• $CAD soft in early NorAm, -0.2% at 1.3710; Thursday range 1.3737-05

• Post-Fed CAD strength intact; Fed cut odds rise as Powell shrugs off hike

• LSEG's IRPR touts 68% odds for Sept cut, Nov near-100% priced in IRPR

• BoC: There's a limit to how far US and Canada rates can diverge

• BoC's Macklem: Bank could start cutting rates before inflation rate hits 2%

• $CAD supt at 1.3705 Wed/Thur lows, 1.3696 10-DMA, 1.3663 daily base line

• Res 1.3737 Thurs high, 1.3755 upper 21-d Bolli, 1.3847 Apr 16 2024 high caps

 Synopsis:

Bank of America (BofA) projects a possibly hawkish tone at the Reserve Bank of Australia's (RBA) May meeting next Tuesday, which could influence Australian Dollar (AUD) valuations positively amidst several economic tailwinds.

Key Points:

• Context and Expectations: Despite recent reluctance from global central banks, including the Fed, to adopt hawkish tones, BofA suggests that the RBA might surprise markets with a hawkish stance. Such a move would align with the stabilization seen in the Chinese economy and other positive factors affecting Australia.

• AUD Strength Factors: Several factors could bolster the AUD, such as signs of recovery in China’s economy and property markets, resilience in industrial metal prices, and easing pressures on the Chinese Yuan following interventions by the Bank of Japan.

• Rate Hike Expectations: Although BofA does not foresee additional rate hikes from the RBA, any unexpected hawkish adjustments in inflation forecasts or forward guidance could significantly support the AUD. The current market pricing indicates modest expectations for rate hikes by November.

• Currency Strategy: BofA continues to favor long positions in AUD against currencies like the Canadian Dollar (CAD) and the New Zealand Dollar (NZD), citing a year-end target of 0.69 for the AUD.

Conclusion:

As the RBA's next meeting approaches, investors are advised to monitor for potential hawkish signals that could influence both local and broader currency markets. With several supportive economic indicators and market conditions, any surprises from the RBA could provide significant momentum for the AUD, particularly in currency pair trades against the CAD and NZD.

Synopsis:

Goldman Sachs highlights recent market activity suggesting another suspected intervention by Japanese authorities in the USD/JPY exchange rate following the Federal Reserve's latest FOMC meeting. The aim was seemingly to capitalize on post-meeting USD softness and market illiquidity.

Key Points:

• Timing and Scale of Intervention: The intervention reportedly occurred late in the London session, around 9:15-9:45 PM, with approximately $33 billion USD transacted during this period. Goldman estimates that roughly 70% of these transactions were executed by the Ministry of Finance (MoF) and Bank of Japan (BoJ), driving USD/JPY from 157.50 down to 153.00 before it settled around 154.70.

• Market Reaction: Following the suspected intervention, there was significant buying activity from retail and macro traders, exploiting the dip. This buying pressure helped push the pair back up to the 155.50-156.00 range as the European markets opened the following morning.

• Ongoing Intervention Strategy: The interventions have continued throughout the week, with this being the fourth wave. Despite these efforts, USD/JPY levels have returned to those seen at the week's start, leading to questions about the long-term efficacy of Japan's intervention strategy against the backdrop of broader macroeconomic factors.

• Volume and Market Sentiment: Trading volumes were slightly above average in the Asia session following the intervention, normalizing later but again picking up as London trading began. The persistent market willingness to "lean into" these interventions suggests a robust challenge to Japan's efforts given the current macroeconomic environment.

Conclusion:

Goldman Sachs' analysis of the suspected interventions in the USD/JPY market post-FOMC reveals a complex interplay between Japanese policy actions and market forces. While the immediate effects of the interventions have temporarily influenced exchange rates, the overall effectiveness remains under scrutiny as the market continues to test these interventions against prevailing global economic conditions.

• A large number of expiries for today's New York cut

• EUR/USD has a total of USD 18 billion between 1.0600 and 1.0785

• Sizeable AUD/USD expiries, AUD 1.5 billion between 0.6490 and 0.6500

• Another AUD 920 million worth of deals between 0.6520 and 0.6540

• The largest yen expiries are away from market at 152.50, USD 1.35 billion

For more click on FXBUZ

• Yen weakens, paring sharp rise after suspected intervention nL1N3H50CR

• Ex-official: FX intervention signals 160 yen line in the sand nL1N3H505L

• However, Japan will likely struggle to keep a lid on USD/JPY nL1N3H50LB

• Huge rate differential between Fed and BOJ keeps USD/JPY bias on the upside

• USD/JPY chart medium-term outlook is still very bullish nL1N3H50G3

• Spot has seen a 154.15-156.28 range, according to EBS data, on Thursday

• USD/JPY and EUR/JPY pairs maintain strong 30/60-day positive correlations

• EUR/GBP pierced the thin daily cloud then slid back below it Wed

• EUR rallies a second time above the cloud but again fails to hold the break

• Long upper candle shadows hint at demand fade

• Those are encouraging signs for our 0.8625 short

• Our target is 0.8505 with a profit stop at 0.8565

• Daily resistance at 0.8561 and support at 0.8547, session low

  For more click on FXBUZ

• EUR/USD's failure in April under the 1.0611 Fibo led to a recovery moves

• 1.0611 Fibo is a 76.4% retrace of the 1.0448-1.1139 (Oct-Dec) EBS rise

• The negative alignment of the tenkan and kijun lines still points to a drop

• However, 14-day momentum is on course to turn positive at Thursday's close

• We are short at 1.0725 for a slump to our 1.0525 target

• EUR/USD Trader TGM2334. Previous update nL1N3H40BB

• USD/JPY has scope for a break above Monday's 160.24 new multi-year high

• Medium-term outlook bullish since spot overcame major 152.60 Fibo in April

• 152.60 Fibo, a 38.2% retrace of major 277.65 to 75.31 (1982 to 2011) drop

• We are long at 155.25 for 165.00, our stop is just below 150.00

• USD/JPY looks set for big gains despite Japan's worries nL1N3H40FH

• EUR/JPY 165.68-167.37 EBS range on Thursday. USD/JPY Trader TGM2336

• USD/CNH routed, falls to 7.2168 from 7.2321; last 7.2242

• Bearish, as 55 DMA 7.2319 crumbles after 200 DMA break

• Next stop is 38.2% Fibo, near 100 DMA 7.2082

• USD/JPY coming off weighs on USD/AXJ broadly; last 155.36

• Risk-on from 2.4% rally in HK stocks also boosts yuan

• China mainland still closed for Labour Day break

• For more click on FXBUZ

• +0.07% near the top of a tight 1.2521-1.2538 range with steady flow on D3

• Sterling is firmer with risk appetite, as E-mini's and commodities rise

• BoE rate decision next week - no change, but optimism on inflation viable

• Like the Fed, BoE will be dependent on upcoming data for the timing of cuts

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

• 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

• 1.2475 10-day moving average and early London 1.2467 base are first supports

For more click on FXBUZ

• EUR/USD opened +0.44% @ 1.0713 after US yields eased in wake of Fed decision nL1N3H42A5

• A plunge lower in USD/JPY on suspected intervention also weighed on USD nL1N3H42TN

• EUR/USD traded in a 1.0707/20 range while USD/JPY continued to whipsaw

• Heading into the afternoon the EUR/USD is unchanged at 1.0710/15

• EUR/USD support is at the 10-day MA @ 1.0694 and a close below adds pressure

• Resistance is at the April 26 high at 1.0753 and 200-day MA at 1.0800

• EUR/USD may consolidate ahead of the US non-farm payrolls on Friday

• Short-term bias is bullish while US yields correct lower

• For more click on FXBUZ

Synopsis:

Bank of America provides an analysis of the Federal Reserve's recent FOMC meeting, highlighting a continued cautious approach with a shift to a wait-and-see policy stance. The Fed's deliberation on inflation and market dynamics suggests a possible rate cut in December, reflecting prolonged uncertainty in economic recovery.

Key Points:

• Wait-and-See Policy Stance: In response to unexpected inflation data, the Fed has adopted a wait-and-see approach, indicating a readiness to maintain current interest rates for an extended period. Chair Powell emphasized the need for more conclusive data to achieve the desired confidence level before implementing rate cuts.

• Balance Sheet Policy Adjustments: The Fed set a new cap of $25 billion for Treasury securities runoff, slightly below BofA's anticipated $30 billion, suggesting a slightly slower pace of balance sheet reduction. This decision aims to mitigate potential disruptions in funding markets and extend the runoff duration.

• Inflation Outlook: BofA maintains its forecast for a rate cut in December, predicated on the expectation that inflation will decline more slowly and remain more persistent than initially projected. The high threshold for further rate hikes was supported by Powell’s remarks.

• Market Reaction: The rates market perceived the Fed's communications as dovish, with minimal initial reaction to the statement but a more pronounced response during Powell's press conference. This resulted in lower rate expectations and spurred a dip-buying behavior in the market.

• USD Performance: The DXY experienced a slight decline, with the market's dovish interpretation leading to a moderate underperformance of the USD against higher-beta currencies. This aligns with equity rallies and a modest drop in U.S. yields. BofA expects the USD to depreciate later in the year, contingent on clearer signals of impending rate cuts.

Conclusion:

The Federal Reserve's latest deliberations underscore a strategic caution in monetary policy, with an emphasis on monitoring economic indicators closely before making further adjustments. BofA anticipates a potential rate cut by the end of the year, depending on the trajectory of inflation and economic recovery.

• USD/JPY trades 1.05% higher in Tokyo after the late 2.2% fall post-FOMC

• BOJ March minutes - long-term interest rates should be set by markets

• Fed is concerned by recent inflation data - remains data-driven on cuts

• The short-term outlook for yield differentials is they will remain wide

• If the USD/JPY fall was the BOJ - they are in a guerrilla war with markets

• Charts 5, 10 & 21 DMAs head gently higher with 21-day Bollinger bands

• A positive setup - next resistance is 156.62, 50% of this week's fall

• Earlier 154.15 low the Wednesday's 153.00 base are initial supports

  For more click on FXBUZ

• USD/KRW tamped down to 1380.8 from last close 1382.0

• Hit a low of 1378.0, teasing break of 23.6% Fibo 1378.3

• Kospi -0.2% in wake of as-expected FOMC decision nL1N3H31SH

• BOK ready to use market stabilization measures nP8N3EO008

• S. Korea Apr inflation below forecasts nP8N3GP00T

• Core inflation rises the slowest since Dec 2021

• For more click on FXBUZ

• USD/CNH cracks 200 DMA support 7.2363, last 7.2350

• Settles around next chart floor 55 DMA 7.2321 for now

• USD/JPY plunge suggests Japan intervened in FX again

• Sharp drop to as low as 153.00 tanks DXY, dents USD/AXJ

• USD/JPY outweighs patient tone from FOMC nL1N3H31SH

• Powell still sees possible rate cut but not soon

• For more click on FXBUZ

• USD/JPY recovers in Asia after sharp fall in NYK on suspected intervention

• Rallies to 155.35 from NYK low of 153.00 as bargain hunters step in

• Wednesday range 157.99-153.00, Thursday Asia range 154.15-155.35

• Rapid 157.58-153.00 post-Fed drop occurred at NYK close/ Wellington open

• Japan had said stands ready to deal with FX matters around the clock

• Picked right time; market thin and Fed was not as hawkish as feared

• Fed keeps rates unchanged, flags 'lack of further progress' on inflation

• Traders relieved as Powell said rate increases remained unlikely

• Initial resistance at 155.50-70; 155.76 is 38.2% of 160.24-153.00 drop

• Support at 154.00-20, 153.00, 152.61, the 38.2% Fibo of Dec-April drop

• For more click on FXBUZ

• AUD/USD opens +0.79% after the Fed and USD/JPY collapse impacted trading

• The Fed retained a cautious-patient dovish bias at their meeting today nL1N3H31SH

• US yields and USD fell while Wall Street initially soared higher nL1N3H42A5

• A frenzied selloff on Wall Street in the last hour saw big gains evaporate nL1N3H42NT

• There was more volatility in USD/JPY as it collapsed from 157.50 to 153.00

• Suspected MOF intervention behind move - before it rebounded to 155.00 nL1N3H42TN

• AUD/USD now above the 10, 21 and 200-day MAs to give it a bullish bias

• Support is at 0.6500/05 where the 10 & 21-day MAs converge

• Resistance is at the April 29 high at 0.6587 and April 9 high at 0.6644

• Focus today will be on the USD/JPY and Asian equity market reaction to Fed

• For more click on FXBUZ

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.