• USD/JPY has scope for a break above Monday's 160.24 new multi-year high

• Medium-term outlook bullish since spot overcame major 152.60 Fibo in April

• 152.60 Fibo, a 38.2% retrace of major 277.65 to 75.31 (1982 to 2011) drop

• We are long at 155.25 for 165.00, our stop is just below 150.00

• USD/JPY looks set for big gains despite Japan's worries nL1N3H40FH

• EUR/JPY 165.68-167.37 EBS range on Thursday. USD/JPY Trader TGM2336

• USD/CNH routed, falls to 7.2168 from 7.2321; last 7.2242

• Bearish, as 55 DMA 7.2319 crumbles after 200 DMA break

• Next stop is 38.2% Fibo, near 100 DMA 7.2082

• USD/JPY coming off weighs on USD/AXJ broadly; last 155.36

• Risk-on from 2.4% rally in HK stocks also boosts yuan

• China mainland still closed for Labour Day break

• For more click on FXBUZ

• +0.07% near the top of a tight 1.2521-1.2538 range with steady flow on D3

• Sterling is firmer with risk appetite, as E-mini's and commodities rise

• BoE rate decision next week - no change, but optimism on inflation viable

• Like the Fed, BoE will be dependent on upcoming data for the timing of cuts

• Charts; 5, 10 & 21 DMAs conflict, 21-day Bollinger bands contract

• Daily momentum studies rise - the daily signals show no strong bias

• Monday's 1.2569 high then 1.2596, 50% of the March/April fall are resistance

• 1.2475 10-day moving average and early London 1.2467 base are first supports

For more click on FXBUZ

• EUR/USD opened +0.44% @ 1.0713 after US yields eased in wake of Fed decision nL1N3H42A5

• A plunge lower in USD/JPY on suspected intervention also weighed on USD nL1N3H42TN

• EUR/USD traded in a 1.0707/20 range while USD/JPY continued to whipsaw

• Heading into the afternoon the EUR/USD is unchanged at 1.0710/15

• EUR/USD support is at the 10-day MA @ 1.0694 and a close below adds pressure

• Resistance is at the April 26 high at 1.0753 and 200-day MA at 1.0800

• EUR/USD may consolidate ahead of the US non-farm payrolls on Friday

• Short-term bias is bullish while US yields correct lower

• For more click on FXBUZ

Synopsis:

Bank of America provides an analysis of the Federal Reserve's recent FOMC meeting, highlighting a continued cautious approach with a shift to a wait-and-see policy stance. The Fed's deliberation on inflation and market dynamics suggests a possible rate cut in December, reflecting prolonged uncertainty in economic recovery.

Key Points:

• Wait-and-See Policy Stance: In response to unexpected inflation data, the Fed has adopted a wait-and-see approach, indicating a readiness to maintain current interest rates for an extended period. Chair Powell emphasized the need for more conclusive data to achieve the desired confidence level before implementing rate cuts.

• Balance Sheet Policy Adjustments: The Fed set a new cap of $25 billion for Treasury securities runoff, slightly below BofA's anticipated $30 billion, suggesting a slightly slower pace of balance sheet reduction. This decision aims to mitigate potential disruptions in funding markets and extend the runoff duration.

• Inflation Outlook: BofA maintains its forecast for a rate cut in December, predicated on the expectation that inflation will decline more slowly and remain more persistent than initially projected. The high threshold for further rate hikes was supported by Powell’s remarks.

• Market Reaction: The rates market perceived the Fed's communications as dovish, with minimal initial reaction to the statement but a more pronounced response during Powell's press conference. This resulted in lower rate expectations and spurred a dip-buying behavior in the market.

• USD Performance: The DXY experienced a slight decline, with the market's dovish interpretation leading to a moderate underperformance of the USD against higher-beta currencies. This aligns with equity rallies and a modest drop in U.S. yields. BofA expects the USD to depreciate later in the year, contingent on clearer signals of impending rate cuts.

Conclusion:

The Federal Reserve's latest deliberations underscore a strategic caution in monetary policy, with an emphasis on monitoring economic indicators closely before making further adjustments. BofA anticipates a potential rate cut by the end of the year, depending on the trajectory of inflation and economic recovery.

• USD/JPY trades 1.05% higher in Tokyo after the late 2.2% fall post-FOMC

• BOJ March minutes - long-term interest rates should be set by markets

• Fed is concerned by recent inflation data - remains data-driven on cuts

• The short-term outlook for yield differentials is they will remain wide

• If the USD/JPY fall was the BOJ - they are in a guerrilla war with markets

• Charts 5, 10 & 21 DMAs head gently higher with 21-day Bollinger bands

• A positive setup - next resistance is 156.62, 50% of this week's fall

• Earlier 154.15 low the Wednesday's 153.00 base are initial supports

  For more click on FXBUZ

• USD/KRW tamped down to 1380.8 from last close 1382.0

• Hit a low of 1378.0, teasing break of 23.6% Fibo 1378.3

• Kospi -0.2% in wake of as-expected FOMC decision nL1N3H31SH

• BOK ready to use market stabilization measures nP8N3EO008

• S. Korea Apr inflation below forecasts nP8N3GP00T

• Core inflation rises the slowest since Dec 2021

• For more click on FXBUZ

• USD/CNH cracks 200 DMA support 7.2363, last 7.2350

• Settles around next chart floor 55 DMA 7.2321 for now

• USD/JPY plunge suggests Japan intervened in FX again

• Sharp drop to as low as 153.00 tanks DXY, dents USD/AXJ

• USD/JPY outweighs patient tone from FOMC nL1N3H31SH

• Powell still sees possible rate cut but not soon

• For more click on FXBUZ

• USD/JPY recovers in Asia after sharp fall in NYK on suspected intervention

• Rallies to 155.35 from NYK low of 153.00 as bargain hunters step in

• Wednesday range 157.99-153.00, Thursday Asia range 154.15-155.35

• Rapid 157.58-153.00 post-Fed drop occurred at NYK close/ Wellington open

• Japan had said stands ready to deal with FX matters around the clock

• Picked right time; market thin and Fed was not as hawkish as feared

• Fed keeps rates unchanged, flags 'lack of further progress' on inflation

• Traders relieved as Powell said rate increases remained unlikely

• Initial resistance at 155.50-70; 155.76 is 38.2% of 160.24-153.00 drop

• Support at 154.00-20, 153.00, 152.61, the 38.2% Fibo of Dec-April drop

• For more click on FXBUZ

• AUD/USD opens +0.79% after the Fed and USD/JPY collapse impacted trading

• The Fed retained a cautious-patient dovish bias at their meeting today nL1N3H31SH

• US yields and USD fell while Wall Street initially soared higher nL1N3H42A5

• A frenzied selloff on Wall Street in the last hour saw big gains evaporate nL1N3H42NT

• There was more volatility in USD/JPY as it collapsed from 157.50 to 153.00

• Suspected MOF intervention behind move - before it rebounded to 155.00 nL1N3H42TN

• AUD/USD now above the 10, 21 and 200-day MAs to give it a bullish bias

• Support is at 0.6500/05 where the 10 & 21-day MAs converge

• Resistance is at the April 29 high at 0.6587 and April 9 high at 0.6644

• Focus today will be on the USD/JPY and Asian equity market reaction to Fed

• For more click on FXBUZ

Synopsis:

Following the Federal Open Market Committee (FOMC) meeting in May, CIBC provides insights into Chair Jerome Powell’s remarks and the Fed's current stance on monetary policy. The central bank maintained interest rates and adjusted the pace of its balance sheet reduction, reflecting a data-dependent and patient approach amid mixed economic signals.

Key Points:

• Policy Decisions: The FOMC held interest rates steady and announced a slowdown in the balance sheet runoff starting in June, with Treasury securities runoff reducing to $25 billion from $60 billion, while maintaining the mortgage-backed securities cap at $35 billion.

• Inflation and Economic Outlook: Powell acknowledged the lack of progress on inflation in some areas but balanced this with recognition of advancements already made. He indicated that the recent high inflation readings might be temporary, maintaining a cautious optimism about the potential for rate cuts later this year.

• Policy and Economic Slack: Powell reiterated that the existing policy might become sufficiently restrictive over time and highlighted that the U.S. economy's response to interest rate changes has weakened over the years. The Fed continues to monitor the relationship between economic slack and inflation closely, requiring more evidence of genuine overheating and its impact on prices before adjusting policy significantly.

• Fed’s Patience and Data Dependence: The Fed Chair emphasized a patient approach, influenced by recent economic data showing a mixed picture of inflation trends. Powell's comments reflected a reluctance to shift quickly from the established narrative, despite a series of less favorable inflation reports in the last three months.

• Labor Market and Inflation Threshold: Powell discussed the progress in moderating labor market dynamics and wage growth. He pointed out that while bringing inflation back to the 2% target remains crucial, the Fed does not have a strict timeline, aiming to avoid undue disruption in the labor market, especially now that inflation has dropped below 3%.

Conclusion:

The May FOMC meeting underscored the Fed's cautious and methodical approach to monetary policy in the face of uncertain economic conditions. Chair Powell’s comments highlighted a balanced perspective on current economic challenges, with a focus on being responsive to incoming data rather than preemptive.

• Some US bulls disppointed Fed Chair Powell didn't note rate hike risk

• USD/JPY fell to 157 where dip-buyers were waiting for a discount

• Initial dollar selling on Fed statement and Powell were overreactions

• Fed just confirmed progress on inflation stalled, but rates are restrictive

• Wed's earlier 157.99 high by 158 was also by 61.8% of Monday's plunge

• With threat of Japan yen intervention, run at 160+ may wait for top US data

• Friday's jobs and ISM non-manufacturing reports are now the focus

For more click on FXBUZ

• NY opened near 0.6480 after 0.64655 traded in Europe, rally extended early

• YieldsUS2YT=RR,US$ were soft after ADP, JOLTS & ISM PMI sent mixed signals

• Gold XAU= rallied & USD/CNH fell to 7.2418 (D3) to help weigh on the US$

• AUD/USD hit 0.64975 then slid, sat near 0.6490 ahead of the Fed statement

• US$ fell, risk assets lifted on Fed's policy statement, AUD/USD hit 0.6505

• During Chair Powell's presser no hints given that rate hikes are coming

• Equities ESv1 turned positive, UDS/CNH fell further, gold rally extended

• AUD/USD rallied above the 10-, 21-, 55- & 200-DMAs, 0.6539 traded

• Pair was up +1.00% late and technical signals leaned bullish

• Daily RSI diverged on the 6-session low, rally follows April doji candle

• For more click on FXBUZ

• GBP$ firm into NY cls, +0.38% at 1.2535; Wednesday range 1.2541-1.2467

• Flows light owing to May Day holiday; UK data mixed held no sway early

• Fed holds rates steady, flags 'lack of further progress' on inflation; IRPR cut odd drift higher

• UST yield slide weighs on USD; Sept Fed cut expectations rise post-Fed

• Fed announces reduction in balance sheet runoff pace nL1N3H40Y8

• Pair remains caught b/w 10-and 200-DMAs 1.2464-1.2552

• Barring any movement in UK-US rate outlook range likely to remain intact

• Res at Wednesday high 1.2513, 200-DMA 1.2552, 1.2596 50% of 1.2894-1.2299

• Supt 1.2464's 10-DMA, 1.2434 daily conversion line, 1.2358 lwr 30-d Bolli

• $CAD a tad soft in early NY, -0.1% at 1.3768; Wednesday range 1.3782-1.3750

• May Day holiday liquidity keeps pair steady pre-Fed rate decision/presser

• Fed expected to hold rate steady, cuts odds 60% for Sept, 80% for Nov

• Rate futures indicate BoC to cut earlier and deeper than Fed in 2024 IRPR

• LSEG's IRPR shows better than 50% odds for BoC hike in June, -52bp by Dec

• Res at 1.3785 Apr 30 high, 1.3847 Apr 16 2024 high, 1.3860 upper 21-d Bolli

• Supt 1.3718 daily conversion line, 1.3689 21-DMA, 1.3632 Apr 29 low

Sterling hovered near flat in early NorAm trading amid diminished May Day holiday liquidity, but traders are likely to target this year's lows if the Fed sounds more hawkish than expected when delivering its widely forecast decision to hold rates steady later on Wednesday.

The expectation of unchanged rates has left markets focused on nuances of the policy statement and the post-meeting presser by Fed Chair Jerome Powell.

Rates continue to hold significant sway among major currencies.

Early 2024 GBP/USD strength owing to G7-leading UK inflation has unraveled recently as BoE rate expectations have fallen, converging with the U.S. and other major economies.

While the rate of UK inflation's fall has tapered slightly since February, the continued downward path has boosted BoE rate cut expectations, with futures markets now projecting earlier and deeper BoE rate cuts than the Fed.

This has weighed on GBP net spec positioning 1096742NNET, which has dropped from the mid-March highs of +70,451 contracts to -26,233 contracts as of April 23.

With the Fed expected to keep rates steady and futures markets pricing barely more than one U.S. cut in 2024 -- versus six in early 2024 -- risks are likely to remain tipped to the downside for GBP/USD.

If Fed expectations remain less dovish, sterling's recent 2024 low at 1.2299 may be targeted.

For more click on FXBUZ

Synopsis:

Bank of America forecasts that the Federal Reserve will maintain its current policy stance at the May FOMC meeting, with a focus on inflation and cautious forward guidance. The anticipated steady approach is unlikely to significantly impact the USD, though market reactions to Fed communications could introduce some volatility.

Key Points:

• Policy Rate and QT Adjustments: The FOMC is expected to keep the policy rate unchanged and potentially slow the pace of quantitative tightening (QT). This aligns with the Fed's strategy of giving previous policy measures more time to take effect.

• Inflation Assessment: The Fed's statement is likely to note that progress on inflation has been "uneven," reflecting the complex economic backdrop and the challenges in achieving stable price levels.

• Press Conference Expectations: In the press conference, Chair Jerome Powell is predicted to emphasize that the policy needs more time to work, and that the next likely move could be a rate cut. However, the committee will remain in "wait-and-see" mode, seeking further clarity on inflation trends before making significant changes.

• Impact on the USD: BofA anticipates that the FOMC's decision to hold steady and Powell's reaffirmation of the current policy approach will not have a lasting material impact on the USD. However, any unexpected statements or interpretations during the press conference could introduce temporary volatility.

• Market Focus on Rate Hikes Discussion: Discussions of potential rate hikes may arise during the press conference, and markets will be keenly observing how Powell addresses these considerations. His responses could influence market expectations and trading behaviors in the near term.

Conclusion:

As the Federal Reserve approaches its May meeting with a likely steady hand, the focus remains on assessing and communicating about inflation dynamics. While no significant changes are expected that would alter the course of the USD dramatically, traders should be prepared for potential short-term fluctuations based on the nuances of Powell's communications and the Fed's assessment of economic conditions.

• Cable has traded a 30.5 pip range since London open; 1.2467 = session low

• 1.2467 is also intra-week low (1.2466 is 38.2% Fibo of 1.2299-1.2569)

• Fed event risk from 1800 GMT; hawkish hold expected nL2N3GY1PF

• GBP/USD might drop towards 1.2400 on ultra-hawkish Fed/Powell

• UK April manufacturing PMI upwardly revised to 49.1 from 48.7 flash estimate

• UK local elections Thursday; PM Sunak's Tories face big losses nL5N3GQ5GV

• AUD/USD slid to 0.6466 in Asia, as stock losses hurt the risk-sensitive AUD

• Nasdaq fell 2% on Tuesday. 0.6466 is lowest level since April 23

• Fed event risk from 1800 GMT; hawkish hold expected nL1N3H31SH

• AUD/USD might extend south towards 0.6400 on ultra-hawkish Fed hold

• 0.6408 was last week's low (April 22). 0.6587 was Monday's high

• RBA rate decision next week: Rabobank forecasts hikes in August and November

• EUR/USD trading lower ahead Fed rate decision at 18GMT nL1N3H40BN

• Pair which reached 1.0753 EBS on Apr 26 drops to 1.0650 on May 1

• April low was 1.0601 and 1.0596 is the level to watch

• A drop below 1.0596 would target return to 2023 low at 1.0448

• Base 20-day Bollinger bands at 1.0561 allows room for a drop

• Bonds safer than they used to be - may influence FX nL1N3H40ES

USD/JPY looks set for eventual big gains due to a mix of fundamental and technical factors, despite the worries of Japan's monetary authorities.

Japan stands ready to deal with foreign exchange matters around the clock, top currency diplomat Masato Kanda said on Tuesday, as money market data suggested the finance ministry had spent around $35 billion to prop up the sliding yen on Monday.

Despite Japanese authorities' continuing concerns over a weakening yen, there are fundamental and technical factors that point to sizeable USD/JPY gains in the days and weeks ahead to 165.

While the Bank of Japan left interest rates on hold at its recent meeting, the policy rate differential between the Federal Reserve and the BOJ remains wide and keeps USD/JPY's bias on the upside.

In April USD/JPY overcame the 152.60 Fibo, a 38.2% retrace of the major 277.65 to 75.31 (1982 to 2011) drop, which is bullish.
Fourteen-week momentum remains positive, adding to the upside potential.

For more click on FXBUZ

• Cable falls to 1.2471 before Fed event risk: hawkish hold expected

• 1.2471 is lowest level this week (1.2449 was last Friday's low)

• 1.2554 was Tuesday's Ldn am high, before USD rose on hot US labor cost data

• US spending on London real estate rebounds to 8-year high - BNP Paribas data

• UK house prices down 0.4% in April vs f/c increase of 0.2% - Nationwide data

• Reuters/Ipsos poll says 40% of U.S. voters support Biden vs 39% for Trump

• Overnight FX option expiry now includes the Fed policy decision

• No change expected, but statement, press conference provide volatility risk

• Overnight EUR/USD implied volatility jumps from 8.0 on Tuesday to 12.0 Wed

• Implied volatility gauges realised volatility risk when setting premium

• Premium/break-even for straddle now 53 vs 35 USD pips in either direction

• Other expiry dates are underpinned by FED, NFP event risk and firmer USD

• Benchmark 1-month expiry recovers Monday's 6.1 high vs 5.9 Tuesday

• FX options wrap - Firmer USD and Fed/NFP risk support vol nL1N3H31KT

For more click on FXBUZ

• Just missed out on forming a bearish engulfing line Tues

• However, sterling risk has flipped to the downside

• Minimum correction off 1.2299-1.2569 climb met at 1.2505, 1.2473 Wed low

• Next Fibo level at 1.2466 with 1.2449, Apr. 25 low behind

• Daily momentum readings have been negative since Mar. 22

• Daily RSI is now confirming the price drop

• We look for an opportunity to get short

  For more click on FXBUZ