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I have been highlighting a potential invterted head-and-shoulders pattern on the WTI crude oil chart but today was a setback, or at least a false start.

Crude rose to as high as $66.28 in a two-month high but turned around in US trading and settled 31-cents lower to $64.98.

The EIA released a report highlighting a peak in US oil production this year before a decline in 2026 but that couldn’t keep the rally going. The API private oil inventory data is due later and that often leaks so it could have been a catalyst for some sellers.

Data so far this month suggests OPEC supply hasn’t been as big of a problem as anticipated, as compensatory cuts offset the production increases but more pledged hikes are coming and could continue into the autumn. If the US trade war doesn’t reverse then that rising supply could hit falling demand in a struggling economy.

This article was written by Adam Button at www.forexlive.com.

BofA and Morgan Stanley expect May’s US CPI report to show a modest rise in both headline and core inflation. While headline pressures remain subdued, core inflation is expected to stay firm, reinforcing the view that disinflation will be slow and uneven, keeping the Fed on hold.

Key Points:

BofA Forecast:

• Headline CPI: +0.2% m/m

• Core CPI: +0.2% m/m, held in check by soft seasonal factors in autos and moderate services

• Preliminary core PCE estimate: +0.2% m/m, 2.7% y/y

Morgan Stanley Forecast:

• Core CPI: +0.26% m/m, 2.9% y/y

• Headline CPI: +0.17% m/m, 2.5% y/y (NSA Index: 321.776)

Drivers of the Print:

• Tariffs likely had a clearer effect on goods prices

• Seasonal softness in autos and contained services inflation capped core gains

• Investors may key in on whether core services reaccelerate or continue cooling

Conclusion:

Both banks see a restrained inflation print for May, but with core inflation still too sticky to justify early Fed cuts. A 0.2–0.26% core reading would confirm that while disinflation is progressing, it remains gradual, keeping rate cut expectations in check for now.

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This article was written by Adam Button at www.forexlive.com.

Canadian Prime Minister Mark Carney announced an immediate rise in military spending to 2% of GDP yesterday (from 1.37%) and said it would rise from there. He also suggested there would be an effort to source more from the domestic market, rather than importing it from the United States.

The jump this year means $9 billion in additional funding and would mean at least $62.7 billion in funding over five years. Those are considerable numbers for an economy the size of Canada.

RBC looks at how that could lift Canadian growth but notes key uncertainties around how that money will be spent. If it’s all sent to the US for planes, then it’s minimal while if it’s all spent of domestic troops, there these is a big multiplier, though even higher if the investments are in intellectual property.

RBC notes that this is all hard to pin down but there is clearly a tailwind here for the loonie, though execution will be critical.

Empirical research on the effect of defence spending on long-run growth has found both positive and negative effects.

Positive impacts tend to arise through industrial development, innovation, and infrastructure channels. The defence sector is notably research-intensive. Dual-use civilian/defence infrastructure can also enhance internal connectivity and access to external markets.

Negative impacts tend to stem from capital leakage, fiscal overspending, and the risk of diverting resources from more productive sectors of the economy. Without a procurement framework that prioritizes domestic suppliers, increased defence spending could result in capital outflows.

This article was written by Adam Button at www.forexlive.com.

• High Yield: 3.972%

• WI level at the time of the auction: 3.968%

• Tail: 0.4 bps vs. 6- month avg. 0.5bps. The difference between the high yield and the when-issued yield (pre-auction market rate. A negative tail is indication of strong bidding. A positive tail implies less demand

• Bid-to-Cover: 2.52X vs 6-month avg. 2.62x. Total bids received divided by the amount of debt offered. A higher number is an indication of strong demand

• Dealer Take: 15.19% vs 6-month avg. 15.1%.Primary dealers (big banks) who are obligated to bid at Treasury auctions. If the banks take more than the average, it indicates less investor demand.

• Directs: 18.03% vs 6 month average of 18.7%. A higher number is indicative of strong domestic demand, while a lower number is weaker demand. .

• Indirects: 66.78% vs 6-month avg. 66.2%.Often seen as foreign central banks and international institutions.A higher number is indicative of strong domestic demand, while a lower number is weaker demand.

AUCTION GRADE: C

The details showed a positive tail with Bid to cover lower than the average. The domestic buyers was close to the average and international buyers were near the average as well.

More ahead:

• 10-year reopening tomorrow

• 30-year reopening Thursday

This article was written by Greg Michalowski at www.forexlive.com.

The major US stock indices are trading to new session highs and new highs for the week. Both the S&P and NASDAQ indices are up nearly 0.4% on the day. The Dow industrial average is up 0.27%

The US treasury will auction off for your notes imminently with the WI yield trading at 3.968%

This article was written by Greg Michalowski at www.forexlive.com.

The overtime negotiations puts into question Treas Sec. Bessents Congressional testimony scheduled for tomorrow

This article was written by Greg Michalowski at www.forexlive.com.

The Treasury will auction $58 billion in 3-year notes at 1:00 PM ET, launching this week’s coupon supply calendar. Results will be closely watched, with investor demand measured against the 5-key component 6 month auction averages.

Metrics to watch vs 6-auction avg:

• Tail: 6- month avg. 0.5bps. The difference between the high yield and the when-issued yield (pre-auction market rate. A negative tail is indication of strong bidding. A positive tail implies less demand

• Bid-to-Cover: 6-month avg. 2.62x. Total bids received divided by the amount of debt offered. A higher number is an indication of strong demand

• Dealer Take: 6-month avg. 15.1%.Primary dealers (big banks) who are obligated to bid at Treasury auctions. If the banks take more than the average, it indicates less investor demand.

• Directs: 6-month avg. 18.7%. Domestic US buyers placing bids on their own behalf (e.g., corporations, pension funds, insurance companies). A higher number is indicative of strong domestic demand, while a lower number is weaker demand. .

• Indirects: 6-month avg. 66.2%.Often seen as foreign central banks and international institutions.A higher number is indicative of strong domestic demand, while a lower number is weaker demand.

More ahead:

• 10-year reopening tomorrow

• 30-year reopening Thursday

The auction’s strength—or lack thereof—could influence rate direction and market sentiment heading into the rest of the week’s supply.

This article was written by Greg Michalowski at www.forexlive.com.

A US official is saying that the US/China talks are ongoing.

• They are working out technical details.

I guess that is good news.

Not so good news is that a Senior Administration official is saying Iran appears to be dragging negotiations on without concrete progress. They continue to push forward with nuclear efforts.

This article was written by Greg Michalowski at www.forexlive.com.

So much for ‘drill, baby, drill’.

The EIA now forecasts that US 2026 oil production will be lower than 2025.

• 2025 forecast of 13.42 mbpd steady
• 2026 cut to 13.37 mbpd from 13.49 previously
• 2025 demand at 20.4 mbpd vs 20.5 prior
• Natural gas demand steady at 91.3 bcf/day
• 2025 world oil demand at 103.5 vs 103.7 mbpd
• 2026 world oil demand steady at 104.6 bmpd

There is nothing magical about these forecasts and these aren’t big swings, despite recent declines in oil prices.

Notably, the EIA has global oil demand at 102.60mbpd, global oil supply at 104.24mbpd in May 2025, which might explain why prices have recovered so well.

This article was written by Adam Button at www.forexlive.com.

Indian and US negotiators made progress in their latest round of talks focused on access for industrial and some agricultural goods, tariffs and non-tariff barriers, according to a Reuters report citing Indian government sources.

The report came after four days of talks but it’s not at the finish line yet and “negotiations will continue”. The countries are aiming for a pact by autumn and to double trade by 2030.

The report says the two sides are expected to sign an interim agreement by month end.

“India also asked the US to revoke its 10% baseline tariff. However, the US side opposed this,” the report says.

I’m not sure this report tells us much, though it certainly looks like the US side is in deal-making mode.

This article was written by Adam Button at www.forexlive.com.

A US official cited by Reuters says talks have concluded. We will now wait for headlines to find out what was achieved, if anything.

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs revises its EUR/USD forecasts upward, citing relative equity underperformance for EUR-based investors, diminishing foreign appetite for US assets, and a confirmed slowdown in US economic activity.

Key Points:

• USD-Based Underperformance:

  • US equities may appear flat in USD terms, but for EUR investors, they are down 8% YTD, making EU equities relatively more attractive.

• Shift in Foreign Investment Preferences:

  • A less hospitable US investment climate is pushing global investors toward diversification away from the US dollar and dollar-denominated assets.

• Confirmation of US Slowdown:

  • Recent macro indicators support a narrative of slowing US economic activity, reinforcing the case for continued USD depreciation.

• Forecast Revisions:

  • Goldman raises EUR/USD targets to:

    • 1.17 in 3 months

    • 1.20 in 6 months

    • 1.25 in 12 months

  • These are up from 1.12, 1.15, and 1.20, set after the Liberation Day policy announcement.

Conclusion:

Goldman Sachs maintains a structurally bearish USD outlook, driven by macro divergence and a global reallocation of capital. The EUR/USD uptrend, in their view, has further to run, with 1.25 now the 12-month target.

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This article was written by Adam Button at www.forexlive.com.