trade talks should be USD supportive, despite structural questions.
- The safe haven JPY and CHF may remain on the defensive; AUD and NZD likely edge higher.
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
The US Dollar Index (DXY) has been below its rate differential since 2 April when “reciprocal tariffs” were announced, but the gap is closing lately as trade uncertainty recedes, for now, in light of the US-UK trade deal and more importantly the US-China trade truce. The recent recovery in the USD might have been helped by FX positioning adjustment but has dented the thesis that the USD faces a sustained structural decline. Cyclical factors can regain traction for now, with markets focusing on US data releases for May, including ISM manufacturing (2 June), ISM Services (4 June), non-farm payroll data (6 June) and CPI (11 June), ahead of the Federal Reserve’s (Fed) 17-18 June meeting. Markets expect the Fed to keep rates steady for the fourth straight meeting (Bloomberg, 15 May 2025). Until then, the DXY is more likely to consolidate than see a big move in either direction.
Short-term direction : DXY^
Current
▶ Track Sideways
Previous
▼ Depreciate
EUR
The EUR’s strength has relied on flows, rather than fundamentals. With the absence of this momentum when global trade uncertainty recedes for now, the challenges for the EUR could be more apparent. Markets price in a c90% chance for the European Central Bank (ECB) to deliver a 25bp cut at its 5 June meeting (Bloomberg, 15 May 2025), which could weigh on the EUR on the rates front, but a reluctance to ease its policy may heighten Eurozone growth concerns further. We look for the EUR to consolidate, as simply not being the USD is no longer a sufficient reason for the EUR to go higher in the weeks ahead.
Short-term direction : EUR-USD
Current
▶ Track Sideways
Previous
▲ Appreciate
Short-term direction : EUR-GBP
Current
▶ Track Sideways
Previous
▲ Appreciate
GBP
The UK government agreed trade deals with India and the US in recent weeks, and the UK-EU trade summit (19 May) could see some positive developments. Meanwhile, risk aversion has eased amid de-escalation in US trade tensions and has begun to erode GBP-USD’s premium versus its rate differential. For the premium (aka GBP-USD) to fall further, a further easing of US political uncertainty will likely be necessary. Domestically, the Bank of England (BoE) delivered a hawkish 25bp cut in May. The UK will release its CPI for April (21 May) and monthly GDP for April (12 June) ahead of the 19 June BoE meeting, which markets see a c90% chance for rates to stay steady at 4.25% (Bloomberg, 15 May 2025). All things considered, we expect GBP-USD and EUR-GBP to move broadly sideways in the weeks ahead.
Short-term direction : GBP-USD
Current
▶ Track Sideways
Previous
▶ Track Sideways
JPY
“Safe haven” demand for the JPY has slowed, amid easing tensions in global trade. At the same time, Japanese investors’ appetite for foreign equities has remained robust, weighing on the JPY. Though not impossible, we would view any push above 149 in USD-JPY as an overshoot in what is likely a temporary positioning squeeze. But any drop in USD-JPY will likely either need a dovish shift in Fed expectations, or JPY-bullish signals around US-Japan trade talks (like an FX clause in the agreement). Markets expect the Bank of Japan (BoJ) to keep rates steady at its 17 June meeting.
Short-term direction : USD-JPY
Current
▶ Track Sideways
Previous
▼ Depreciate
Short-term direction : EUR-JPY
Current
▶ Track Sideways
Previous
▲ Appreciate
CHF
We expect the Swiss National Bank (SNB) to leave the door open to negative rates after a likely 25bp cut to 0.0% on 19 June, and also stress a readiness to intervene in FX. Externally, headlines on US trade talk progress and broader “risk on” sentiment would probably see “safe haven” demand for the CHF to soften. Putting all these together suggests that the CHF may weaken in the weeks ahead.
Short-term direction : USD-CHF
Current
▲ Appreciate
Previous
▶ Track Sideways
Short-term direction : EUR-CHF
Current
▲ Appreciate
Previous
▲ Appreciate
CAD
While Canada has escaped the worst of some US tariff shifts, the economy is not immune, and the CAD may be hit by economic weakness ahead. Markets have priced in a c70% chance for the Bank of Canada to deliver a 25bp cut at its 4 June meeting (Bloomberg, 15 May 2025), while USD-CAD has remained below what its rate differential implies. Little seems to be going in favour of the CAD in the weeks ahead.
Short-term direction : USD-CAD
Current
▲ Appreciate
Previous
▼ Depreciate
AUD
The AUD is likely to strengthen against the USD in the weeks ahead, as headwinds soften. Deescalation in US-China trade tensions and positive news around trade development between the US and other Asian economies should alleviate the pressure on the regional growth outlook and improve overall risk sentiment, supporting the AUD. The Reserve Bank of Australia (RBA) is likely to deliver its second 25bp rate cut in the cycle at its 20 May meeting (Bloomberg, 15 May 2025). A more gradual RBA easing cycle and a potential increase in FX hedge ratio by Superannuation Funds could also be positive for the AUD.
Short-term direction : AUD-USD
Current
▲ Appreciate
Previous
▶ Track Sideways
Short-term direction : AUD-NZD
Current
▲ Appreciate
Previous
▶ Track Sideways
NZD
Like AUD-NZD, de-escalation in trade tensions is also positive for NZD-USD. Domestically, a 25bp cut is widely expected for the 28 May Reserve Bank of New Zealand (RBNZ) meeting, bringing its policy rate to 3.25% (Bloomberg, 15 May 2025). But without favourable flows or rate differential like what the AUD enjoys, we expect the NZD to underperform the AUD in the weeks ahead.
Short-term direction : NZD-USD
Current
▲ Appreciate
Previous
▶ Track Sideways
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF. Source: HSBC
FX Data Snapshot
(from close on 16 April to 16 May*)
FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY | 100.66 | 104.24 | 1.29% | 100.00 | 102.00 |
| EUR-USD |
1.1200 | 1.0794 | -1.75% | 1.1050 | 1.1280 |
| EUR-GBP | 0.8417 | 0.8389 | 2.26% | 0.8320 | 0.8500 |
| GBP-USD | 1.3305 | 1.2871 | 0.46% | 1.3200 | 1.3400 |
| USD-JPY |
145.31 | 149.70 | -2.36% | 142.00 | 149.71 |
| EUR-JPY | 162.74 | 161.46 | -0.66% | 161.50 | 165.00 |
| USD-CHF |
0.8354 | 0.8722 | -2.65% | 0.8200 | 0.8480 |
| EUR-CHF | 0.9356 | 0.9407 | -0.92% | 0.9300 | 0.9447 |
| USD-CAD | 1.3954 | 1.4021 | -0.68% | 1.3800 | 1.4150 |
| AUD-USD |
0.6428 | 0.6454 | 0.89% | 0.6340 | 0.6515 |
| AUD-NZD | 1.0879 | 1.0978 | -1.31% | 1.0800 | 1.0978 |
| NZD-USD |
0.5909 | 0.5880 | -0.42% | 0.5850 | 0.6000 |
Note: * as at 17:03 HKT on 16 May 2025
Source: HSBC, Bloomberg
Explanation of terms
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
Note: Priced as of market close 15 May 2025
Source: HSBC, Bloomberg
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
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