• GBP$ firm into NY close, +0.28% at 1.2558; NorAm range 1.2569-33

• Pair anchored by 200-DMA at 1.2542, capped Monday by May 7 high 1.2569

• UST yields trickle lower, GBP shorts lightening as dovish Fed tones rise

• Wednesday's U.S. CPI, May 22's UK CPI key events as policy paths evolve

• Beware misleading moves as sterling eschews extremes nL1N3HG178

• GBP$ res at 1.2569, 55-DMA at 1.2603, May 3 trend high at 1.2634

• Close above 1.2596, 50% Fib of 1.2894-1.2299 shifts momentum to bulls

• Support at Monday low 1.2518, Daily base line 1.2504, May 9 low 1.2446

• NY opened near 1.0785 after 1.0766 traded EBS overnight, rally extended

• USD/CNH drop from its session high, equity ESv1 gains helped buoy

• Tighter DE-US spreads US2DE2=RR, lower US yields US2YT=RR aided the lift

• EUR/USD rallied to a 6-session high of 1.0807, sellers then emerged

• NY Fed report for April indicated Americans expect higher inflation

• EUR/USD slid near the 55- & 200-DMA, top of trend line off the March 8 high

• Pair dipped below 1.0790, sat near 1.0795 late, was up only +0.19%

• Techs lean bullish; RSIs are rising & pair traded above the 10- & 21-DMAs

• US April PPI, remarks from Fed's Powell, Cook may impact risk Tuesday

• US CPI, retail sales for April are bigger risks looming for Wednesday

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• NY opened near 0.6610 after 0.6586 traded overnight, rally extended early

• Pair hit 0.6629 with help from commodity HGv1DCIOc2, equity ESv1 gains

• Risk softened after NY Fed report showed Americans expect higher inflation

• US yields US2YT=RR firmed, equities fell & USD/CNH rallied toward 7.2400

• AUD/USD briefly turned lower, hit 0.6602 then sat near flat late in the day

• Daily doji formed, implies indecision; monthly techs remain bullish though

• US April PPI, remarks from Fed's Powell, Cook may impact risk Tuesday

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Synopsis:

Danske Bank provides insights on the near-term trajectory of EUR/USD, expecting the currency pair to range-trade with a potential upside tilt influenced by market dynamics and upcoming economic data releases.

Key Points:

• Current Trading Range: EUR/USD is navigating between 1.07 and 1.08, with FX volatility at lower levels contributing to a resurgence in carry trades.
• Market Expectations: The market has stabilized its expectations for Federal Reserve rate cuts in 2024 at around 45 basis points, following recent Fed communications and labor market data.
• Influence of Upcoming Data: This week’s US CPI data is pivotal, with the consensus predicting a slight decrease in core inflation. The outcome could impact US yields and Fed rate cut timing, potentially tilting earlier than the currently anticipated September.

Conclusion:

Danske Bank suggests that while EUR/USD is likely to maintain its current range, there exists an upside risk due to the potential for lower-than-expected US inflation and overstretched USD positioning.

GBP/USD rose 0.3% on Monday, but the gains may be misleading given its tendency to retreat from market extremes in either direction recently, while traders are also unlikely to commit to a move before key U.S. and UK inflation reports this week and next.

Cable has yet to break significantly away from its 200-DMA and it remains near the 50% Fib of its recent trend high and low near 1.2540.

Traders will focus on the upcoming U.S. CPI data on Wednesday and the comparable UK report on May 22 to refine relative monetary policy expectations, which remain the key market driver.

Relatively high Fed and BoE policy rates due to elevated inflation in both the U.S. and UK have kept both the dollar and sterling strong versus other majors this year.

Since Fed officials recently tamped down tail risk of a U.S. hike and the BoE shifted to a more dovish rate vote, the upcoming inflation data may be seminal events in near-term rate evolution.

A resumption of the late-2023 inflation slide would increase market betting on a July Fed rate cut, potentially providing a lift for GBP/USD toward its recent flash high at 1.2634.
Similarly, a slide in UK inflation would cap sterling's rise by early April highs at 1.2709.

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Synopsis:

Morgan Stanley discusses the highly anticipated US CPI release scheduled for Wednesday at 8:30 am New York time, emphasizing its critical role in shaping Federal Reserve rate cut expectations amidst evolving inflation trends.

Key Points:

• Market Focus: Global markets are keyed in on the upcoming CPI data, which will play a crucial role in determining the timing of the Fed's rate cuts, previously adjusted from an aggressive seven cuts to a more cautious two, with the first expected no earlier than September.
• Inflation Trends: Morgan Stanley predicts a 0.29% month-over-month increase in core CPI, with expectations for gradual declines in rent inflation and a slight decrease in core goods prices. There is also an anticipated mild correction of previously high services inflation.
• Impact of CPI Data: While the April CPI data is crucial, Morgan Stanley believes it won’t dramatically alter the expected disinflationary trend for the year. Any deviations from their forecast could shift market expectations for the timing of Fed rate cuts, either earlier or later.

Conclusion:

Morgan Stanley maintains a confident outlook that inflation will continue to decrease throughout the year, leading to eventual rate cuts by the Fed. The firm underscores that the key indicators mostly point towards continued disinflation, suggesting that significant changes to the overall monetary policy path for the year are unlikely, regardless of the upcoming CPI outcomes.

EUR/USD struck a six-session high Monday and bulls may be looking to U.S. data as the catalyst that fuels a run towards 1.1050/1.1100.

U.S.
Treasury yields US2YT=RR, US10YT=RR trading near recent lows helped EUR/USD's consolidation phase of gains off the May 1 daily low persist.

German-U.S.
2-year spreads US2DE2=RR, which EUR/USD is correlated with, are helping support EUR/USD during this period of consolidation as they remain near recent tights and are close to breaking resistance in the -187/-185bps zone.

Investors are now focused on U.S. April PPI, CPI and retail sales to see if EUR/USD's rally extends and spreads reach new tights.

Headline producer price inflation is forecast to have increased from March, according to a Reuters Poll, which projects core CPI growth will come in below March.

Retail sales growth is estimated to have slowed sharply from the prior month.

Downside surprises to those data would lead investors to increase bets on the Fed delivering more than the 50bps of cuts for 2024 foreseen in the latest Reuters Poll.

U.S.
yields could then resume their recent down trend, potentially tightening spreads beyond -187/-185bps and, thus, allowing EUR/USD to rally above the 76.4% Fibo of 1.0885-1.0602 and daily cloud.
Breaks of those impediments would bring the April and March monthly highs into focus followed by the 1.1050/1.1100 resistance zone.

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Synopsis:

Société Générale provides a detailed preview of the expected US Consumer Price Index (CPI) data for April, highlighting its significance in the current economic context and discussing potential impacts on major currency pairs such as the USD Index and EUR/USD.

Key Points:

• Data Overview: The April CPI report is anticipated to show a 0.4% increase in the headline and a 0.3% rise in the core components. These figures follow a series of 'soft' 0.4% monthly gains influenced by varying factors across the first quarter of the year.
• Components to Watch: The prediction of a 0.3% core increase assumes continued growth at trend rates for rents, insurance, and clothing, without the surges seen in previous months. Gasoline prices are expected to boost the headline number.
• Market Movements: While the upcoming CPI data is critical, SocGen does not forecast a breakout in the USD Index or EUR/USD based on their CPI projections. However, the firm notes that any potential breakout is increasingly likely to be upward if it occurs.

Conclusion:

SocGen underscores the importance of the upcoming CPI data in shaping market expectations and movements. While the firm does not foresee a dramatic shift in major currency indices based on this data alone, it acknowledges the growing potential for upward movements, contingent upon the data deviating significantly from expectations.

Synopsis:

Goldman Sachs provides insights on the upcoming US CPI report for April, suggesting potential relief in inflation data and discussing the implications for USD and broader market dynamics.

Key Points:

• US CPI Expectations: Goldman Sachs anticipates that the April CPI could show signs of relief, aligning with expectations for a moderation in inflation rates.
• US Data and Monetary Policy: Recent US economic data have shown some softening, particularly relative to high expectations. This development is crucial as it aligns with Fed Chair Powell’s criteria for potential rate cuts, which include not only inflation metrics but also labor market conditions.
• Impact on Currency Markets: The perceived balance in risks due to the recent US data softening could limit the strength of the divergence trade, especially in policy-sensitive currency pairs like EUR/USD.
• Strategy for Risk and Currency Markets: The environment is expected to remain favorable for risk assets and carry trades, especially if inflation shows the anticipated relief. Goldman Sachs recommends funding these positions from low-yield currencies like EUR and JPY rather than the USD.

Conclusion:

This week's US CPI report is pivotal and could confirm a shift towards easing inflation pressures. While the data may provide a supportive backdrop for risk assets and carry trades, the broader implications for the USD are seen as balanced. Goldman Sachs advises caution in using the USD to fund risk positions, suggesting alternative currencies with lower yields for better risk management.

• AUD/USD fell to 0.6586 overnight, neared the 10-DMA but buyers emerged

• NY opened near 0.6610 (+0.11%) after 0.6612 traded in Europe's morning

• US yield US2YT=RR drop helped weigh on US$ & prop up AUD/USD

• AUD/USD rally aided by commodity DCIOc2, HGv1 & equity ESv1 gains

• Pair gained despite USD/CNH rally above 200-DMA, hitting a 7-sesison high

• AUD/USD techs lean bullish; RSIs are rising, daily bull hammer candle formed

• Consolidation phase of gains off May 1 low reinforce the bullish signals

• 0.6650/70 is resistance, March monthly high, May 3 daily sit in that zone

• Remarks from Fed's Mester, Jefferson may impact risk in NY's morning

• US April PPI, CPI & retail sales will be key data risks this week

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• FX traders have space to take dollar higher nL1N3HF0F8

• But USD/JPY hovering below a key Fibo, bulls need a break above nL1N3HG0DL

• 156.05 Fibo, 50% of the 160.24 to 151.86 2024 (EBS) drop weighs

• Spot has seen a 155.50-96 range on Monday, EBS data shows

• BOJ cuts JGB purchase amount in hawkish signal to market nL1N3HG01D

• Huge differential between Fed and BOJ continues to underpin spot

• Euro usually makes gains against the yen in May nL1N3HA131

The Bank of England's June interest rate decision could be one of the most dramatic for sterling in years, thanks to a fascinating sub-plot involving BoE Governor Andrew Bailey and Chief Economist Huw Pill.

Despite saying that a June rate reduction was not guaranteed, Bailey sounded like he was itching to cut rates when he spoke at the press conference following the BoE's sixth consecutive rate hold last Thursday.

By contrast, chief economist Pill appeared much less keen when he spoke on Friday, saying that betting too heavily on a June cut would be "ill advised".

The seeds of the apparent friction between the pair may have been sown last November, when Bailey pushed back against discussion of cutting rates two days after Pill said market pricing of a cut in August 2024 did not seem totally unreasonable to him.

If Bailey joins Dave Ramsden and Swati Dhingra in voting for a June rate cut while Pill votes against, he would need outgoing Deputy Governor Ben Broadbent and Deputy Governor for financial stability Sarah Breeden to join him to avoid being the first governor outvoted on rates since Mervyn King in June, 2007.

Related comments: nL1N3HD0JYnL1N3H60CV

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• A marginally falling 200DMA, lacking significance, just capping GBP/USD

• The average currently sat at 1.2542

• Long lower candle shadows, Wed/Thurs, giving bulls slight advantage

• Initial key support Thursday's 1.2487 low

• A 61.8% Fibonacci retrace level below at 1.2430

• Fourteen day positive momentum is fading and RSI flat lining

• On balance a risk of a sideways bias this week

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• Cable has traded a 17 pip range thus far Monday; 1.2518-1.2535

• 1.2541 was Friday's high, after UK GDP data beat boosted the pound

• 1.2503 was Friday's low, after USD rose on higher US inflation expectations

• UK pay and jobs data due Tuesday at 0600 GMT; regular pay growth f/c at 5.9%

• US April inflation data due on Wednesday; core CPI forecast up 0.3% MM

• CFTC data showed net GBP short fell to 21,813 contracts in week ended May 7

• Bulls need a break above the cloud, that spans 1.0827-38 the region

• Spot had failed under the 1.0611 Fibo, in April, a bear trap: bullish

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

• Bear trap set when a market breaks below a tech level but reverses

• 14-day momentum remains positive, highlighting the overall upside bias

• EUR/USD Trader TGM2334. Previous update nL1N3HD0HV

• Steady in a tight and quiet 1.2514-1.2527 range for sterling in Asia

• There are no UK data or BoE events so risk appetite and the USD lead GBP

• UK employers plan 4% pay rises in the coming year, public sector 3%

• BoE expects UK inflation to ease to 2% in April - wages remain elevated

• Charts; neutral 5, 10 & 21-day moving averages plus 21-day Bollinger bands

• Daily momentum studies conflict - the signals show no significant bias

• Resistance starts at Tuesday's 1.2568 top then 1.2595 upper 21-day Bolli

• A close below 1.2427, 0.618% of the April/May rise would be a bearish signal

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• Steady in a tight 1.0766-1.0774 range on EBS in a slow start to the week

• E-minis flat, UST yields little changed, Nikkei -0.07%, and AsiaxJP +0.3%

• There is no tier-one EZ or US data, so further consolidation is likely

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

• 21-day Bollinger bands rise - daily charts show a positive setup

• 1.0808 upper 21-day Bollinger band and recent 1.0812 high first resistance

• Friday's 1.0760 low and then Thursday's 1.0724 base are initial supports

• 1.0750 3.531 BLN and 1.0755 1.367 BLN close major strikes for May 13th

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• AUD/USD -0.15% in Asia as U.S. consumer inflation expectations stay elevated

• Fed officials mull whether rates high enough as inflation expectations jump

• Australia government optimistic on inflation, cuts 2024/25 GDP forecast

• Traders cautious ahead of week's risk events; U.S. inflation, AU jobs eyed

• Australia budget Tue, wages data Wed key for AU inflation expectations

• Higher-for-longer RBA rate stance likely to limit AUD downside

• Support 0.6585-90,0.6560 resistance 0.6625-30, 0.6650

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• Steady after closing unchanged with the USD +0.1% after strong UK GDP

• Yield spreads widened, 10yr gilt +2bp 4.168%, 10yr UST +5bp 4.492%

• Despite strong data BOEWATCH priced 23.54pt August rate cuts at the NY close

• UK employers plan 4% pay rises in the coming year, public sector 3%

• Charts; neutral 5, 10 & 21-day moving averages plus 21-day Bollinger bands

• Daily momentum studies conflict - the chart shows no significant bias

• Resistance starts at Tuesday's 1.2568 top then 1.2599 upper 21-day Bolli

• A close below 1.2427, 0.618% of the April/May rise would be a bearish signal

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• Steady early after closing down 0.1% with the USD 0.1% firmer

• Yield spreads widened, 1-yr Bund +3bp 2.520% and 10yr UST +6bp 4.504%

• US inflation expectations climbed with Europe set to cut in June

• Divergent yield spreads likely priced but should cap EUR/USD strength

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

• 21-day Bollinger bands rise - daily charts show a positive setup

• 1.0809 upper 21-day Bollinger band and recent 1.0812 high key resistance

• Friday's 1.0760 low and then Thursday's 1.0724 base are initial supports

• 1.0750 3.531 BLN and 1.0755 1.367 BLN close major strikes for May 13th

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• AUD/USD may trade in 0.6580-0.6630 range within a broader 0.6550-0.6650 band

• Traders cautious ahead of week's risk events; U.S. inflation, AU jobs eyed

• Fed officials mull whether rates high enough as inflation expectations jump

• Australia govt budget Tue, wages data Wed key for inflation expectations

• Australia says inflation could ease to RBA target range by year end

• Cuts 2024/25 real GDP growth forecast to 2% from Dec outlook of 2.25%

• Mild optimism on China economic recovery likely to underpin AUD

• China's 2024 iron ore imports seen at record on robust demand; AUD positive

• Higher-for-longer RBA rate stance will continue to support AUD

• Support 0.6585-90,0.6560 resistance 0.6630, 0.6650; Fri range 0.6629-0.65965

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The dollar index rose 0.23% on the week, largely due to continued yen weakness, though it got some broader support on Friday following hawkish Fed comments and Michigan sentiment weakness being driven by rising inflation, unemployment and interest rate concerns that the U.S. central bank may have to contend with.

EUR/USD fell 0.07% on Friday after retreating from its high of 1.0791 at the confluence of the 200-day moving average, downtrend line across March, April and May highs and the 50% Fibo of the March-April slide.

The rebound in Treasury yields following Dallas Federal Reserve President Lorie Logan's observation that policy may not be restrictive enough to tackle inflation melded hawkishly with the May Michigan 1-year consumer inflation outlook rising sharply to 3.5% from 3.2% in April, its highest since November 2023.

Overall consumer sentiment's retreat from 77.2 to 67.4 left it at its lowest since November, with inflation concerns the proximate cause of that slide.

USD/JPY rose 0.2% on Friday and 1.7% for the week, having nearly halved last week's 160.245-151.86 collapse that had come on suspected intervention and softer U.S. labor data.
That mid-point at 156.05 remains close by, with prices supported by a rebound in Treasury-JGB yields spreads that fell sharply over the preceding six sessions.

Japan's MoF and BoJ have continued talking about action they might take to keep the yen from melting down like it did in late April to its weakest since 1990, but swaps are only pricing in 22bp of Japanese rate hikes by year-end, and 2-year JGB yields at 0.31% don't suggest much more next year.
And the intervention threat is perceived highest if USD/JPY again threatens 1990's 160.35 high.

Key for USD/JPY and demand from carry traders is U.S. data and Fed expectations, with the May 15 CPI and retail sales the top upcoming event risks.

Futures currently price in just 41bp of Fed rate cuts by year-end, down from 45bp before today's hawkish events, but within the context of repeated data indications the hot U.S. labor market is cooling off and perhaps eventually testing the Fed's dual policy mandate.

Sterling rose 0.05%, getting some support from unexpectedly positive UK GDP data.
Friday's 1.2541 high is by the tenkan line that crossed bullishly above the kijun on Monday.
Its gains Friday owed more to risk-on flows, as Gilt-Treasury yield spreads were slightly more negative, with the BoE priced to cut in August and by 55bp by year-end.

USD/CAD fell 0.04%, maintaining a portion of its earlier slide on much stronger than forecast Canadian jobs data, while aussie fell 0.2% in response to the rise in Treasury yields and drop in key commodities.

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• GBP$ ekes out slight gain +0.1% at 1.2535; Friday range 1.2541-1.2503

• Post-UMich GBP$ slide reversed into close; 200-DMA at 1.2543 caps

• Sterling needs help to prolong post-BoE rebound nL1N3HD1CX

• US/UK CPI May 15/22 in focus for more material clues on c.bank policy

• GBP$ res 200-DMA 1.2543, 1.2569 May 7 high, 1.2596 50% of 1.2894-1.2299

• Close above 1.2596 shifts momentum to GBP bulls; 100-DMA at 1.2637 targeted

• Support 1.2503 Friday low, 1.2483 21-DMA, 1.2446 May 9 low

• AUD$ soft into NorAm close, -0.25% at 0.6605; Friday range 0.6629-0.6597

• Despite Friday slide w/in muted range holding above 0.66 somewhat positive

• Pair reacting data-by-data, Fri's UMich inflation rise boosts USD

• AUD/USD bounce thwarted by UMich inflation lift nL1N3HD1IK

• Less-dovish RBA policy tack likely to keep AUD firm; US CPI May 15 in focus

• Rates key, despite recent dovish RBA hold, AU rates likely steady in 2024

• Fed seen cutting in Sept, perhaps Dec; IRPR shows Fed 144bp into YE 2024

• AUD$ res 0.6629 Friday high, 0.6652 100-WMA, 0.6664 upper 30-d Bolli

• Support 0.6597 Friday low, 0.6576 10-DMA, 0.6555 daily cloud base

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