Synopsis:

Goldman Sachs discusses the current foreign exchange landscape, highlighting the challenges in advocating for new USD shorts following recent developments with the Fed and CPI data.

Key Points:

• Market Dynamics: Recent data and Federal Reserve actions have blurred the clear divergence in monetary policy that had previously supported a bearish USD outlook.
• Carry Trade Interest: There is a renewed interest in carry trades, indicating a shift in market sentiment towards holding currencies with higher yields.
• Strategists' View: Goldman Sachs strategists see limited potential for further pressing USD shorts, given the current market conditions.
• Trading Position: The current positioning in various currency pairs makes it challenging to recommend initiating new USD shorts.

Conclusion:

In light of recent economic indicators and central bank activities, Goldman Sachs advises caution against establishing new USD short positions. The current environment suggests a more complex and less predictable FX market, with limited opportunities for leveraging USD weaknesses.

USD index held firmer on Tuesday but off early session highs after Fed Governor Christopher Waller reiterated that the next move by the U.S. central bank is unlikely to be a hike.

Wednesday’s Fed minutes will be a key focus but given recent comments by policymakers highlighting persistent inflation but also keeping hikes off the agenda could leave markets in a holding pattern for more U.S. data to provide direction.

Falling Canadian inflation reported on Tuesday may prod the BoC to join the rate-cutting community as early as June.

After the CPI data, LSEG’s IRPR page indicates June cut odds at 56%, with a full cut priced in for July.

Traders will be eying Wednesday’s UK CPI keenly for hints that the BoE may move more dovishly.
IRPR now projects 50% odds for a 25bp BoE rate cut in June.
A soft CPI release could open the way for BoE cuts in June and August.

EUR/USD was down 0.03% at 1.0853, off session highs at 1.0875, though near the May 16 peak at 1.0895 as more-hawkish Fed expectations continue to recede.

Recent upbeat euro zone data has also diminished 2024 ECB rate cut expectations, providing incremental boosts for the EURO.

USD/JPY dipped 0.1% to 156.11 in NorAm afternoon trading.
U.S.-Japan rate differentials are still heavily skewed in the dollar's favor, but the less-hawkish lean by Waller has seen some USD selling, with support building just below 156.

GBP/USD eked out a 0.03% rise to 1.2708.
The pair put in a new two-month high at 1.2727, extending its streak of higher highs and lows despite market expectations of a further drop in UK inflation.

Risks are skewed to the downside if UK inflation slows as forecast.
A surprise to the downside may open up the way to the May 9 low at 1.2446.
Should June cut odds rise significantly, a pullback to the April 22 low at 1.2299 may be on the cards.

Bitcoin held a 0.5% gain at $69.8k, well off the session high at $72k.
BTC continues to follow ethereum higher.
ETH rose 7.1% to $3,742 as traders prepare for an ETF registration that is expected to boost demand for the cryptocurrency further.

For more click on FXBUZ

• GBP$ flat at 1.2705 into NY close, Tuesday range 1.2727-1.2687

• Early NorAm high faded ahead of Wednesday's UK CPI release

• Sterling hovers near trend highs ahead of key UK CPI Wednesday

• UK core and HL CPI f/c lower may increase odds for June BoE cut

• Should odds for June and August cuts increase GBP$ likely gets hit hard

• GBP$ has put in higher high, higher low for 5 straight sessions

• Res 1.2727 Tues high, 1.2734 38.2% Fib of 1.3144-1.2070, 1.2803 Mar 18 high

• NY opened near 1.0870 after 1.08745 traded on EBS overnight, slide extended

• Pair fell despite US yield US2YT=RR slip, equity ESv1 & goldXAU= gains

• 1.0843 traded, bounce above 1.0860 ensued but pair slid again

• US$ buys weighed; USD/CNH traded above 7.2480 while stocks, gold turned down

• EUR/USD sat near 1.0850, traded down -0.05% late in the session

• Pair still consolidating gains off the May 9 low which is a bull signal

• Rising monthly RSI, hold above many daily MAs reinforce bullish signals

• Minutes of Fed's April 30-May 1 meeting are a key risk Wednesday

• Fed's Goolsbee speaks Wednesday, may impact risk sentiment

• For more click on FXBUZ

Synopsis:

Credit Agricole anticipates a stubbornly neutral stance from the Reserve Bank of New Zealand (RBNZ) in its upcoming May meeting, despite market expectations for impending rate cuts.

Key Points:

• Market Expectations vs. RBNZ Outlook: Markets are pricing nearly two 25bp rate cuts by the end of the year, with the first expected by October. However, RBNZ may disappoint these expectations, potentially boosting the NZD.
• Economic Backdrop: New Zealand has entered a double-dip recession in H2 2023, and recent indicators suggest another soft growth patch. Employment growth has slowed, and unemployment has risen to a nearly three-year high at 4.3%.
• Inflation Concerns: Despite a slowdown, headline inflation remains high at 4% YoY, above RBNZ's 1-3% target range. The bank's preferred inflation measure is also elevated at 4.3% YoY.
• Inflation Expectations: Sectoral factor model inflation expectations have fallen but remain slightly above the mid-point of the target range.

Conclusion:

Credit Agricole expects the RBNZ to hold the Official Cash Rate (OCR) at 5.50% and project a cautiously optimistic tone about the effectiveness of current policy settings. Governor Adrian Orr is likely to emphasize the necessity of maintaining the OCR at the current level for a "sustained period" and suggest that rate cuts are not imminent, possibly not starting until H1 2025.

USD/JPY traded flat in another session of consolidation on Tuesday, with low volatility keeping long carry popular and maintaining an upward bias for the dollar against the yen.

While there have been modest attempts by USD/JPY to drift higher to test the May 14 high at 156.80, a dip in U.S. yields has acted as a drag on the pair.

Closely watched Federal Reserve official Christopher Waller reiterated that several more months of good inflation data will be needed before being comfortable to support easing.

Though cautious, the comments had a limited impact on Fed pricing, which continues to hold around pre-U.S.
CPI levels at 42bps, down from last week’s peak of 52bps 0#FEDWATCH.

All told, the Fed’s patience is another factor that will keep risk appetite underpinned and by extension the path of least resistance remains on the upside for USD/JPY.

For more click on FXBUZ

Synopsis:

Société Générale assesses the technical patterns of AUD/USD, indicating a potential rise towards 0.6750 and possibly up to 0.6900.

Key Points:

• Support Level: AUD/USD has found support at a trend line that has been in place since October 2022, located near 0.6360.
• Recovery and Breakout: The currency pair has rebounded, moving past the 50-day moving average and breaking above the neckline of an Inverse Head and Shoulders pattern.
• Potential Upside: This technical configuration suggests a potential upward trajectory towards initial targets of 0.6750, followed by 0.6870 to 0.6900 if the momentum continues.

Conclusion:

The technical analysis by Société Générale highlights a promising setup for AUD/USD, projecting an upward movement based on recent support and pattern formations. The potential targets of 0.6750 and 0.6900 offer key levels for traders to watch as the currency pair attempts to capitalize on this bullish pattern.

EUR/USD traded near flat Tuesday as investors shrugged off euro zone pricing data that could push the ECB in a more dovish direction, indicating that expectations of Fed rate cuts could be playing a larger role in the market.

German April producer prices came in at +0.2% versus +0.3% estimates for month-on-month and -3.3% versus estimates of -3.1% for year-on-year.

The report weighed down German yields DE2YT=RR as the data reinforced bets the ECB will cut in June.

The dollar's yield advantage over the euro increased due to German-U.S.
spreads US2DE2=RR widening slightly.

EUR/USD's buoyancy may be attributed to investors still expecting the Fed to cut rates despite rhetoric warning that caution may be warranted before deciding on the first reduction.

U.S.
short-term rates markets still have nearly 50bps of cuts priced in for 2024 with easing expected to continue through early 2026.

EUR/USD remained within the May 16-17 daily ranges however, which is an indication that the pair's consolidation of gains off the May 9 daily low is intact.
Consolidation is a bullish tech signal and the phase could resolve with a resumption of the rally off April's low.

Unless U.S. data clearly indicates rising inflation and the Fed signals they're more concerned price pressures are heating up, dollar bears may emerge and EUR/USD may rally.

For more click on FXBUZ

Synopsis:

CIBC views the latest Canadian CPI data as a green light for the Bank of Canada (BoC) to initiate rate cuts in its upcoming June meeting, citing continued easing in core inflation metrics.

Key Points:

• Headline CPI Alignment: Today’s CPI figures aligned with consensus at a 0.5% monthly increase, leading to an annual rate of 2.7%, a decrease from the previous 2.9%.
• Core Inflation Softness: Core inflation measures such as CPI-Trim and CPI-Median showed year-over-year decreases to 2.9% and 2.6% respectively, indicating underlying softness in price pressures.
• Monthly Trends and Impacts: The monthly data remained moderate, with CPI excluding food and energy only rising by 0.1% on a seasonally adjusted basis. Mortgage interest costs significantly drove the headline CPI year-over-year increase, while reductions in telephone services and internet costs countered these effects.
• BoC’s Stance: Following the April rate decision, BoC Governor noted the need for persistent subdued inflation readings before considering rate cuts. The trend of tame inflation over the last four months aligns with CIBC's prediction of a rate cut in June.

Conclusion:

The recent CPI data confirms CIBC's expectation for a BoC rate cut next month, marking a pivotal shift in Canadian monetary policy aimed at addressing softening inflation while supporting economic growth.

Synopsis:

Bank of America provides an in-depth analysis of Japan's recent FX interventions, examining various aspects including financing sources, impacts on US rates, and implications for the Bank of Japan's balance sheet, among other key issues.

Key Points:

1. Financing Sources: The Ministry of Finance (MoF) likely financed its April 29 intervention through withdrawal of deposits rather than selling securities, affecting liquidity dynamics.
2. Impact on US Rates: Interventions could lead to decreased demand for US Treasuries (USTs), potentially influencing US interest rates.
3. BoJ Balance Sheet Impacts: The interventions have implications for the Bank of Japan's balance sheet, particularly regarding sterilization efforts to manage liquidity.
4. Communication Strategy: The MoF is strategically increasing uncertainty in the market to temper speculative activities and stabilize the yen.
5. Future Interventions and USD/JPY Outlook: Further interventions are likely if USD/JPY continues to pressure critical levels, influencing the currency pair's trajectory.
6. FX Hedging Strategies: Given the elevated carry and prevailing uncertainties, FX hedging is becoming an attractive option for investors in yen-denominated assets.

Conclusion:

Bank of America highlights the complexity and multi-faceted impacts of Japan's FX interventions on financial markets. These interventions not only affect currency stability but also have broader implications for global financial markets, making a strategic approach to communication and hedging essential for managing associated risks.

• Cable eyes 1.2725 resistance level before BoE's Bailey speaks at 1700 GMT

• 1.2725 was Monday's two-month high. 1.2750 and 1.2800 are obstacles beyond

• Support points include 1.2700. UK CPI data due 0600 GMT Wednesday; 2.1% f/c

• UK grocery price inflation falls to 2.4%, lowest since Oct 2021, says Kantar

• UK CBI manufacturing orders book balance minus 33 vs minus 20 forecast

• IMF warns Britain against more pre-election tax cuts nS8N3D00B2

• Gold rallied after becoming oversold in late April, early may

• Rise from $2277.19 to $2449.89 record high resulted

• Rally then became overbought with gold dipping to $2406.10

• Corrections may be small, toward $2384 - 38.2% Apr-May rise - $173/oz

• Gold is in a steep uptrend with consolidations unfolding at elevated levels

• Demand has outstripped supply and trends are specs' friends

• Record high was 38.2% fibo target drawn from Feb low

• Next targets $2500, $2553, $2724 and $3000 may be achieved this year

• Gold could benefit from a period of risk aversion nL1N3HO0HV

• FX option strike expiries have helped contain EUR/USD in mid 1.08's of late

• Traders selling FX options this week amid lack of data before long w-end hol

• Adds size to existing strikes and related hedge flows to help contain FX

• Another 2.1-billion euros with strikes 1.0840-50 expire Tuesday nL1N3HO0AG

• Wednesday has €1.4-bln 1.0825-35, €771-mln 1.0860, Thurs €1.4-bln 1.0900

• Friday sees biggest collection - a massive €8-billion between 1.0860-1.0900

For more click on FXBUZ

• USD/JPY has seen a 156.03-55 range, on Tuesday, according to EBS data

• Likely stops above 156.80, 157.00, but offers ahead nL1N3HO064

• Long tail on last Thursday's candle highlights a downside rejection

• Huge differential between Fed and BOJ still continues to underpin USD/JPY

• Fin Min Suzuki: Japan closely monitoring weak yen & bond market nL1N3HO016

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

• Euro usually makes gains against the yen in May nL1N3HA131

• Bitcoin has surged $6k in just two sessions reaching $71,957

• April-March rise has spanned $15k - next targets $74,837 and $83,909

• Demand is currently far outstripping supply - bigger rise likely

• Demand for most risky assets is robust which is great for bitcoin

• Rally is currently stretched above $70,882 peak of 20-day Bollingers

• Dips due overbought situation likely to remain shallow toward 68k or 66k

• Bullish cloud break holding and our short is in trouble

• Daily cloud top is falling away sharply, removing support

• However, a bid is holding early Tues, just below the 1.2725 Mon high

• Slight fade in daily bull momentum and RSI is flat lining in o/b territory

• Sterling looks bullish while above 1.2646-50, Frid low and daily cloud top

• We will maintain our 1.2684 short for now

  For more click on FXBUZ

• FX Option strikes expire at 10-am New York/3-pm London - Tuesday May 21

• EUR/USD: 1.0800 (631M), 1.0840-50 (2.1BLN), 1.0860 (320M), 1.0900 (942M)

• USD/CHF: 0.9055 (1.9BLN), 0.9100 (383M). EUR/CHF: 0.9850 (898M)

• GBP/USD: 1.2600 (210M), 1.2625-30 (718M)

• EUR/GBP: 0.8600 (433M), 0.8650 (200M)

• AUD/USD: 0.6565-75 (1.6BLN), 0.6650 (226M), 0.6675 (200M), 0.6705-15 (511M)

• AUD/NZD: 1.0850 (304M). EUR/AUD: 1.6300 (200M)

• USD/CAD: 1.3600 (460M), 1.3640-45 (1.4BLN), 1.3700 (1.3BLN)

• USD/JPY: 154.50 (795M), 156.75 (295M), 157.00 (400M), 157.75 (590M)

• AUD/JPY: 102.75 (330M)

For more click on FXBUZ

• AUD/USD down 0.2% in Asia, takes slightly hawkish RBA minutes in stride

• Australia central bank pondered raising rates on higher inflation risks

• But traders relieved as c.bank says inflation expectations well anchored

• Expectations that next move from RBA will be a rate cut gain ground

• Markets price in a December rate cut probability at 50%, April cut at 85%

• AUD downside limited as RBA rate stance diverges from other major cenbanks

• Elevated commodity prices and carry-trade demand buoy AUD outlook

• Supports 0.6645-50, 0.6620-25, resistance 0.6690-95, 0.6710-15

• Asia range 0.6675-0.66465

• For more click on FXBUZ

Synopsis:

MUFG outlines a momentarily positive environment for G10 commodity currencies influenced by recent economic developments, but maintains a cautious outlook for the longer term.

Key Points:

1. Improved Global Backdrop: The recent soft US CPI report for April has alleviated some of the financial market pressures, supporting a more optimistic view for a global economic soft landing.
2. China's Economic Stimulus: While new measures aimed at boosting China's housing market have been introduced, they were less significant than anticipated, raising questions about the robustness of China's economic recovery.
3. US-China Trade Tensions: The recent US tariff announcements, though limited, underscore ongoing trade tensions, which are expected to intensify as the US approaches its presidential elections later in the year.

Conclusion:

While the current environment offers temporary support to G10 commodity currencies due to softer US inflation data and hopes for global stability, MUFG advises caution. The firm highlights lingering uncertainties, particularly concerning China’s economic momentum and geopolitical factors such as US-China trade relations, which may impact the sustainability of gains in these currencies over the longer term.

• AUD/USD -0.3% despite RBA May minutes revealing c.bank considered rate hike

• Australia central bank pondered raising rates on higher inflation risks

• Decided to stand pat in part to avoid "excessively fine-tuning" policy

• Judged hike might be needed if forecasts on inflation proved too optimistic

• AUD upside capped for now as Fed policymakers cautious on inflation, policy

• Buying dips preferred as multiple factors buoy outlook

• Support 0.6645-50, 0.6620-25, resistance 0.6690-95, 0.6710-15

• Asia range 0.6647-0.6675

• For more click on FXBUZ

• Japanese officials were mostly mum on FX last week with market in stasis

• Last week saw USD/JPY down from 156.80 on May 14 to 153.60 on May 16

• No need for verbal intervention then, USD/JPY since on rebound however

• Break back up on to 156 handle resulting in fresh MOF-speak

• FinMin Suzuki notes concern over negative aspects of a weak yen

• Says MOF will deal appropriately as needed, stable FX desirable

• FinMin-speak not limited to FX, closely watching moves in JGBs too

• Says will conduct "appropriate" bond management policy too

• The BOJ recently cut the size of its 5 to 10-year JGB purchases

• The move to cut was most likely done in coordination with MOF

• See nP8N3GY09K, nP8N3HA031, related nL1N3HO00A

• For more click on FXBUZ

• +0.05% after closing down 0.1% with the U.S. dollar rising 0.15%

• Yield spreads little changed, 10yr bund +2bp 2.532% 10yr UST +1bp 4.437%

• Cautious Fed speakers provide underlying USD support - ECB June cut is live

• Charts - momentum studies conflict, 5, 10, and 21-day moving averages climb

• 21-day Bollinger bands rise - uptrend stalled - remains a positive setup

• Targets 1.0898 break, 0.786% March/April fall, then test 1.0980 March high

• Friday's 1.0836 low, then the 1.0824 rising 10 DMA are initial supports

• 1.0840/50 2.115 BLN and 1.0875 942 mln are the close strikes for May 21

  For more click on FXBUZ

• AUD/USD closes 0.35% lower on Monday after failing to stabilise above 0.6700

• Dips to remain shallow as rally in base and precious metals support

• Iron ore climbs to 3-mth high, gold and LME copper hit record highs

• Higher-for-longer RBA rate stance will limit AUD downside

• Minutes of RBA May meeting due Tuesday, will be key for direction

• Upside thwarted for now as Fed policymakers cautious on inflation, policy

• 0.6640-50 to 0.6750 consolidation will break higher to 0.6838, 2024 high

• Further support at 0.6620, resistance 0.6710-15; Mon range 0.6708-0.6662

• For more click on FXBUZ

Synopsis:

Credit Agricole provides an analysis on why the Euro's recent outperformance may not signal a broader, sustained rally. Despite anticipation of ECB monetary easing, several factors could limit the Euro's gains in the near term.

Key Points:

1. Delayed Impact of ECB Easing: The beneficial effects on growth from expected ECB rate cuts may not be immediate, particularly if the lower rates are not quickly passed on to borrowers.
2. Global Trade Risks: Any recovery in the Eurozone remains susceptible to potential disruptions in global trade, exacerbated by ongoing geopolitical tensions and the upcoming US presidential election.
3. Inflation Concerns: Persistent high commodity prices may lead to renewed cost-push inflation, which could diminish real incomes within the Eurozone, undermining economic stability.
4. Competitive Devaluation Risks: The possibility of depreciation in Asian currencies as a form of competitive devaluation could cap gains in the Euro, maintaining pressure on the currency.

Conclusion:

While there are optimistic views regarding the Euro's performance following potential ECB policy easing, Credit Agricole outlines several challenges that may restrict the scope for significant Euro rallies in the near term. These factors include delayed transmission of monetary easing, geopolitical and trade uncertainties, inflationary pressures, and currency devaluation strategies by other economies.