• Flat after closing up 0.25% with the US dollar closing 0.35% lower

• UK inflation slowed less than forecast but met Bank of England expectations

• BOEWATCH fully prices 28bp of cuts in September and 45.48bp by December

• There is no tier one UK data or events today, so risk appetite, USD lead GBP

• Charts; 5, 10 & 21 day moving averages fall with the 21-day Bollinger bands

• Daily momentum studies slip - daily charts still show a strong bearish trend

• Move targets 1.2369, 0.618% Oct-March rise, and then the 1.2045 Oct 23 base

• 1.2482 early London high then Monday's 1.2498 high are initial resistances

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• Steady after closing up 0.5% as yield spreads tightened, USD slipped

• Yield spreads tightened, 10yr bund off 1bp, 10yr UST -7bp 4.585%

• June ECB cut likely, but there are divergent views on what will follow

• ECB's Vasle sees rates 'much closer' to 3% at year-end from the current 4%

• Charts - mixed daily momentum studies, 21-day Bollinger bands head lower

• 5, 10, and 21-day moving averages fall - the daily charts remain bearish

• Close above the prior Feb 1.0695 base would suggest a base is in place

• 0.786 of the October-December rise proved resilient support this week

• 1.0650 909mln and 1.0700 910mln are the close strikes for April 18th

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Synopsis:

Goldman Sachs evaluates the potential impact of recent commodity price movements on currency values, emphasizing copper's significant role. While the Chilean Peso (CLP) is positioned to benefit from rising copper prices, the influence on major G10 currencies like the Australian Dollar (AUD) and Canadian Dollar (CAD) is expected to be less pronounced. The firm notes that broader economic policies and cyclical factors continue to overshadow the effects of terms of trade on short-term currency performance.

Key Points:

• Commodity Spotlight and Copper's Role: Recent geopolitical tensions and positive manufacturing data have kept commodities, especially copper, in focus. Goldman's bullish outlook on copper is highlighted as having notable potential to influence currency markets.

• Currency Implications of Copper Prices: Using Goldman's Terms of Trade (ToT) framework, the analysis suggests that the Chilean Peso could see significant gains if copper prices reach the forecasted levels, due to the country's heavy reliance on copper exports. The impact on G10 currencies such as the AUD and CAD is expected to be positive but more modest.

• Pass-Through Effects on FX: The firm's rule-of-thumb indicates that about half of the changes in export prices pass through to FX, compared to only about two-tenths for import prices. This differential suggests stronger currency responses in export-heavy economies, particularly those reliant on copper.

• Recent Performance of Commodity Currencies: Despite copper's price movements, most commodity currencies have not matched the commodity rally since the year's start. This underperformance highlights the limited role of terms of trade in driving short-term currency moves.

• Broader Economic Influences: While significant shifts in terms of trade due to commodity price changes can impact FX, recent currency movements are primarily driven by broader policy decisions and cyclical economic factors rather than changes in trade terms.

Conclusion:

Goldman Sachs' analysis indicates that while copper prices provide a potential tailwind for certain currencies, particularly the CLP, the broader influence on G10 currencies is likely to remain subdued. The analysis reinforces the idea that short-term FX performance is more heavily influenced by macroeconomic policies and global economic cycles than by changes in commodity prices or terms of trade. Investors should continue to focus on these broader drivers when considering currency investments.

• Overbought pressures forced first lower high since 152 breakout

• Daily RSIs falling from highest since 2022, still at 77.6

• Trailing 10-DMA, tenkan & up TL from March lows now near 153

• The 155 level and twin Fibos by 155.20 remain key hurdles

• 10-wk Bolli and weekly ATR tops are also at 154.80/5.22

• They leave little space for further gains until next week

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• USD/JPY retreated amid falling Tsy-JGB yld spreads and crude prices

• Prices had gotten heavily O/B and in need of consolidation/setback

• Failure to clear Tues's 154.77 34-yr highs by key 155 weighed

• As did that stall coming after Fed Chair crushed rate cut hopes on Tues

• Wed's Fed beige book report was less hawkish than recent data implied

• That as there's little key US data until GDP, PCEs on April 25, 26

• Speculation re BoJ yen intervention got a small lift from FinMin comments

• So far Wed's range is just an inside day, consolidating big gains

• 10-DMA, daily on-close pivot pt and tenkan props are at 152.80-97

• There is a massive $6.08bln of 153 expiries on Thur, 155s ongoing above

• Japan CPI data is out Friday, core f/c at 2.6% vs 2.8% in Feb

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• NY opened near 0.6425, pair rallied to 0.64375 early then hit 0.6409

• Firm US$, yields & equity ESv1, gold XAU= slides weighed on AUD/USD

• Buyers emerged however and AUD/USD neared 0.6430, traded up +0.42% late

• Yields US2YT=RRUS10YT=RR fell & USD/CNH fell towards 7.2450

• Bounces for equities and gold also helped drive AUD/USD's late day lift

• Daily RSI lifted but monthly RSI fell, monthly inverted hammer in place

• Australia March employment report is a data risk during Asia hours

• For more click on FXBUZ

Synopsis:

ING reports a shift in the People’s Bank of China's (PBOC) stance on the renminbi (CNY), suggesting a growing ease with allowing gradual depreciation of the currency. This comes amid continued strength in the USD, influenced by recent Federal Reserve communications and market dynamics, positioning the dollar for potential further gains.

Key Points:

• PBOC Fixing and CNY Movement: The PBOC set the USD/CNY fixing nearly unchanged from the previous day at 7.1025, suggesting a controlled approach to managing the renminbi's value. Despite this, USD/CNY and USD/CNH have shown movements that indicate a trend towards a weaker CNY, with USD/CNY trading at 7.2400 and USD/CNH just below 7.2600.

• Trade-Weighted Renminbi Strength: Despite the nominal depreciation against the USD, the renminbi has strengthened on a trade-weighted basis due to the broader decline in the currencies of China's trading partners. This dynamic, coupled with China's soft inflation and export figures, supports the PBOC’s comfort with a gradual weakening of the CNY.

• U.S. Monetary Policy Influence: Recent comments from Federal Reserve Chair Jay Powell and Vice Chair Philip Jefferson have highlighted slower progress on inflation control, hinting at potential delays in rate cuts. This has bolstered the USD, with 2-year Treasury yields touching 5.0%, a level not seen since November.

• Impact on U.S. Equities and DXY: The strengthening dollar and high Treasury yields pose challenges for U.S. equities, potentially leading to a sell-off that could further enhance the dollar's position. The Dollar Index (DXY) is now eyeing the 107.00 mark, reflecting October highs.

Conclusion:

The combination of PBOC’s management of the CNY and the U.S. Federal Reserve’s signals on monetary policy are contributing to a stronger USD environment. ING notes that the risks remain tilted towards further dollar gains, with potential impacts across global financial markets. Investors should closely monitor these developments, as they hold significant implications for currency valuations and international trade dynamics.

GBP/USD firmed modestly following above-forecast CPI figures, which prompted a slight hawkish repricing in the rates market, but cable must recapture 1.25 to alleviate downside pressure.

The Bank of England will have access to two additional CPI reports by the time of the June meeting.
This may affect the relative importance of the April figures, which will be impacted by the base effects.
Thus, June remains a live meeting.

That said, the data will not provide policymakers with more confidence that inflation is sustainably heading to target.
As such, upcoming speeches from several BoE officials, including, Andrew Bailey, Jonathan Haskel, Catherine Mann and Dave Ramsden will be closely watched.

For now, GBP/USD shorts remain in control with the pair holding below the 1.25 handle.
Since breaking below, 1.25 has put a lid on upside, which has somewhat emboldened shorts.

However, with rate differentials beginning to move in favor of sterling, downside pressures may soon abate, unless of course there is a further escalation in geopolitical tensions.

What’s more, the dollar’s inability to rally on hawkish comments from Fed Chair Jerome Powell does suggest that upside in the greenback is becoming exhausted.

With this in mind, a daily close above 1.25 would go some way in alleviating downside risks.

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Synopsis:

HSBC assesses the impact of recent geopolitical events on oil prices, noting a slight decline following Iran's strike on Israel, with Brent crude dipping to just under USD 90 per barrel. The bank highlights that the market's restrained response suggests a significant level of geopolitical risk was already factored into prices. Despite potential escalations, other market dynamics are expected to maintain stability in oil prices.

Key Points:

• Immediate Price Impact: Brent crude experienced a minor decrease of about 1% to under USD 90 per barrel after the recent military actions, indicating that previous price increases had already accounted for potential risks.

• Geopolitical Tensions: Although the situation remains tense, the market's current outlook suggests that a wider regional conflict is unlikely. This perception is bolstered by Iran’s declaration that it considers its retaliatory action as concluding the matter, reducing fears of further immediate escalation.

• Oil Market Fundamentals: HSBC points to supportive fundamental factors in the oil market, estimating a supply-demand deficit of approximately 1.4 million barrels per day in the second and third quarters of the year. These conditions suggest underlying strength in the market despite geopolitical fluctuations.

• OPEC+ Dynamics: There is an increasing likelihood that OPEC+ may begin to scale back some of its supply cuts in the third quarter if high oil prices persist. This potential action, coupled with the group's upcoming meeting on June 1, could influence market dynamics and help moderate prices.

• Price Forecasts: HSBC maintains its Brent price forecast at USD 82.5 per barrel for 2024, with expectations of USD 85 per barrel in the first half of the year, and a reduction to USD 76.5 per barrel starting in 2025.

Conclusion:

HSBC's analysis suggests that while geopolitical risks continue to influence oil markets, a combination of robust market fundamentals and potential adjustments in OPEC+ supply policies are likely to keep oil prices relatively stable. Investors should closely monitor upcoming OPEC+ decisions and further geopolitical developments, as these factors will be key in shaping oil price trajectories in the near to medium term.

USD/JPY's breakout above 152 on strong U.S. data and hawkish Fed comments has become overbought as the pivotal 155 level and major technical targets at 155.20 are neared, making a breakout before consolidation or a correction more difficult.

Daily RSIs have surged to their most overbought since October 2022, the month the BoJ intervened to keep USD/JPY from clearing 152.
Today's modest retreat and first day without a new high since the 152 breakout, brings the first bearish rise in the trailing 10-day Bolli that often triggers a return to the 10-day moving average, last by 153.

The 10-week Bolli and weekly ATR-projected range tops are at 154.92/5.22, suggesting little space for further gains, at least this week.

And though Treasury-JGB yields spreads remain quite bullish, and regardless of hawkish U.S. data and Fed Chair Powell on Tuesday disallowing the prospect of rate cuts until a disinflationary data trend is reestablished, two-year Treasury-JGB yield spreads are 5bp below last week's 2024 peak and 10-year spreads are 4.5bp below Tuesday's 2024 highs.

The JGB yield curve continues to bear steepen, even if only 25bp of further 2024 BoJ rate hikes are being priced in.

The wild card for the biggest net spec USD/JPY long since 2007 is BoJ intervention.
There hasn't been a fresh episode of serious saber rattling this week and the assumption is intervention wouldn't reverse the macro-driven uptrend, just provide a correction and a better buying opportunity.

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Synopsis:

Société Générale (SocGen) forecasts potential downward pressure on EUR/USD, possibly driving the currency pair below 1.05, following a reassessment of the Federal Reserve's interest rate policy. An unexpected uptick in U.S. inflation has led SocGen’s U.S. economists to revise their outlook, eliminating expectations of Fed rate cuts in 2024. This adjustment contrasts with current market expectations, which still anticipate nearly two rate cuts within the year.

Key Points:

• Shift in Fed Expectations: Recent data showing a surprise increase in U.S. inflation has prompted a significant shift in SocGen's forecast, with no Fed rate cuts expected for 2024. This contrasts sharply with the broader market's anticipation of rate reductions.

• Impact on EUR/USD: The shift in policy expectations is likely to lead to a hawkish repricing in U.S. rate markets, putting downward pressure on EUR/USD. The currency pair, which has historically aligned closely with the two-year yield differential between the U.S. and Eurozone, may see further declines due to these revised expectations.

• Relative Yield Movements: The yield spread between U.S. and Eurozone two-year government bonds has widened, particularly after the recent U.S. inflation data. This widening spread supports a stronger U.S. dollar relative to the euro.

• Market Pricing and Repricing Risks: Although the market has adjusted to a later start of Fed easing compared to the European Central Bank (ECB), there may still be room for further adjustment. This suggests additional potential for EUR/USD to decline as the market fully digests the implications of sustained U.S. monetary policy tightening.

Conclusion:

As SocGen revises its outlook on the Federal Reserve's rate path, significant implications for EUR/USD emerge, with the potential to dip below 1.05. This shift is primarily driven by the unexpected persistence of U.S. inflation and the subsequent adjustment in rate expectations. Investors and traders should closely monitor U.S. economic releases and Fed communications in the coming weeks, as these will be critical in shaping market expectations and currency movement.

Synopsis:

Credit Agricole analyzes the likelihood and implications of a potential joint G7 intervention to stabilize the Japanese Yen (JPY) amidst recent currency volatility. Despite historical precedents, such as the 2011 intervention following the Tohoku earthquake, current economic conditions and policy stances suggest that a joint intervention remains unlikely.

Key Points:

• G20 Commitment and Current FX Policy: The G20 nations are committed to avoiding exchange rate manipulation and allowing market-determined rates, with interventions reserved only to address excessive volatility. This policy backdrop frames the discussions at the upcoming G7 and G20 meetings in Washington.

• Statements from Japan and South Korea: Ahead of the meetings, Japan's Finance Minister Shun’ichi Suzuki and South Korea's Finance Minister Choi Sang-mok have expressed serious concerns about their currencies' recent declines. They indicated potential unilateral steps to counter volatility but stopped short of confirming plans for joint intervention.

• Historical Context of Joint Interventions: The last significant joint intervention in the JPY occurred in 2011, driven by a specific economic shock and marked misalignment of the JPY with economic fundamentals, conditions which do not currently apply.

• US Position on Joint Intervention: The stronger USD is seen as beneficial to the US by helping to tighten financial conditions and control inflation. This stance makes joint intervention less appealing to US policymakers, especially given the USD's role in influencing global economic conditions.

Conclusion:

While the recent joint statement by Japan and South Korea raises the profile of currency issues at the G7 and G20 meetings, the conditions for a joint intervention to support the JPY are not favorable. The USD/JPY and EUR/JPY are considered fairly valued by Credit Agricole's FAST FX models, and the strategic interests of the US do not align with a need to weaken the USD. Therefore, while discussions on FX volatility are expected to occur, significant joint intervention remains unlikely unless there are dramatic shifts in economic fundamentals or geopolitical conditions.

Price action in FX derivatives is consistent with a growing risk of increased volatility and deeper EUR/USD declines, but low cost options are still available for holders to participate should the situation arise.

Implied volatility is a realised volatility gauge and key component of an option premium, so it's no surprise to see it surge to new long-term highs, with an additional premium for EUR/USD downside strikes.
However, these higher premiums can be advantageous for more exotic type options.

A regular vanilla call option with a strike at 1.0600 and expiry in 1-month would cost 60 USD pips, or 33 USD pips with the strike at 1.05 and 17 USD pips with the strike at 1.0400 (break-even is the strike minus the premium).
However, the additional implied volatility premium for downside strikes will cheapen options with a knock-out trigger below the strike as that trigger is deemed more likely to be touched and kill the option.

For example, a 1-month expiry 1.0600 USD call with a knock out trigger at 1.0300 is half the price of its vanilla equivalent, albeit dead if 1.0300 trades.
Longer expiries and triggers closer to strike/current spot will be even cheaper.

Alternatively, vanilla EUR put/USD call spreads allow holders to sell EUR/USD at one strike providing they buy at another below it.
They are similar to KO-trigger options in that they are cheaper and profit potential is limited to the lower strike, but remain in play until expiry.

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• AUD/USD holds above 0.6400 as higher iron ore prices lend support to AUD

• Iron ore is Australia's biggest export earner. 0.6400 was Asian session low

• 0.6390 was five-month low Tuesday, after USD rose on hawkish Powell guidance

• AUD/USD offers are tipped ahead of 0.6450 (0.6443 was February's low)

• There is a big 0.6435 option expiry on Thursday; A$1.5 billion strike

• Australian jobs data due Thursday: employment f/c 10k; jobless rate f/c 3.9%

• USD/JPY steady to softer just below 154.79 Tues trend high

• Resistance and offers pre-155.00 on Japanese exporter offers, option defense

• Massive option barriers presumed at 155.00, stops above very large

• Vanilla expiries today: large at 153.00, 153.50 and 155.00

• Some USD longs touted to be looking to book some profits ahead of 155.00

• On a deeper pullback: minimum correction of 146.48-154.79 is 152.83

• Initial support at 153.90, Tues low point

• Caution on possible MoF moves: intervention threat nL2N3GQ04H

  For more click on FXBUZ

• Loss consolidation with a degree of upside risk

• This week's doji candles suggest bears are lacking conviction

• Indecision in the low 1.06s could trigger a larger adjustment higher

• Daily RSI is bumping along the 30 line and negative momentum is fading

• A minimum correction of the 1.0885-1.0602 drop is at 1.0669

• A return to the Tues 1.0654 high could also ease the over sold pressure

  For more click on FXBUZ

• Cable rises to 1.2450 on slightly higher than expected UK March CPI print

• 3.2% YY vs 3.1% f/c. 1.2450 = intra-day high (1.2440 was Asia high, pre-CPI)

• On Tuesday, BoE chief Bailey said "strong evidence" of falling UK inflation

• Above f/c UK CPI lessens risk of BoE rate cut as early as next month (May 9)

• Resistance levels beyond 1.2450 include 1.2471 (Tuesday's high) and 1.25

• 1.2406 was five-month low on Tuesday, after dollar rose on Powell guidance

• EUR/USD has dropped to 1.0601 EBS in 2024 from Dec's 1.1139

• The sell-off has been fuelled by the liquidation of longs

• Should pair drop below 1.0596 it will likely reach 2023 low at 1.0448

• A deeper drop will probably be fuelled by establishment of short positions

• Chart supports bigger USD rally nL2N3GQ0CO

• Early Wed gains fade quickly: 50-day moving average, 0.8552, intact

• Fourteen day momentum and RSI still reflecting price weakness

• We remain short from 0.8568 for 0.8510 with a trailing stop at 0.8580

• A drop under 0.8527, Apr. 15 low, needed to open up our target

• Key resistance points at 50DMA and 100DMA, 0.8574 for the latter

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• +0.1% in a quiet 1.2426-1.2440 range on D3 with the USD off 0.1%

• Risk appetite based in Asia - E-mini S&P +0.2%, Brent oil -0.55%

• BoE's Bailey is optimistic inflation is falling - CPI will be key

• See the chart below for Reuters polls on the UK's inflation data

• Charts; 5, 10 & 21 day moving averages fall with the 21-day Bollinger bands

• Daily momentum studies slip - daily charts show a strong bearish trend

• Move targets 1.2369, 0.618% Oct-March rise then the 1.2045 Oct 23 base

• 1.2471 London top and Monday's 1.2498 high are initial resistances

For more click on FXBUZ

Synopsis:

ING discusses the implications of a potentially weaker Chinese renminbi (CNY) on the broader currency markets, noting that recent movements suggest an increased likelihood of PBoC flexibility in currency management. This change could further strengthen the already bullish tone for the USD, impacting various global currencies, especially those in Asia and other emerging markets.

Key Points:

• Impact on Asian Currencies: The strength of the USD is already affecting Asian currencies, with notable declines in the Indonesian rupiah, Korean won, and Japanese yen. The stability of the renminbi up to now has inadvertently caused its trade-weighted value to surge, highlighting its relative strength amid regional currency weakness.

• Renminbi Stability and Market Sensitivity: Despite low inflation and weak export growth in China, the renminbi has remained relatively stable. However, recent PBoC actions, including fixings that hint at a willingness to allow some depreciation, have heightened market sensitivity to daily USD/CNY settings.

• March 22 PBoC Experiment: An experiment with a fixing above 7.10 led to significant losses for both onshore and offshore renminbi, suggesting market apprehension towards renminbi depreciation. The recent fixing at 7.1028 indicates a possible shift towards allowing greater currency flexibility.

• Global Dollar Impact: A strategy by the PBoC to permit a weaker renminbi could enhance the USD's strength globally, particularly affecting currencies with high correlations to the CNH, such as the Australian and New Zealand dollars in the G10, and the South African rand in emerging markets.

Conclusion:

The possibility of the PBoC easing its stance on the renminbi's strength poses significant implications for currency markets worldwide, potentially reinforcing a bullish outlook for the USD. This scenario warrants close monitoring by investors, as shifts in China’s currency policy could influence global trade and currency valuations extensively, affecting both emerging markets and major economies.

• NZD/USD continues to grind higher in wake of NZ CPI release nL2N3GP3HG

• NZ yields higher as market prices out chance of an August rate cut

• NZD/USD up 0.40% and approaching Monday's 0.5906 high

• Resistance is at former support around 0.5940 where sellers tipped

• NZD/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment

• Only a break above the 10-day MA at 0.5971 would suggest bottom is forming

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• +0.05% in early Asia after closing -0.15% with the USD and UST yields firmer

• Bank of England's Bailey sees strong evidence of falling UK inflation

• BOEWATCH prices 26pts of rate cuts in September- today's CPI will be pivotal

• Charts; 5, 10 & 21 day moving averages fall with the 21-day Bollinger bands

• Daily momentum studies slip - daily charts show a strong bearish bias

• Move targets 1.2368, 0.618% Oct-March rise then the 1.2045 Oct 23 base

• 1.2471 London top and Monday's 1.2498 high are initial resistance

  For more click on FXBUZ

• Steady after closing -0.05%, with the USD +0.1%, as UST yields climbed

• Fed's Powell rates higher for longer - ECBs Lagarde remains dovish

• Markets not so sure, 10yr bund up 5bp to 2.486%, 10yr UST +3bp to 4.657%

• ECB Chair Lagarde speaks tonight as do the Fed's Mester and Bowman

• Charts - daily momentum studies fall, 21-day Bollinger bands expand

• 5, 10, and 21-day moving averages fall - the daily charts remain bearish

• 1.0647 5-day moving average then 1.0653 European high are first resistance

• 1.0601 New York and 2024 low then 1.0594, .786 of the Oct-Dec rise support

• 1.0605/10 895mln and 1.0630/35 1.765BLN close strikes for April 17th

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