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.

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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

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• 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

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• 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

Synopsis:

Bank of America's May Global Fund Manager Survey reveals a surge in bullish sentiment, the highest since November 2021, driven by expectations of imminent rate cuts and resilient economic outlooks. However, vulnerabilities remain due to potential stagflationary pressures.

Key Points:

• Economic Optimism: Majority of fund managers anticipate rate cuts in the second half of the year, with a prevailing belief in avoiding a recession. Cash levels have dropped to a three-year low at 4.0%, and stock allocations are at their highest since January 2022.
• Macro and Policy Expectations: There is a notable shift in expectations with a decrease in global GDP and earnings predictions since September 2023, amidst growing pessimism about the US economy. Yet, 78% dismiss the likelihood of a recession, favoring a "soft landing" scenario.
• Crowded Trades and Risks: The survey identifies "long Magnificent 7" as the most crowded trade, followed by "long US dollar" and "short China equities." The primary concern for investors is higher inflation, seen as the top tail risk, followed by geopolitical tensions and economic downturn risks.

Conclusion:

While the current sentiment among global fund managers is markedly bullish, reflecting strong expectations for policy easing, there remains a cautious outlook towards potential economic challenges. The anticipation of lower bond yields and multiple Fed rate cuts within the next year underscores a complex investment landscape where inflation and government policy responses will play critical roles.

• Sterling set for a fourth straight day of gains

• A new rally high at 1.2671 but gains prove fleeting

• Pullback to the 1.2740s looks corrective

• A climb above 1.2700 on the cards while above 1.2585 session low

• Close above previous significant high, 1.2634, to strengthen the bull run

• Upside target provided by Apr. 9-10 1.2709 double day high

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Synopsis:

MUFG analyzes the recent U.S. decision to implement tariffs on Chinese imports, including electric vehicles (EVs), steel, and aluminum, examining the implications for U.S.-China relations and the potential effects on the USD.

Key Points:

• Tariff Implementation: The U.S. government has initiated tariffs on select Chinese imports, aiming to preempt a potential surge in EV imports from China. This move is stated to be precautionary rather than political.
• China's Reaction: China has criticized the new tariffs, urging the U.S. to rescind them and threatening to take strong measures to protect its interests.
• Political Responses: Former President Trump criticized the measures as insufficient, hinting that more aggressive trade policies could be expected if he were re-elected.
• Economic and Policy Implications: The tariffs are part of a broader strategy by the Biden administration to manage inflationary pressures ahead of the presidential election.

Conclusion:

The introduction of new tariffs on Chinese goods marks a significant development in U.S. trade policy, potentially influencing U.S.-China economic relations and impacting global trade dynamics. For the USD, the immediate effect might be bullish, especially if trade tensions escalate. However, the longer-term impact on the USD will depend on the broader economic context, including domestic policies and the actions of the Federal Reserve. As the presidential election approaches, the political landscape could further shape these dynamics, with potential policy shifts depending on the election outcome.

Synopsis:

CIBC provides a comprehensive analysis of the latest US CPI and retail sales data for April, indicating a shift towards more moderate inflation and consumer spending patterns, which could influence Federal Reserve policy decisions.

Key Points:

• Inflation Trends: April's Core CPI increased by 0.3% month-on-month, aligning with consensus expectations and showing a slight decrease from previous months. Headline inflation also matched projections at 0.3%, indicating a stabilization in price pressures.
• Services and Goods Prices: Services inflation slightly cooled, especially in transportation, while core goods prices saw a minor decline of 0.1%.
• Retail Sales Data: Retail sales were unexpectedly flat in April, with a notable contraction in the control group that feeds into GDP calculations. This suggests a cautious start to Q2 consumer spending.
• Economic Outlook: Despite the slowdown in April, the residual strength from Q1 and ongoing services demand are expected to maintain a steady economic growth rate.

Conclusion:

Today’s CPI and retail sales data should provide some comfort to the Federal Reserve, showing signs of easing inflationary pressures and a tempering of consumer spending. This could support the Fed's current cautious approach to monetary policy as it seeks additional data to confirm these trends.

• AUD/USD dipped down to 0.66215, buyers emerged, rally ensued, 0.6651 hit

• Pair probed 0.6650/70 zone where some daily highs, March monthly high sit

• Softer US yields US2YT=RR, US10YT=RR, US$ helped drive the rally

• USD/CNH, equity ESv1 & commodity HGv1XAU= gains helped buoy AUD/USD

• Techs are bullish; RSIs rising, pair above many DMAs, consolidation persists

• Rally above 0.6650/70 may squeeze shorts, bring 0.6840/70 into focus

• US April CPI, retail sales & their impact on Fed policy are key risks today

• Remarks from Fed's Kashkari, Bowman also may impact risk Wednesday

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• EUR/USD has edged higher as USD weakens and risk improves this week

• 1.08135-1.08345 EBS range so far Wednesday, faces tech hurdles

• Close above 100-dma 1.0823 and daily cloud top 1.0838 to help bulls

• Would open April 9 peak 1.0885. In-Line or CPI miss could be catalyst

• FX options have been covering risk of further s-term EUR/USD gains

• FX options flag extent of post CPI volatility FX risk potential

• Beware huge option strikes expiries between 1.0750 and 1.0900 post CPI

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• AUD/USD +0.3%, retests recent highs ahead of the pivotal U.S. CPI

• Resistance at 0.6650 remains a key barrier to further upside

• Softer U.S. CPI than f/c likely takes AUD back above 0.67

• Clear bias to sell USD as mixed PPI sees USD head lower nL1N3HH1CU

• Lower U.S. yields also act as a drag on USD, 10yr at monthly lows of 4.42%

• View of the Week–Dollar outlook contingent on U.S. CPI nL1N3HG1Q8

• Support: 200-HMA (0.6605) has defined the recovery in the pair

• Event risk ahead = U.S. CPI and retail sales

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• More FX option traders are buying EUR call strikes over recent sessions

• EUR calls/USD puts give holders the right to buy EUR/USD at expiry

• Strikes are mostly between 1.0800-1.0900 and expiries sub 2-week

• 2-week 1.0850 recently paid 5.8 implied volatility on huge 450-million euros

• 13 Day 1.0900 EUR calls also paid early Wednesday at similar vol level

• A weak U.S. CPI print on Wednesday could give EUR/USD a further boost higher

• FX options have significantly increased FX volatility risk premiums for CPI

• Many large FX option strike expiries reside nearby

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• EUR/USD looks set to break above the cloud, that spans 1.0829-38 the region

• If there is a close above the cloud top, that would likely lead to big gains

• 14-day momentum remains positive, highlighting EUR/USD's upside bias

• Note, however, FX traders have space to take the dollar higher nL1N3HF0F8

• EUR/USD Trader TGM2334. Previous update nL1N3HH0N3

• Cable climbs to 1.2600, as global equity gains lift risk-sensitive pound

• 1.2600 is highest level since May 3 (1.2634 was high that day, on NFP miss)

• US April CPI data due 1230 GMT; 0.4%, 3.4% YY f/c. Core f/c 0.3% MM, 3.6% YY

• Cooler than expected US CPI data might spur further GBP/USD gains

• 1.2568 (Monday's high) is now a support point. 1.2510 was Tuesday's low

• May 22 is deadline for BHP to raise its $43 bln offer for Ldn-listed Anglo

• Four-day bull run extends into a 1.2592 Tues close

• A further nudge higher to 1.2599 early Wed

• Hammer style candles highlight strong demand into the May 9 and 14 closes

• May 3 1.2634 bull target high now joined by the 100DMA at 1.2632

• Daily cloud base behind at 1.2661

• Falling daily cloud warns of building resistance

• Converged 200 and 10DMAs provide support at 1.2544

  For more click on FXBUZ

• AUD/USD moves higher in Asia after opening at 0.6625; range 0.66215-0.6651

• Takes slower than expected Australia Q1 wage growth in stride

• Boosted by risk rally and soft U.S. yields; focus turns to U.S. CPI Wed

• Supported as RBA rate expectations diverge from those of other c.banks

• Carry trade demand persists; AUD/JPY heads for 104.88, 10-year high in April

• Break of 0.6650 opens test of 0.6667-77, Mar high and 0.618% of Dec-Apr drop

• Support 0.6610-15, 0.6580-85

• For more click on FXBUZ

Synopsis: Danske Bank presents its forecast for the upcoming US Consumer Price Index (CPI) for April, highlighting potential nuances in the inflation data that could significantly influence market behavior and Federal Reserve policy expectations.

Key Points:

• April CPI Forecast: Danske expects a +0.4% month-on-month seasonally adjusted increase in headline CPI and a +0.3% increase in core CPI, aligning closely with market consensus.
• Impact of Core CPI Components: The report underscores the importance of details within the core CPI, particularly non-housing services inflation, which previously drove a notable market reaction similar to conditions seen in June 2022.
• Fed Policy Expectations: Based on the CPI outcome, Danske anticipates the Federal Reserve may proceed with two rate cuts this year, with prevailing risks suggesting a downward adjustment in short-term US rate pricing.

Conclusion: Danske Bank advises careful monitoring of the inflation data's details, particularly the non-housing services segment, which could trigger significant reactions in financial markets.

• AUD/USD +0.2% in Asia as USD stays on defensive on Powell inflation optimism

• Boosted by risk rally and lower U.S. yields; focus turns to U.S. CPI Wed

• Australia Q1 wage growth slows, soothes inflation worries, taken in stride

• Higher-for-longer RBA, carry trade demand, metals rally support

• AUD/JPY overcomes 103.73 resistance,76.4% of 104.88-100.01 Apr 29-May 1 fall

• Retest of 104.88, 10-year high likely; AUD/USD Wed range 0.6621-0.6641

• AUD resistance 0.6645-50, 0.6667-77, support 0.6600-05, 0.6580-85

• For more click on FXBUZ

• AUD/USD hovers near 0.6630 resistance, awaits AU Q1 wage price index

• A year-on-year rise of 4.2% and quarter-on-quarter rise of 0.9% expected

• Likely to have a bearing on inflation expectations and RBA policy

• Higher-for-longer RBA, risk rally, elevated metals prices underpin AUD

• AUD/JPY tests 103.73 resistance, 76.4% of 104.88-100.01 Apr 29-May 1 fall

• Break opens retest of 104.88, 10-year high as carry trade demand persists

• AUD resistance 0.6630, 0.6650, 0.6667-77, support 0.6600-05, 0.6580-85

• For more click on FXBUZ

• Trades 0ff 0.03% after closing up 0.27% with the USD off 0.2%

• Tuesday's mixed jobs report, but BoE's Pill - summer rate cut is possible

• BOEWATCH - 24.39 pt Aug cut from 23.54pt at Friday's close, little changed

• There is no major UK data so risk appetite and the USD to lead into US CPI

• Charts; A bullish outside day, 5, 10 & 21-day moving averages climb

• 21-day Bollinger bands expand, daily momentum studies rise - a positive bias

• Resistance starts at the 1.2617 upper 21-day Bolli then the 1.2634 May high

• A close below the 1.2446 May low would end the topside bias

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• Trades -0.05% early after closing up 0.25% with the USD off 0.2%

• Tighter yield spreads supported, 10yr bund +4bp 2.540%, 10yr UST -3bp 4.445%

• German investor morale at a 2yr high, but German 2024 growth forecast cut

• Today's U.S. CPI will be pivotal for US rate expectations and likely the USD

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

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

• 1.0831 upper 21-day Bolli and 1.0834 0.618% of the Mar/Apr fall likely cap

• Friday's 1.0760 low, then the 1.0724 double-bottom are initial supports

• 1.0795/00 1.241 BLN and 1.0820/25 1.657 BLN close major strikes for May 15th

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