Synopsis:

Following the Federal Open Market Committee (FOMC) meeting in May, CIBC provides insights into Chair Jerome Powell’s remarks and the Fed's current stance on monetary policy. The central bank maintained interest rates and adjusted the pace of its balance sheet reduction, reflecting a data-dependent and patient approach amid mixed economic signals.

Key Points:

• Policy Decisions: The FOMC held interest rates steady and announced a slowdown in the balance sheet runoff starting in June, with Treasury securities runoff reducing to $25 billion from $60 billion, while maintaining the mortgage-backed securities cap at $35 billion.

• Inflation and Economic Outlook: Powell acknowledged the lack of progress on inflation in some areas but balanced this with recognition of advancements already made. He indicated that the recent high inflation readings might be temporary, maintaining a cautious optimism about the potential for rate cuts later this year.

• Policy and Economic Slack: Powell reiterated that the existing policy might become sufficiently restrictive over time and highlighted that the U.S. economy's response to interest rate changes has weakened over the years. The Fed continues to monitor the relationship between economic slack and inflation closely, requiring more evidence of genuine overheating and its impact on prices before adjusting policy significantly.

• Fed’s Patience and Data Dependence: The Fed Chair emphasized a patient approach, influenced by recent economic data showing a mixed picture of inflation trends. Powell's comments reflected a reluctance to shift quickly from the established narrative, despite a series of less favorable inflation reports in the last three months.

• Labor Market and Inflation Threshold: Powell discussed the progress in moderating labor market dynamics and wage growth. He pointed out that while bringing inflation back to the 2% target remains crucial, the Fed does not have a strict timeline, aiming to avoid undue disruption in the labor market, especially now that inflation has dropped below 3%.

Conclusion:

The May FOMC meeting underscored the Fed's cautious and methodical approach to monetary policy in the face of uncertain economic conditions. Chair Powell’s comments highlighted a balanced perspective on current economic challenges, with a focus on being responsive to incoming data rather than preemptive.

• Some US bulls disppointed Fed Chair Powell didn't note rate hike risk

• USD/JPY fell to 157 where dip-buyers were waiting for a discount

• Initial dollar selling on Fed statement and Powell were overreactions

• Fed just confirmed progress on inflation stalled, but rates are restrictive

• Wed's earlier 157.99 high by 158 was also by 61.8% of Monday's plunge

• With threat of Japan yen intervention, run at 160+ may wait for top US data

• Friday's jobs and ISM non-manufacturing reports are now the focus

For more click on FXBUZ

• NY opened near 0.6480 after 0.64655 traded in Europe, rally extended early

• YieldsUS2YT=RR,US$ were soft after ADP, JOLTS & ISM PMI sent mixed signals

• Gold XAU= rallied & USD/CNH fell to 7.2418 (D3) to help weigh on the US$

• AUD/USD hit 0.64975 then slid, sat near 0.6490 ahead of the Fed statement

• US$ fell, risk assets lifted on Fed's policy statement, AUD/USD hit 0.6505

• During Chair Powell's presser no hints given that rate hikes are coming

• Equities ESv1 turned positive, UDS/CNH fell further, gold rally extended

• AUD/USD rallied above the 10-, 21-, 55- & 200-DMAs, 0.6539 traded

• Pair was up +1.00% late and technical signals leaned bullish

• Daily RSI diverged on the 6-session low, rally follows April doji candle

• For more click on FXBUZ

• GBP$ firm into NY cls, +0.38% at 1.2535; Wednesday range 1.2541-1.2467

• Flows light owing to May Day holiday; UK data mixed held no sway early

• Fed holds rates steady, flags 'lack of further progress' on inflation; IRPR cut odd drift higher

• UST yield slide weighs on USD; Sept Fed cut expectations rise post-Fed

• Fed announces reduction in balance sheet runoff pace nL1N3H40Y8

• Pair remains caught b/w 10-and 200-DMAs 1.2464-1.2552

• Barring any movement in UK-US rate outlook range likely to remain intact

• Res at Wednesday high 1.2513, 200-DMA 1.2552, 1.2596 50% of 1.2894-1.2299

• Supt 1.2464's 10-DMA, 1.2434 daily conversion line, 1.2358 lwr 30-d Bolli

• $CAD a tad soft in early NY, -0.1% at 1.3768; Wednesday range 1.3782-1.3750

• May Day holiday liquidity keeps pair steady pre-Fed rate decision/presser

• Fed expected to hold rate steady, cuts odds 60% for Sept, 80% for Nov

• Rate futures indicate BoC to cut earlier and deeper than Fed in 2024 IRPR

• LSEG's IRPR shows better than 50% odds for BoC hike in June, -52bp by Dec

• Res at 1.3785 Apr 30 high, 1.3847 Apr 16 2024 high, 1.3860 upper 21-d Bolli

• Supt 1.3718 daily conversion line, 1.3689 21-DMA, 1.3632 Apr 29 low

Sterling hovered near flat in early NorAm trading amid diminished May Day holiday liquidity, but traders are likely to target this year's lows if the Fed sounds more hawkish than expected when delivering its widely forecast decision to hold rates steady later on Wednesday.

The expectation of unchanged rates has left markets focused on nuances of the policy statement and the post-meeting presser by Fed Chair Jerome Powell.

Rates continue to hold significant sway among major currencies.

Early 2024 GBP/USD strength owing to G7-leading UK inflation has unraveled recently as BoE rate expectations have fallen, converging with the U.S. and other major economies.

While the rate of UK inflation's fall has tapered slightly since February, the continued downward path has boosted BoE rate cut expectations, with futures markets now projecting earlier and deeper BoE rate cuts than the Fed.

This has weighed on GBP net spec positioning 1096742NNET, which has dropped from the mid-March highs of +70,451 contracts to -26,233 contracts as of April 23.

With the Fed expected to keep rates steady and futures markets pricing barely more than one U.S. cut in 2024 -- versus six in early 2024 -- risks are likely to remain tipped to the downside for GBP/USD.

If Fed expectations remain less dovish, sterling's recent 2024 low at 1.2299 may be targeted.

For more click on FXBUZ

Synopsis:

Bank of America forecasts that the Federal Reserve will maintain its current policy stance at the May FOMC meeting, with a focus on inflation and cautious forward guidance. The anticipated steady approach is unlikely to significantly impact the USD, though market reactions to Fed communications could introduce some volatility.

Key Points:

• Policy Rate and QT Adjustments: The FOMC is expected to keep the policy rate unchanged and potentially slow the pace of quantitative tightening (QT). This aligns with the Fed's strategy of giving previous policy measures more time to take effect.

• Inflation Assessment: The Fed's statement is likely to note that progress on inflation has been "uneven," reflecting the complex economic backdrop and the challenges in achieving stable price levels.

• Press Conference Expectations: In the press conference, Chair Jerome Powell is predicted to emphasize that the policy needs more time to work, and that the next likely move could be a rate cut. However, the committee will remain in "wait-and-see" mode, seeking further clarity on inflation trends before making significant changes.

• Impact on the USD: BofA anticipates that the FOMC's decision to hold steady and Powell's reaffirmation of the current policy approach will not have a lasting material impact on the USD. However, any unexpected statements or interpretations during the press conference could introduce temporary volatility.

• Market Focus on Rate Hikes Discussion: Discussions of potential rate hikes may arise during the press conference, and markets will be keenly observing how Powell addresses these considerations. His responses could influence market expectations and trading behaviors in the near term.

Conclusion:

As the Federal Reserve approaches its May meeting with a likely steady hand, the focus remains on assessing and communicating about inflation dynamics. While no significant changes are expected that would alter the course of the USD dramatically, traders should be prepared for potential short-term fluctuations based on the nuances of Powell's communications and the Fed's assessment of economic conditions.

• Cable has traded a 30.5 pip range since London open; 1.2467 = session low

• 1.2467 is also intra-week low (1.2466 is 38.2% Fibo of 1.2299-1.2569)

• Fed event risk from 1800 GMT; hawkish hold expected nL2N3GY1PF

• GBP/USD might drop towards 1.2400 on ultra-hawkish Fed/Powell

• UK April manufacturing PMI upwardly revised to 49.1 from 48.7 flash estimate

• UK local elections Thursday; PM Sunak's Tories face big losses nL5N3GQ5GV

• AUD/USD slid to 0.6466 in Asia, as stock losses hurt the risk-sensitive AUD

• Nasdaq fell 2% on Tuesday. 0.6466 is lowest level since April 23

• Fed event risk from 1800 GMT; hawkish hold expected nL1N3H31SH

• AUD/USD might extend south towards 0.6400 on ultra-hawkish Fed hold

• 0.6408 was last week's low (April 22). 0.6587 was Monday's high

• RBA rate decision next week: Rabobank forecasts hikes in August and November

• EUR/USD trading lower ahead Fed rate decision at 18GMT nL1N3H40BN

• Pair which reached 1.0753 EBS on Apr 26 drops to 1.0650 on May 1

• April low was 1.0601 and 1.0596 is the level to watch

• A drop below 1.0596 would target return to 2023 low at 1.0448

• Base 20-day Bollinger bands at 1.0561 allows room for a drop

• Bonds safer than they used to be - may influence FX nL1N3H40ES

USD/JPY looks set for eventual big gains due to a mix of fundamental and technical factors, despite the worries of Japan's monetary authorities.

Japan stands ready to deal with foreign exchange matters around the clock, top currency diplomat Masato Kanda said on Tuesday, as money market data suggested the finance ministry had spent around $35 billion to prop up the sliding yen on Monday.

Despite Japanese authorities' continuing concerns over a weakening yen, there are fundamental and technical factors that point to sizeable USD/JPY gains in the days and weeks ahead to 165.

While the Bank of Japan left interest rates on hold at its recent meeting, the policy rate differential between the Federal Reserve and the BOJ remains wide and keeps USD/JPY's bias on the upside.

In April USD/JPY overcame the 152.60 Fibo, a 38.2% retrace of the major 277.65 to 75.31 (1982 to 2011) drop, which is bullish.
Fourteen-week momentum remains positive, adding to the upside potential.

For more click on FXBUZ

• Cable falls to 1.2471 before Fed event risk: hawkish hold expected

• 1.2471 is lowest level this week (1.2449 was last Friday's low)

• 1.2554 was Tuesday's Ldn am high, before USD rose on hot US labor cost data

• US spending on London real estate rebounds to 8-year high - BNP Paribas data

• UK house prices down 0.4% in April vs f/c increase of 0.2% - Nationwide data

• Reuters/Ipsos poll says 40% of U.S. voters support Biden vs 39% for Trump

• Overnight FX option expiry now includes the Fed policy decision

• No change expected, but statement, press conference provide volatility risk

• Overnight EUR/USD implied volatility jumps from 8.0 on Tuesday to 12.0 Wed

• Implied volatility gauges realised volatility risk when setting premium

• Premium/break-even for straddle now 53 vs 35 USD pips in either direction

• Other expiry dates are underpinned by FED, NFP event risk and firmer USD

• Benchmark 1-month expiry recovers Monday's 6.1 high vs 5.9 Tuesday

• FX options wrap - Firmer USD and Fed/NFP risk support vol nL1N3H31KT

For more click on FXBUZ

• Just missed out on forming a bearish engulfing line Tues

• However, sterling risk has flipped to the downside

• Minimum correction off 1.2299-1.2569 climb met at 1.2505, 1.2473 Wed low

• Next Fibo level at 1.2466 with 1.2449, Apr. 25 low behind

• Daily momentum readings have been negative since Mar. 22

• Daily RSI is now confirming the price drop

• We look for an opportunity to get short

  For more click on FXBUZ

• AUD/USD opened -1.43% at 0.6472 after hot US ECI sent US yields higher nL1N3H32MN

• AUD/USD consolidated in a 0.6465/80 range as much of Asia was on holiday

• AUD/USD is under pressure after closing below the 10-day MA at 0.6483

• Next support is at the 61.8 of the April rise at 0.6448

• A break below 0.6445 targets the April trend low at 0.6362

• Resistance is at the 10-day MA at 0.6483 and 21-day MA at 0.6504

• Market is positioned for a hawkish hold when the Fed decides later today

• Key for AUD/USD will be bond and equity market reaction to Fed event

• For more click on FXBUZ

• -0.05% after closing +0.95% after strong US data saw 2yr UST hit a 2024 high

• Rising Treasury yields after stronger-than-expected US data support USD/JPY

• 2yr UST -1bp to 5.0309 in early Asia, Nikkei -0.65% after Wall Street's fall

• BOJ remains ready to intervene when necessary - spent around $35bln Monday

• Charts: 21-day Bollinger Bands, 5, 10 & 21-day moving averages head higher

• Daily charts remain positive - a close below 154.36 21 DMA would be bearish

• Horizontal Tenkan and Kijun lines suggest a period of consolidation

• Tuesday's 156.50 early European low is initial support

  For more click on FXBUZ

• -0.05% - closed -0.55% with the USD +0.6% as inflation pushed up UST yields

• Yield spreads widened, 10yr gilt +6bp to 4.352%, 10yr UST +7bp to 4.684%

• UK inflationary pressures are easing as UST yields rise - likely caps GBP

• Expecting a low-key Asian session - only Tokyo, Sydney and Wellington open

• Charts; 5, 10 & 21 DMAs conflict, 21-day Bollinger bands edge lower

• Daily momentum studies rise - the daily signals show no strong bias

• Monday's 1.2569 high then 1.2596, 50% of the March/April fall are resistance

• Friday's 1.2448 low and the 1.2299 April low are initial supports

  For more click on FXBUZ

• USD/JPY likely to remain bid on dips after closing 0.95% higher Tuesday

• Boosted by higher US yields on sticky inflation, higher-for-longer Fed rates

• Growth in US labor costs accelerates in Q1; wages up 4.4% year-on-year

• 10-yr yields up 49.6 bps in April, largest monthly gain since September 2022

• US 2-yr yields hit highest since Nov as focus turns to Wed Fed rate decision

• Quagmire anyone? Fed watchers try to divine a confusing state of play

• USD to ratchet higher; Japan slows JPY drop, unlikely to fight gradual fall

• Japan may have spent some $35.05 bln in supporting JPY on Monday

• Resistance 158.00-05, 158.50, support 157.20-30; Tue range 156.08-157.81

• For more click on FXBUZ

• AUD/USD opens -1.43% after USD broadly rose following hot US ECI nL1N3H32MN

• Risk assets clobbered as market fears Fed may turn more hawkish nL4N3H35MB

• AUD weakened against most currencies as key commodities also fell hard nL8N3H331T

• AUD/USD closed below 10-day MA (0.6483) to increase downward pressure

• Next support is at the 61.8 of the April rise at 0.6448

• A clear break below 0.6445 puts the trend low at 0.6362 back in focus

• Resistance is at the 10-day MA at 0.6483 and 21-day MA at 0.6504

• AUD/USD likely to consolidate losses ahead of key FOMC decision Wednesday

• For more click on FXBUZ

Synopsis:

Bank of America identifies a potential bear flag formation on the EUR/USD daily chart, suggesting a possible continuation of the downward trend. Key resistance levels and historical patterns support this bearish outlook.

Key Points:

• Bear Flag Formation: Analysts at BofA have observed what appears to be a bear flag pattern forming on the daily chart of EUR/USD as of late April. This pattern is typically indicative of a continuation of a prior downtrend following a brief consolidative period.

• Critical Levels to Watch: A break below the key support level of 1.0675 would confirm the bear flag pattern, potentially setting the stage for a move toward the year-to-date low at 1.0601, and possibly extending to the 2023 low of 1.0448.

• Resistance Levels: The EUR/USD faces significant resistance from declining moving averages and trend lines that currently cap the spot rate at or below the 1.08-1.0840 range. These levels need to hold to maintain the bearish outlook.

• Additional Chart Patterns: Supporting the bearish view, a diamond top pattern has also been confirmed on the weekly chart, which generally signals a reversal from previous uptrends. This pattern aligns with the potential for further declines.

• Longer-Term Targets: Should the bear flag and other bearish patterns hold, the EUR/USD might target the 61.8% Fibonacci retracement level at 1.0201, provided weekly closes remain below medium-term trend line resistance at 1.0915.

Conclusion:

The technical analysis by Bank of America suggests a cautious or bearish stance on EUR/USD in the near to medium term, given the formation of a bear flag and the presence of other bearish chart patterns.

• GBP/USD -0.5%, back below its 200-DMA to test support at 1.25

• With EUR/GBP trading flat, this would imply a USD led move

• Hawkish Fed risk clearly a concern with both USD, yields higher

• Meanwhile, U.S. Q1 ECI data elevates the Fed risk nL1N3H31JG

• Worth noting that month-end flows were touted to be dollar positive

• Break of 1.25 opens door to further support at 1.2450-55

• COMMENT-Sterling upside likely to struggle in lead up to Fed nL1N3H32LI

For more click on FXBUZ

• NY opened near 0.6530 after 0.65675 traded overnight, slide extended

• Upside surprise to US Q1 ECI drove yields US2YT=RR, US$ higher

• Risk soured; stocks ESv1, commodities XAU=HGv1 fell, USD/CNH rallied

• AUD/USD fell below the 21-, 55- & 200-DMAs, neared the 10-DMA, hit 0.6482

• Most losses were maintained, AUD/USD traded down -1.23% late in the day

• Techs lean bearish; RSIs falling, pair below slew of daily MAs & daily cloud

• Fed meeting, Powell presser are key event risks for Wednesday

• US April ADP, S&P Global & ISM manufacturing PMIs are data risks Wednesday

• For more click on FXBUZ

• NY opened near 1..0725 after 1.07355 traded on EBS in Europe's morning

• Slide extended with help from upside surprise to US Q1 employment cost data

• Broad based US$ buying took hold as data rallied US yields US2YT=RR

• Risk-off took hold; stocks ESv1, commodities XAU=LCOc1 fell sharply

• USD/CNH rallied above 7.2540 on D3 which reinforced risk-off sentiment

• EUR/USD fell below the 10-DMA, hit 1.0676, was down -0.42% late in the day

• Techs lean bearish; RSIs falling & pair below the 21- & 10-DMAs

• Fed meeting, Powell presser are key event risks for Wednesday

• US April ADP, S&P Global & ISM manufacturing PMIs are data risks Wednesday

• For more click on FXBUZ

Synopsis:

Credit Agricole discusses the recent movements in the USD/JPY exchange rate, suggesting that Japan's Ministry of Finance (MoF) likely intervened to support the yen as it approached a crucial level of 160. The intervention, believed to have occurred during a Japanese public holiday, temporarily curtailed the yen's decline.

Key Points:

• Recent Yen Movements: USD/JPY surged past 160 before experiencing a sharp drop below 155, following potential intervention efforts by Japan's Ministry of Finance. The exact details of these actions remain unconfirmed until the MoF's official report at the end of May.

• Intervention Context: The intervention likely took advantage of low liquidity due to a public holiday in Japan. The level of 160 is seen as a significant psychological and technical threshold, prompting the MoF to act to prevent further escalation toward this mark.

• Masato Kanda's Comments: Masato Kanda, Japan's Vice Minister of Finance for International Affairs, emphasized the readiness to act around the clock in FX markets but did not specify target levels for intervention.

• Intervention Firepower: According to Credit Agricole, the MoF possesses about USD 160 billion in liquid reserves for potential interventions, with historical data showing around USD 60 billion used in similar actions in late 2022.

• Upcoming Public Holiday and Global Events: Another public holiday in Japan this Friday and the forthcoming Labour Day may influence market liquidity. Additionally, the upcoming FOMC meeting in the U.S. might further affect market dynamics, particularly if Fed Chair Jerome Powell's remarks do not align strongly with current market expectations for future rate cuts.

Conclusion:

Credit Agricole suggests that recent yen stabilization efforts by Japan's MoF have only temporarily slowed the yen's decline against the dollar. The situation remains fluid, with upcoming holidays and global economic events likely to influence currency market volatility. I