Synopsis:

Bank of America maintains its prediction for the first rate cut by the Federal Reserve in December 2024, despite a slight softening in the April Consumer Price Index (CPI). The April CPI showed improvements but not enough to significantly shift the Fed's cautious stance on inflation.

Key Points:

• April CPI Details: The headline CPI rose by 0.3% month-over-month, slightly below expectations, with the year-over-year rate decreasing to 3.4%. Core CPI increased by 0.3% month-over-month, resulting in a year-over-year rate of 3.6%.
• Core Goods and Services: Core goods prices fell, led by declines in new and used car prices, while core services, particularly rents, remained high but showed signs of slight moderation.
• Long-term Inflation Outlook: Despite the positive report, inflation levels remain above the Fed's 2% target. The expected core PCE inflation rate is projected at 0.23% month-over-month for April, indicating a gradual decline but still elevated.

Conclusion:

Bank of America concludes that while the April CPI report marks a step in the right direction, it's not substantial enough to alter the Federal Reserve's current approach significantly. Continued high levels of core inflation, particularly in services, support a cautious outlook, leading to the retention of a December timeline for the initial rate cut.

EUR/USD turned lower Thursday after striking a fresh 2-month high as U.S. data indicated stubborn inflation may still influence the Fed to hold rates higher for longer, leaving the euro facing a growing risk of downward correction.

In the slew of U.S. data released Thursday, investors focused on April import prices, which increased by the most in two years -- at +0.9% versus the +0.3% forecast and the downwardly revised March result of +0.4%.

The price increases drove yields US2YT=RRUS10YT=RR upward, which helped increase the dollar's yield advantage over the euro as spreads US2DE2=RR widened after hitting their tightest since early April on Wednesday.

The data increased investors' doubts the Fed will be able to cut the 50bps expected in 2024.

EUR/USD erased nearly half of Wednesday's CPI and retail sales data induced gains, which allowed some short-term bearish tech signals to emerge.

Daily RSI diverged on the new high and a daily inverted hammer candle formed.
Both signals suggest the possibility for a correction in EUR/USD's rally off April's low is growing.

Monthly technical signals still lean bullish, however, which may give longer-term EUR/USD bulls some comfort.

For more click on FXBUZ

Synopsis:

Société Générale highlights the ongoing struggle by Japanese authorities to combat excessive weakness in the yen, despite recent interventions and market fluctuations influenced by US economic data. The commentary underscores the speculative pressure on the JPY and the potential need for continued intervention.

Key Points:

• US CPI Data Reaction: Recent US CPI data has led to volatile and non-trending market conditions, which pose challenges in interpreting short-term data impacts accurately.
• JPY Performance: Among G10 currencies, the yen, along with the Canadian dollar, has underperformed against the US dollar since early April. This underperformance is despite the Bank of Japan's intervention efforts and a recent dip in US yields.
• Market Speculation: The speculative community remains heavily positioned against the JPY, indicating that the recent corrective actions by Japanese authorities have not fully deterred bets on further yen weakness.

Conclusion:

SocGen warns that the fight against the yen's depreciation is far from over, with potential for ongoing volatility and the necessity for additional interventions by the Ministry of Finance and the Bank of Japan. Investors should be cautious, as the environment suggests that despite interventions, significant challenges remain in stabilizing the JPY, particularly if US yields continue to fluctuate widely.

Synopsis:

MUFG maintains a positive outlook on EUR/USD, bolstered by recent U.S. inflation data which supports the possibility of Federal Reserve rate cuts later this year. The bank continues to advocate a long position in EUR/USD, anticipating further gains towards 1.1050.

Key Points:

• US CPI and PPI Reports: April's CPI and PPI data align with expectations for a moderated increase in April's core PCE deflator, indicating a potential easing of inflation pressures. This development is seen as favorable for the Fed, which has been grappling with higher inflation rates.
• Fed Rate Cut Expectations: The US rate market has adjusted its expectations, fully pricing in two Fed rate cuts by year-end, a shift that supports a weaker USD.
• Technical Breakout: EUR/USD has recently surpassed the 200-day moving average at around 1.0790, reinforcing the bullish momentum and setting the stage for a potential test of year-to-date highs above the 1.1000-level.

Conclusion:

MUFG's strategy reflects a strong conviction in the EUR/USD's upward trajectory, driven by softening inflation dynamics in the US and the anticipated policy response from the Fed. 

Foreign exchange traders can use a simple option strategy to insure against a potential bigger EUR/USD rise in coming sessions.

EUR/USD saw a big jump on Wednesday after data showed a slowdown in U.S. inflation, as the U.S. dollar slumped.
It broke and closed above the daily cloud, that currently spans the 1.0816-1.0838 region, a very bullish development.
EUR/USD looks set for bigger gains to break above the 1.0934 Fibo, a 61.8% retrace of the 1.1139 to 1.0602 (EBS) drop.
Fourteen-day momentum is positive, reinforcing the overall upside bias.

For those FX traders who want to insure against a bigger EUR/USD rise can buy a one-week 1.0880 EUR call option at a cost of 30 pips, priced with spot at 1.0872.
Profit potential is unlimited if spot is above the 1.0910 breakeven point at the May 23 expiry, while losses are limited to the premium paid.

For more click on FXBUZ

• EUR/USD has played out a tight 1.0866-95 range so far Thurs

• Improved risk sentiment and a lack of tier-one Eurozone data cited

• A new trend high but this after an acceleration higher Wed

• A strong push above the daily cloud should bolster the bull run

• However, sometimes price can move sharply just before a direction change

• Risk of a return to the 100-day moving average, currently 1.0822

• Beware the big option related EUR/USD hedge flows nL1N3HJ0GN

• Huge EUR/USD strikes expire at 10-am New York on Thursday nL1N3HJ0CL

• 1.0845-50 (2.2BLN), 1.0875 (1.7BLN), 1.0900 (1.6BLN), 1.0915-20 (1.9BLN)

  For more click on FXBUZ

• Event risk priced out of EUR/USD options post CPI - implied volatility hit

• 1-week implied volatility from 6.5 to 5.0, now 5.35 (2024 range 8.75/4.0)

• 3-June expiry 1.0935 strike sold 4.9 vol - premium/break-even 25 USD pips

• 1-month expiry implied vol 6.1 to 5.5 post CPI (2024 range 7.5-4.9)

• June 12 US CPI and Fed policy announcement may limit deeper 1-month decline

• 1-month expiry risk reversals downside vs upside strike premium at l-t low

• Falling implied volatility typical in lower realised volatility regime

• Huge expiries may help contain EUR/USD, at least short term nL1N3HJ0GN

For more click on FXBUZ

• EUR/USD on Wednesday broke and remained above the daily cloud, very bullish

• The Ichimoku cloud currently spans the 1.0816-1.0838 region

• The scope is growing for much bigger gains to retest the key 1.0934 Fibo

• 1.0934 Fibo is a 61.8% retrace of the 1.1139 to 1.0602 (EBS) drop

• Fourteen-day momentum is positive, reinforcing the overall upside bias

• Only a daily close back under the cloud would be negative

• EUR/USD Trader TGM2334. Previous update nL1N3HI0HN

• Forward looking FX option trade flow can prove indicative for direction

• Not an exact science, but can certainly indicate a shift in risk sentiment

• Until last week those trades were covering the risk of a return to 160.00

• However, before Wed's U.S. CPI, there was more interest to buy sub 155.00

• Since U.S. CPI traders have been covering the risk of more USD/JPY losses

• Demand for sub 2-week expiry strikes in 152.00 region more notable Thursday

• There was also interest to buy strikes in upper 140's over next few months

For more click on FXBUZ

• Cable met headwind at 1.2700 in Asia after extending north from 1.2520

• 1.2700 is high since April 10. 1.2520 was low following US PPI data Tuesday

• Rise to 1.27 aided by equity gains on softer US data (GBP is risk-sensitive)

• Scope for 1.27 break if US jobless claims above 220k forecast at 1230 GMT

• 1.2671 (initial high on US retail sales miss) is now a support point

• MPC hawk Greene to speak at 1100 GMT. Greene opposed to summer BoE rate cut

• Five straight bull sessions for the pound

• An acceleration Wed could be the precursor to a direction change

• Daily RSI has turned over from the 65 level

• Early Thurs pullback from 1.2700. Daily cloud top is at 1.2703

• Taken a counter-trend short at 1.2684 for 1.2530 with a tight 1.2730 stop

• A close above the cloud negates the corrective risk

  For more click on FXBUZ

• Steady in a 1.0880-1.0895 range, recording a fresh trend high

• Treasury yields continued to fall in Asia - 10yr UST down 4bp to 4.316%

• Risk 'on' - commodities are firmer, regional stocks and E-minis climb

• No tier-one Eurozone data today - yield spreads and the USD to lead EUR/USD

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

• 21-day Bollinger bands expand - daily charts maintain the positive setup

• Targets 1.0898 0.786% of the March/April fall, then the 1.0980 March high

• New York's 1.0822 low, then the 1.0797 10 DMA are initial supports

• 1.0875 1.673 BLN and 1.0900 1.566 BLN close major strikes for May 16th

For more click on FXBUZ

Synopsis:

Goldman Sachs explores the impact of artificial intelligence (AI) and data centers on U.S. power demand. As investors consider the potential implications of AI advancements for the next decade, the analysis offers insights into regional effects and overall energy consumption trends in the United States.

Key Points:

• Growth in Power Demand: AI and data centers are indeed contributing to an increase in U.S. power demand, particularly noticeable in technology-heavy regions such as Virginia. This marks a significant shift following two decades of relatively stagnant demand.
• Quantitative Impact: Despite noticeable regional growth, the overall increase in power demand at the national level remains modest. From 2023 to 2030, total U.S. power demand is projected to grow from 470 GW to 567 GW, with data centers expected to triple their power demand from 15 GW to 45 GW, contributing approximately 30 GW.
• Infrastructure Challenges: Potential power transmission bottlenecks pose a significant risk to the continued growth of data centers. Similar challenges have previously hindered data center expansion in Virginia during 2022-2023, as noted by Dominion Energy.

Conclusion:

While AI and data centers are poised to drive future power demand growth in the U.S., infrastructure limitations could curb this potential. Addressing transmission bottlenecks will be crucial to sustaining the growth trajectory as data center demand expands. This dynamic underscores the need for strategic planning in energy infrastructure to accommodate emerging technologies.

• AUD/USD down 0.1%, slides from 0.6714 day high to 0.66815 after jobs data

• Australian jobless rate rises to 4.1% in April vs. 3.9% expected

• Net employment rose 38,500 in April from March, vs. 23,700 expected

• Taken as a sign that the labour market is loosening gradually

• AU 10-year yield falls 5 bps as RBA easing hopes revive

• Downside limited, strong support at 0.6665-70 and 0.6645-50

• For more click on FXBUZ

• AUD/USD up 0.2% Thu, rallies above 0.6700 to 4-mth high as USD stays offered

• Boosted by risk rally, lower U.S. yields and rising commodity prices

• U.S. 10-yr yield drops to 1 month-low on soft retail sales, benign inflation

• Traders now pricing in 52 bps of Fed rate cuts this year with 1st cut in Sep

• RBA rate expectations diverge from those of other c.banks, fuel AUD advance

• No quick fix for Australia's housing shortage, warns RBA Asst.Governor Hunt

• Says upward pressure on rents, prices, will remain until there is new supply

• RBA likely to stay higher-for-longer on rates; AU employment data awaited

• Resistance 0.6731-51, Jan 24th high and the 76.4% of the Dec-April drop

• Support 0.6665-70, 0.6645-50; Asia range 0.6696-0.6710

• For more click on FXBUZ

• Trades +0.05% early after closing up 0.6% with the USD off 0.7%

• Risk 'on' after benign US data, as Fed rate cut expectations increased

• A surprise - spreads widened, 10yr bund -12bp 2.423%, 10yr UST -10bp 4.356%

• Soft US data provided the fuel to increase ECB rate cut expectations

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

• 21-day Bollinger bands expand - daily charts maintain the positive setup

• Targets 1.0897 0.786% of the March/April fall, then 1.0980 March high

• New York's 1.0822 low, then the 1.0797 10 DMA are initial supports

• 1.0875 1.673 BLN and 1.0900 1.566 BLN close major strikes for May 16th

  For more click on FXBUZ

• AUD/USD poised for further gains after closing 0.95% higher on Wednesday

• Boosted by weak U.S. data which fuels Fed rate cut expectations

• U.S. consumer inflation resumes downward trend as domestic demand cools

• Risk rally, lower U.S. yields and rising commodity prices fuel AUD rally

• Bloomberg Commodity Spot Index rises to highest reading since 2023

• RBA rate expectations diverge from those of other c.banks, supporting AUD

• AU jobs data due; 23.7k jobs expected, unemployment rate to nudge up to 3.9%

• RBA Assistant Governor Sarah Hunter speaks on housing market cycles

• Resistance 0.6731-51, Jan 24th high and the 76.4% of the Dec-April drop

• Support 0.6665-70, 0.6645-50; Wednesday global range 0.66215-0.66945

• For more click on FXBUZ

The dollar index fell 0.67%, led by USD/JPY's 1% loss, after much weaker-than-forecast U.S. retail sales and a sigh of relief that the CPI monthly increase backed off a shade more than expected, sending Treasury yields sharply lower, though not below crucial supports.

A rebound in Treasury yields -- and the dollar -- off key yield support from the April 10 low before that day's hot CPI roiled markets, was rebuffed by an unexpected dive in the May NAHB index.

Dollar selling then resumed, driving EUR/USD further beyond key 61.8% Fibo and daily cloud top resistance at 1.0835-7 and above the April 10s pre-hot U.S. CPI 1.08665 high and almost to April's 1.0885 peak the day before.
That as Fed rate cut probabilities increased.

The U.S. macro focus will now shift back to how quickly the labor market is cooling.
Thursday's initial jobless claims is forecast to fall back to 220k from last week's surprise rise to 231k, its highest since August.
This comes after well below forecast non-farm payrolls and a renewed downtrend in still high job openings, as well as dismal ISM data.

In a role reversal, the yen was the strongest major currency on Wednesday due to relatively steady JGB yields as 25bp of BoJ rate hikes priced in by year-end contrasted with tumbling yields elsewhere.

USD/JPY's slide has prices down by last Wednesday's 154.60 lows and comes after a failed attempt to retrace 61.8% of the 160.245-151.86 plunge on suspected interventions at 157.04.

Two- and 10-year Treasury-JGB yields spreads have bearishly fallen 37bp and 41.6bp from their April 30 peaks, adding to headwinds for spec longs still working off April's second-largest ever net long position.

Sterling rose 0.7%, getting well above the 50- and 100-day moving averages and almost to April's twin 1.2709 highs.
The rise was aided by better risk acceptance as Wednesday's U.S. data saw two Fed rate cuts by December fully priced, and not dissimilar to the 59bp of BoE rate cuts currently expected.

Aussie rose 0.97%, finally clearing repeated highs in the 0.6644-67 range in March, April and May, as the risk proxy also got a boost from higher commodity prices.

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday reiterated his high-for-longer rates view, as did Kansas City Federal Reserve Bank President Jeffrey Schmid and Federal Chair Jerome Powell on Tuesday.
As usual, more inflation, labor and demand data is eagerly awaited, though the U.S. calendar is pretty thin until late in the month.

For more click on FXBUZ

Synopsis:

Credit Agricole analyzes the impact of the Australian Labor Party's stimulatory budget, highlighting its potential to complicate the Reserve Bank of Australia's (RBA) efforts to control inflation. The budget, which is projected to lead to deficits in the coming years, is seen as particularly challenging for monetary policy due to its stimulative nature and timing before the 2025 elections.

Key Points:

• Budget Overview: Despite achieving a surplus of AUD9.3 billion for the year ending June 2024, the Australian government has forecasted continued deficits in subsequent years, with significant spending increases planned.
• Impact on Inflation: The government's budget includes measures such as electricity subsidies and rent assistance, which, while temporarily reducing headline inflation, are expected to increase core inflation by boosting demand.
• RBA's Forecast vs. Government's Projection: The RBA's recent forecast of 3.8% YoY headline inflation contrasts with the government’s more optimistic projection of a decline to 2.75% YoY by the end of 2024, factoring in cost of living relief measures.

Conclusion:

This budget poses a significant test for the RBA's credibility in managing inflation expectations and monetary policy. If the RBA cannot effectively navigate through the temporary impacts on headline inflation and address underlying pressures, there could be implications for the Australian dollar's strength and long-term interest rates. A failure to maintain monetary policy credibility could result in a structurally weaker AUD and steeper yield curve.

• USD/JPY fell more than 1% on Tsy yld drop after soft US retail sales and CPI

• Watching pivotal 2-yr and 10-yr Tsy yld supports by 4.71% and 4.34%

• With JGB ylds trending up due to BoJ's 25bp of expected 2024 rate hikes

• Versus at least 50bp of Fed rate cuts, Tsy-JGB ylds spreads tumbled in May

• Prices now nearing 30-DMA and tenkan support at 154.54/33

• Immediate macro focus is Thur's expected pullback in initial jobless claims

• If claims don't pullback or they increase, USD/JPY bulls might bail out

• The 10-WMA at 153.33 that held the last two weeks' lows is key support

• IMM specs still working off April's 2nd-highest ever net spec USD/JPY long

• Never mind possible intervention capping prices by 1990's 160.35 high

• Strong US data, Tsy ylds rebound & close above 61.8% at 157.04 key for longs

For more click on FXBUZ

• NY opened near 1.0825 after 1.08135 hit on EBS overnight, rally extended

• US CPI, sales reports indicated cooler inflation, consumer demand softens

• Yields US2YT=RR, US$ fell as data gave Fed some good news on inflation

• Risk assets gains; stocks ESv1, gold XAU= gained & USD/CNH dropped

• EUR/USD rallied above the daily cloud top, traded 1.08805 on EBS

• Pair struck a 2-month high and traded up +0.53% late in the day

• Techs lean bullish; RSIs are rising, pair above daily cloud & daily MAs

• US April housing starts & IP, May Philly Fed & weekly claims due Thursday

• For more click on FXBUZ

• GBP$ near session highs into NY cls, +0.65% at 1.2672; NY range 1.2680-03

• Soft U.S. CPI, RS lifts Fed rate cut odds; IRPR shows Sept cut priced in

• Sterling boosted after soft US CPI data lifts dovish Fed expectations

• UK CPI May 22 in focus, a further dip in inflation may stall GBP gains

• Pair rises into daily cloud (1.2706-1.2661), eyes upper 30-d Bolli 1.685

• Abv 1.2685 bulls target daily cloud top at 1.2706 and 1.2709 Apr 9/10 highs

• Supt at daily cloud base 1.2661, 1.2633 100-DMA, 1.2588 55-HMA

Synopsis:

HSBC highlights that recent rhetoric from the European Central Bank (ECB) points strongly towards a rate cut in June, as corroborated by improved economic data from the Eurozone. The latest GDP figures confirm an exit from economic stagnation, supporting the potential for policy easing.

Key Points:

• Eurozone Economic Data: The Q1 GDP for the Eurozone remained steady at +0.3% QoQ, a positive shift from the minimal growth observed over the previous five quarters. March industrial production also exceeded expectations, despite weak performances from major economies, bolstered by an unusually strong output from Ireland.
• ECB Rhetoric: Both ECB members, Muller and Villeroy, have indicated that a rate cut in June is highly likely, with the market currently pricing in a cut of approximately 24 basis points. Villeroy emphasized that the pace of subsequent cuts would be determined on a meeting-by-meeting basis.
• Market Expectations: Following the anticipated June cut, the likelihood of an additional cut in July is presently viewed as low, with only a 20% probability priced into the market.

Conclusion:

The alignment of supportive economic data with clear signals from ECB officials suggests that the Eurozone is poised for a rate cut in June. This anticipated monetary easing reflects the ECB's response to sustained economic improvement and may set the stage for further adjustments depending on the evolving economic landscape.

• NY opened near 0.6640 after 0.66215 traded overnight, rally extended

• US CPI, sales reports indicted inflation, consumers may be cooling

• Yields US2YT=RR, US$ fell sharply as data may have Fed lean dovish

• USD/CNH fell to 7.2051 (D3), equities ESv1, gold XAU= rallied sharply

• AUD/USD traded to 0.66945, a 4-month high, traded up +0.95% late in the day

• Techs are bullish; RSIs rising, rally follows April's monthly doji

• Australian April jobs report, US weekly claims may impact risk Thursday

• For more click on FXBUZ