• Dollar recovers from PMI slump, yen closes in on 155 per dollar nL2N3GX0FU

• USD/JPY has seen a 154.73-98 range, on Wednesday, according to EBS data

• Fundamental and technical factors are pressuring Japan nL2N3GX0QL

• Rate differential between the Fed and BOJ USD/JPY's bias on the upside

• Daily chart points to bigger USD/JPY gains in coming sessions nL2N3GX0IT

• Ochi: Yen's slide toward 160 level could trigger action nL3N3GX0ID

• USD/JPY and EUR/JPY pairs maintain a strong 60-day positive correlation

April 24 (Reuters) - USD/JPY bulls hoping for Japan's second USD/JPY line in the sand at 155 to be washed away, like the first at 152, have been heartened by relatively dovish comments from Takao Ochi.

Senior LDP offical Ochi told Reuters on Tuesday that "if the yen slides further toward 160 or 170 to the dollar, that may be deemed excessive and could prompt policymakers to consider some action".

Ochi also said that "general thinking within the LDP appears that rather than rushing to reverse the yen's declines, we would need to evaluate the impact of the weakness carefully".

USD/JPY, which was last at 160 in 1990 and last at 170 in 1986, notched a new 34-year EBS high two pips shy of 155 on Wednesday.

CFTC data on FX positioning due Friday will show if the net JPY short rose for a sixth consecutive week to a new 17-year high in the week ended Tuesday.

Related comment: nL2N3GW0QL

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• EUR/USD last week failed under 1.0611 Fibo, leading to a subsequent recovery

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

• Despite that failure, negative 14-day momentum shows the mkt remains bearish

• The negative alignment of the tenkan and kijun lines also points to a drop

• EUR/USD Trader TGM2334. Offer at 1.0725. Previous update nL2N3GW0FC

• Expectations for a deeper sell-off built, pair rallied

• Last week's 1.0601 low fell shy of key fibo at 1.0596

• Drop stretched below base 20-day Bollingers ahead bounce

• Subsequent rise to 1.0714 EBS on Apr 24 approaching neutral ground

• Target for minor correction of drop from April high has been achieved

• Rally heightens chance that daily cloud twist around 1.0840 attracts

• A bearish market will more likely seek opportunities to sell

• EUR/USD is paradise for counter-traders nL2N3GV143

• Monday hammer candle (bullish) into strong Tuesday confirmation

• Our long play just on-side and stop raised

• Sticky price action early Wednesday and risk of pullbacks

• Fibo levels taken off 1.2893-1.2299 drop are at 1.2526 and 1.2596

• Fourteen day momentum still reflecting recent sharp losses

• Daily RSI showing signs of bearish divergence

• Will hold long for now but today's close now key

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• Up 0.1% in a 1.2448-1.2464 range with plenty of interest on D3

• UK pay settlements edged lower in the first quarter but rose in April

• Wage settlements in April average 5% - will make the BoE cautious on cuts

• CBI Industrial order expectations lead the UK data schedule - RTRS poll -16

• Charts; 10 & 21-day moving averages fall, 21-day Bollinger bands track lower

• Daily momentum studies base or rise - charts retain a net bearish bias

• A close above 1.2526 38.2% Mar/Apr fall and 1.2533 21 DMA would be bullish

• This week's 1.2299 low and Friday's 1.2467 top are first support/resistance

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• EUR/USD opened +0.45% at 1.0701 after USD broadly eased on softer US yields nL2N3GW2D5

• It traded in a 1.0700/14 range in Asia and is 1.0705 into the afternoon

• The close above the 10-day MA at 1.0664 suggests there is a bottom in place

• Resistance is @ 1.0740/45 where 21-day MA & 38.2 of March-Apr fall converge

• A break above 1.0750 would likely spark a short-term trend higher

• Bias is for EUR/USD to edge higher ahead of key US PCE price index Friday

• Support is now at the 10-day MA at 1.0664For more click on FXBUZ

Synopsis:

Danske Bank provides insights into the currency market, highlighting a potential undervaluation by the market of the likelihood of a Federal Reserve rate cut this summer. While such a move might temporarily bolster EUR/USD, Danske Bank remains cautious about the long-term prospects for the currency pair, citing broader economic factors that favor a strong USD.

Key Points:

• Potential Summer Fed Rate Cut: Danske Bank suggests that markets might be underestimating the possibility of a Federal Reserve rate cut during the summer. This oversight could lead to lower U.S. interest rates in the short term, providing a temporary uplift for EUR/USD.

• Limited Support for EUR/USD: Despite the potential short-term relief from a Fed rate cut, Danske Bank maintains a cautious stance on the EUR/USD pair. The bank predicts only limited support from such a move, with expectations that the pair will trend lower in the long term.

• Structural Factors Favoring the USD: Danske Bank argues that structural improvements in the U.S. economy—such as gains in productivity, labor force developments, and favorable terms of trade—will continue to support the strength of the USD over a strategic horizon. These factors are likely to exert significant influence on currency dynamics, outweighing the temporary impacts of monetary policy adjustments.

• Long-Term Outlook for EUR/USD: The long-term forecast for EUR/USD remains bearish according to Danske Bank, with strategic factors expected to keep the USD strong relative to the EUR, despite transient shifts in Fed policy.

Conclusion:

While the potential for a summer rate cut by the Federal Reserve could offer brief support to EUR/USD, Danske Bank anticipates that the effect will be limited. Long-term prospects for the currency pair continue to be influenced by structural factors that favor a robust USD.

Much higher-than-expected first-quarter Australian inflation data has sent the AUD/USD higher on Wednesday, while giving the data-dependent Reserve Bank of Australia a real headache.

A Reuters poll before the RBA's March meeting showed most economists predicting the central bank wouldstart easing between August and November.
Market pricing in late March indicated a 75% chance of a 25 basis-point rate cut as early as August and close to 50 bps of cuts by year-end.

Following Wednesday's hot Q1 CPI, the market is pricing in less than a 25% chance of a 25 bps rate cut by year-end.
The strong inflation pulse will likely spur the RBA to reinstate a hawkish bias and perhaps even sharpen its language to include the possibility of having to tighten again.

The AUD/USD traded up to 0.6525 following the CPI release, just ahead of key resistance at 0.6530, where both the 55-day and 200-day moving averages converge. A clear break above that level would clear the way for a test of the April 9 high at 0.6644.

The next key event will be the U.S. core PCE price index for March due on Friday.
If it doesn't exceed the 2.7% annual rise expected, the AUD/USD will likely test higher levels.

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• AUD/USD has broken above 0.6500 after hotter than expected Q4 Aus CPI nAZN1OO0Q5

• The rise in inflation will cause concern for the data dependent RBA

• AUD/USD touched 0.6525 before easing to 0.6515/20

• It is above the 21-day MA (0.6505) with next resistance at 0.6530

• Both the 55 and 200-day MAs converge at 0.6530

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• +0.05% - closed +0.8% as UK services and manufacturing beat expectations

• BoE Chief Economist Pill says rate cut some way off, despite recent progress

• Expect the BoE to remain data-driven on the timing of upcoming rate moves

• UK pay settlements edged lower in the first quarter but rose in April

• Wage settlements in April average 5% - will make the BoE cautious on cuts

• Charts; 10 & 21-day moving averages fall, 21-day Bollinger bands track lower

• Daily momentum studies base or rise - charts retain the bearish bias

• This week's 1.2299 low and Friday's 1.2467 top are first support/resistance

For more click on FXBUZ

• Flat, closed +0.45% as EU services PMI beat expectations, and the US missed

• Yield spreads tightened, 10yr bund +1bp, 10yr UST -3bp 4.598%

• ECB should be very cautious about post-June rate cuts - de Guindos

• Expect the ECB to be data-driven after delivering the June 25pt cut

• Charts - 10 and 21-day moving averages, plus 21-day Bollinger bands slide

• Daily momentum studies base or rise - mixed signals - downtrend has stalled

• The close above the 1.0695 prior 2024 low suggests a base may be in place

• 1.0700 2.260 BLN April 24th strikes may act as a magnet today in Asia

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• AUD/USD opens +0.62% after USD broadly eased and risk rally continued nL2N3GW25WnL2N3GW34D

• AUD/USD close above 10-day MA (0.6454) suggests bottom in place at 0.6362

• Resistance is at the 21-day MA at 0.6504 with sellers tipped ahead of 0.6500

• Key resistance is at 0.6530 where the 55 and 200-day MAs converge

• The 10-day MA at 0.6454 is now support, with bids eyed at 0.6440

• Key Aus Q1 CPI will be released today and could shape RBA expectations

• Weighted mean is expected to ease to +4.1% Y/Y from +4.4% in Q4

• A hotter than expected result could make RBA more cautions in future easing

• U.S. PCE price index follows on Thursday - to provide a comparison

• For more click on FXBUZ

Synopsis:

Credit Agricole provides insights into the implications of the upcoming Australian CPI data release on the AUD's performance and the Reserve Bank of Australia's (RBA) monetary policy outlook. The bank highlights the challenges posed by sticky services inflation and rising costs in certain sectors, which could influence the pace of inflation deceleration.

Key Points:

• CPI Data Release: The Australian CPI data scheduled for release on Wednesday is anticipated to play a significant role in shaping the AUD's performance for the week. This follows similar trends observed in New Zealand’s recent inflation data, where falling goods prices were offset by persistent services inflation.

• Inflation Trends and Expectations: While goods prices, particularly food, are expected to continue their downward trajectory, services inflation remains stubborn, particularly due to rising education, housing costs, and higher insurance premiums. These factors contribute to the complexity of reducing inflation to within the RBA’s target range of 2-3%.

• Market Consensus on Inflation Rates: Consensus forecasts suggest a decrease in headline inflation from 4.1% year-over-year (YoY) to 3.5% YoY for Q1. The RBA’s preferred measure, trimmed mean inflation, is also expected to show a decline, albeit more modest, from 4.2% YoY to 3.8% YoY.

• Implications for RBA Monetary Policy: The data is expected to solidify market expectations that the RBA will likely hold off on any rate cuts until late 2024, if at all this year. The RBA’s own forecasts for H1 2024 predict headline inflation at 3.3% and trimmed mean inflation at 3.6%, indicating a cautious approach towards easing monetary policy.

Conclusion:

As Australia prepares for a significant CPI data release, Credit Agricole underscores the challenges of managing persistent services inflation alongside declining goods prices. The upcoming inflation figures are crucial for the AUD's trajectory and could reinforce the stance that the RBA may delay rate cuts, awaiting more definitive signs of inflation aligning with its target range.

• Gold drops to $2295/oz - $136/oz below this year's record high

• Gold dropping quickly from $2417.59/oz on Friday

• Rally was extremely stretched when gold reached the record high last week

• Targets for minor corrections of Oct-Apr rise are $2284 and $2194

• Gold traders have established big bet on a rise - lots of profits to book

• Most other markets fairly placid so driver most likely profit taking

•  

• NY opened near 1.0655 after 1.06385 traded on EBS in Europe's morning

• Rally extended with help from surprises to April S&P Global PMIs

• Data indicating slowing business activity sank yields US2YT=RR, US$

• German-US yield spreads US2DE2=RR tightened, risk assets rallied

• USD/CNH slid from its high, stocks ESv1 & gold XAU= rallied

• EUR/USD rallied away from the 10-DMa, hit a 7-session high of 1.0711

• Rising daily RSI, daily bull hammer are concerns for EUR/USD shorts

• German April Ifo, Us March durable goods are data risks Wednesday

• For more click on FXBUZ

Synopsis:

Goldman Sachs analysts express skepticism about the GBP/USD's ability to break through the 1.23 level independently of significant movement in the EUR/USD. Recent positive economic data from Europe has added complexity to the currency dynamics, influencing trader expectations.

Key Points:

• Interdependence of Currency Pairs: Goldman Sachs highlights the interconnectedness between GBP/USD and EUR/USD movements. Analysts at the firm indicate that a breach of the 1.2300 level by GBP/USD is unlikely without the EUR/USD first breaking below the 1.0600 mark, suggesting a strong correlation in the movements of these major currency pairs.

• Impact of European Economic Data: The recent positive surprises in French and German composite Purchasing Managers' Index (PMI) data have provided unexpected support for the EUR/USD, complicating the downward movement through the critical 1.0600 threshold. This resilience in the EUR/USD is seen as a key factor that could prevent GBP/USD from reaching lower levels independently.

• Market Dynamics: The dynamics in the FX market show that traders are closely monitoring both currency pairs, with the performance of the EUR/USD acting as a potential bellwether for movements in GBP/USD. This interplay emphasizes the importance of broader market trends and economic indicators in shaping currency valuations.

• Traders' Sentiment: Despite some bearish sentiment surrounding the GBP due to various economic pressures, the actual market behavior, influenced by positive economic indicators from Europe, may lead traders to adjust their positions and expectations regarding significant breakthroughs in price levels.

Conclusion:

Goldman Sachs advises caution in anticipating significant movements in the GBP/USD without corresponding shifts in the EUR/USD. The recent economic data from Europe, which has bolstered the EUR against expectations, serves as a critical factor in understanding potential future movements in these major currency pairs.

• AUD/USD fell to 0.64415 overnight, buyers emerged and a rally ensued

• Pair rallied above the 10-DMA, hit a 6-session high of 0.6490

• Rally stopped at 0.6490/0.6510 zone, series of daily highs/lows sit there

• Daily RSI is rising, implies short-term upward momentum is in place

• 55- & 200-DMAs, April 12 daily high are targets should resistance break

• Thinning daily cloud could attract price action, sits 0.6770/0.6589

• April monthly doji in place, may be another concern for AUD/USD shorts

• For more click on FXBUZ

Synopsis:

HSBC provides insights into the potential factors slowing the descent of EUR/USD towards 1.05, highlighting persistent wage growth and geopolitical uncertainties as key deterrents to a swift decline. The bank outlines why a gradual adjustment is more likely than a rapid downturn in the near term.

Key Points:

• Inflation Concerns and Wage Growth: Despite a faster-than-anticipated drop in headline inflation, HSBC points out that strong wage growth remains a significant concern that could undermine confidence in inflation staying below the European Central Bank's (ECB) target. This issue was previously emphasized by the ECB as a critical factor in determining the timing of rate cuts.

• Geopolitical Risks and Energy Prices: The ongoing geopolitical tensions, particularly those affecting energy supply chains, present upward risks to energy prices. This volatility in energy costs is likely to restrain the ECB from providing definitive guidance on monetary policy adjustments post-June.

• ECB Policy Outlook: The uncertain economic backdrop, influenced by wages and geopolitical risks, suggests that the ECB may adopt a more cautious stance in its upcoming policy decisions. This could involve delaying or moderating the pace of anticipated rate cuts.

• EUR/USD Forecast: As a result of these factors, HSBC forecasts a gradual rather than abrupt decline in EUR/USD. The bank anticipates that these underlying economic and geopolitical factors will contribute to sustained uncertainty, influencing the currency pair's trajectory.

Conclusion:

HSBC's analysis indicates that significant inflationary pressures, particularly from wages, combined with geopolitical risks impacting energy prices, are likely to prevent a rapid depreciation of the EUR/USD. These elements are expected to lead to a more measured adjustment in the currency pair as the ECB navigates a complex economic landscape. 

• S&P Global services, composite PMI drop from March, are below estimates

• The manufacturing component of PMI fell into contraction territory

• US yields US2YT=RR turned lower on the session, drove US$ lower

• DE-US spreads US2DE2=RR tightened, stocks ESv1 & gold XAU= lifted

• EUR/USD spiked higher, 1.07045 traded on EBS, a 7-session high

• Key resistance near 1.0695 was pierced, is a bullish tech signals

• Rising daily RSI, move above 10-DMA reinforce bullish signs

• For more click on FXBUZ

Synopsis:

Mitsubishi UFJ Financial Group (MUFG) highlights the rising likelihood of intervention by Japanese authorities to support the yen, following strong signals from Japan’s Finance Minister and recent currency trends. The USD/JPY has been hovering just below the crucial 155 level, intensifying intervention expectations ahead of the Bank of Japan’s policy meeting.

Key Points:

• Finance Minister's Warning: Japan’s Finance Minister, Suzuki, has issued a potent warning, indicating that the government is closer to intervening in the forex market to support the yen. This follows a tripartite agreement between Japan, South Korea, and the US acknowledging concerns over the recent weakness of the yen and South Korean won.

• Market Conditions and Intervention Readiness: Suzuki’s statements suggest that the conditions for intervention are primed, marking a significant shift in Japan's stance towards more direct action against excessive volatility in the yen exchange rate.

• Speculative Trading and Yen Weakness: The latest IMM report reveals a continued increase in speculative short positions on the yen, reaching the highest levels since November 2017. This trend underscores the market's bearish outlook on the yen, contributing to its depreciation.

• Concerns Over Economic Fundamentals: Japanese officials are worried that the yen’s recent movements do not reflect the country's economic fundamentals, especially since significant policy changes in March when Japan exited negative interest rates and yield curve control.

• Timing and Effectiveness of Intervention: There is a concern that intervening to support the yen might be less effective if U.S. yields keep rising, potentially strengthening the dollar further. This scenario could diminish the impact of any Japanese efforts to stabilize or strengthen the yen.

Conclusion:

As the USD/JPY approaches the sensitive 155 level, MUFG underscores the heightened risk of intervention from Japan to support the yen. With the backing of recent agreements and the clearest indication yet from Japan’s Finance Minister, markets are on high alert for potential actions that could influence currency dynamics significantly.

Synopsis:

Bank of America previews the upcoming Bank of Japan (BoJ) monetary policy meeting, predicting no changes to the current interest rate targets. Market attention will focus on potential signals regarding future rate hikes and adjustments in Japan Government Bond (JGB) purchases, with implications for the USD/JPY exchange rate.

Key Points:

• BoJ Monetary Policy Meeting Overview: The BoJ is set to conclude its monetary policy meeting on April 26, 2024. Consensus among analysts, including those surveyed by Bloomberg, anticipates that the BoJ will maintain the uncollateralized overnight call rate at 0-0.1%. This follows significant changes made in the previous meeting on March 19, 2024, which included exiting the negative interest rate policy (NIRP) and overhauling the monetary policy framework.

• Market Expectations and Analyst Consensus: The uniform expectation among surveyed analysts suggests a low probability of any policy change at the upcoming meeting. However, the BoJ’s quarterly Outlook Report and subsequent communications from Governor Ueda will be pivotal in providing insights into the central bank's future policy direction.

• Focus Areas in BoJ Communications: Key areas of interest for markets in the BoJ’s forthcoming communications include the potential timing for further rate hikes and plans for tapering its JGB purchases. These factors are crucial for understanding the BoJ's approach to gradually normalizing monetary policy.

• Implications for USD/JPY: In the absence of a hawkish turn from the BoJ, the USD/JPY currency pair may see increased volatility. Market participants might test the 155 level, either triggering intervention from Japanese authorities if perceived necessary, or potentially driving the pair towards 160 if market dynamics support further dollar strength.

Conclusion:

While no changes are expected from the BoJ’s meeting this week, the event remains significant for financial markets, particularly for forex traders focusing on the USD/JPY pair. The forthcoming communications from the BoJ will be crucial in shaping market expectations regarding Japan's monetary policy trajectory and its impact on currency movements.

• EUR/USD 0.05%, USD/JPY -0.04%, GBP/USD 0.03%, AUD/USD 0.01%

• S&P E-minis 0.22%, DAX 0.93%, Nikkei 225 0.3%, FTSE 0.5%

• Dollar chart points to even bigger gains nL2N3GW0RF

• EUR/USD rise provides vital clue about traders' positions nL2N3GW0MH

• Elevated USD/JPY on track for more gains despite Japan warnings nL2N3GW0P7

• GBP/USD rises towards 1.24 on UK services PMI beat nL2N3GW0N9

• AUD/USD-CPI will have a big say on RBA pricing nL2N3GW0Q1

• Option expiries nL2N3GW0CF. U.S. Open nL3N3GW2J6

Foreign exchange participants are waiting with bated breath for Japan's reaction if, or more likely when, USD/JPY hits 155 for the first time since 1990.

Japan on Tuesday issued its strongest warning yet on its readiness to intervene and strengthen the yen, with senior LDP official Satsuki Katayama telling Reuters that "I don't think Japan will face any criticism if it were to act now".

A Reuters poll published last Friday showed 21 out of 23 economists expect Japan to step in at some level to stop the yen weakening further, with 16 of the 21 predicting intervention if USD/JPY reaches 155.
The other five chose 156 or higher.

CFTC data on FX positioning, also published last Friday, showed the net yen short rose to a new 17-year high of 165,619 contracts after USD/JPY vaulted 152.

USD/JPY scaled a fractionally new 34-year EBS high of 154.87 on Tuesday.

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