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.

Related comments: nL2N3GO0LSnL2N3GR0LZnL2N3GW029nL2N3GW0JB

For more click on FXBUZ

• Cable ascends to 1.2388 on higher than expected UK April services PMI

• 54.9 vs 53.0 forecast. 1.2388 = intra-day high (1.2332 was early Ldn low)

• 1.2372 was pre-UK PMI high, as EUR/USD rose on German services PMI beat

• Offers expected pre-1.24 if GBP/USD extends north (1.2391 was Monday's high)

• BoE chief economist Pill to speak at 1115 GMT. Next BoE rate decision May 9

• UK budget deficit overshoots, turning fiscal screw on Sunak government

• EUR/USD has been trading placidly for past year

• Vols suppressed with bulk of trading within 1.05-1.10

• Traders have unwound a $20billion bet on a rise since December

• Following 2022 intervention EUR/USD soared 0.9528 to 1.1034

• EUR/USD then staged minor correction reaching 1.0458 - 38.2% 0.9528-1.1034

• Since trading 2023 low at 1.0448 last Oct pair has done little

• Should BOJ intervene traders have few bets on a rise when a rise is likely

• Moves few are prepared for are usually quick and far reaching

• Cable eases to 1.2332 on higher than expected UK March borrowing data

• 11.9 billion pounds vs 10.2 billion forecast. 1.2332 = intra-day low

• 1.2299 was Monday's five-month low, after pound fell on BoE's dovish Ramsden

• Recovery rally from 1.2299 topped out 5 pips shy of 1.2367 (pre-weekend low)

• UK April flash PMIs due 0830 GMT: services forecast at 53.0; mfg f/c at 50.4

• BoE chief economist Pill to speak at 1115 GMT. Next BoE rate decision May 9

• Bear bias is holding and our long play is in trouble

• Late Monday recovery did form a hammer candle (bullish)

• However, a soft start Tuesday keeps downside risk alive

• Squeeze point is up in the mid-1.24s and high 1.24s the turning point

• Key support at Mon's 1.2299 2024 low

• Fourteen day momentum confirming latest weakness but is stretched

• We will maintain the long for now

  For more click on FXBUZ

• USD/JPY rose to break and register a weekly close above the huge 152.60 Fibo

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

• That is a very bullish sign, backed by continued positive 14-week momentum

• Scope for much bigger gains to eventually retest the 160 psychological level

• A fall and weekly close under 152.60 Fibo would be a negative development

• USD/JPY Trader TGM2336. EUR/JPY 164.65-165.00 EBS range on Tuesday

• Steady in a tight but busy early 1.2349-1.2358 range on D3

• Flash PMIs lead data risk in London - composite poll 52.6, last 52.8

• PMIs across Europe and the U.S. should result in a busy offshore session

• 5, 10 & 21-day and week moving averages fall, 21-day Bollinger bands expand

• Daily and weekly momentum studies slip - charts retain the bearish bias

• Signals target a test of the 1.2224, 0.786% October-March rise

• Monday's 1.2391 top and then Friday's 1.2467 high are initial resistance

• Sterling to track lower as negative factors combine

For more click on FXBUZ

Synopsis:

Société Générale offers a guarded forecast for EUR/USD, USD/JPY, and AUD/USD, highlighting potential for limited movements and the influence of upcoming economic data and market sentiment.

Key Points:

• EUR/USD Outlook: SocGen predicts a potential drop for EUR/USD below 1.05, though falling short of parity. The forecast suggests a lackluster outlook, with the bank hoping for, but not necessarily expecting, market surprises that could influence the pair.

• USD/JPY Dynamics: Recent CFTC data indicates a growing short position on USD/JPY, suggesting that the market is increasingly bearish on the pair. However, SocGen notes that the upside for USD/JPY is limited, and a significant catalyst for reversing this trend appears unlikely in the immediate future.

• AUD/USD and Australian CPI Data: The focus for AUD/USD this week is on the Australian CPI data set to be released on Wednesday. SocGen expects the March CPI to rise slightly from 3.4% to 3.6%, with core inflation anticipated to decrease from 4.2% to 3.7% in Q1. The firm questions whether these figures will be sufficient to adjust the AUD rate curve upward, noting that the Reserve Bank of Australia (RBA) is currently in an extended pause on rate changes. A significant surprise in the data may be necessary to trigger a notable currency reaction.

• Broader Market Sentiment: SocGen also points out that overall risk sentiment will play a crucial role in dictating movements across these major currency pairs. The mood in the market was more positive this morning, but it remains to be seen if this optimism will persist.

Conclusion:

Société Générale’s analysis suggests a week of cautious watching for major currency pairs, with key data releases and broader market sentiment expected to be major drivers. The firm underscores the need for unexpected data outcomes to significantly impact currency valuations, especially for the AUD following upcoming CPI releases. 

• Plenty of Japanese official-speak on FX, BOJ policy, effect limited

• FinMin Suzuki reiterated government ready to act vs excessive moves

• Added government has laid the groundwork to take appropriate action

• Seems USD/JPY move up to 154.85 new 30-year high o/n pushed some buttons

• Comments too from BOJ Gov Ueda in Diet testimony on policy

• He reiterated no preset idea on timing, pace of future rate hikes

• BOJ data-dependent, on inflation outlook, will adjust policy as needed

• Market eyeing possible BOJ move this fall, some say earlier but premature?

• USD/JPY off a tad from 154.84 early high to 154.66

• See nP8N3EL04Q, nP8N3GE008, nL2N3GW022, Ueda-speak nP8N3GE00D

• Related comments nL2N3GW029, nL2N3GQ04H, nL2N3GL04J, nL2N3GE04H

• Also nL2N3GV39F, for more click on FXBUZ

• AUD/USD trying to grind through sell orders around 0.6460 in early Asia

• It is above the 10-day MA (0.6454) for first time since April 10

• Downward momentum has stalled with the 5-day MA now pointing higher

• AUD getting support from rising risk appetite as geopolitical concerns fade nL2N3GV2QW

• Next resistance is at the 21-day MA ay 0.6505 where more selling is tipped

• AUD/USD upside may be limited ahead of inflation data from Australia and US

• Aus Q1 CPI is out on Wednesday, while US PCE price index is out Thursday

• For more click on FXBUZ

• Steady after closing down 0.15% as markets bring forward the first BoE cut

• August BOEWATCH cut fully priced at 28.14bp, up from 22.75 at Friday's close

• Recent dovish BoE comments, expectations of a June ECB cut behind the move

• PMIs in the UK and Europe today suggest a tight GBP trading range in Asia

• 5, 10 & 21-day and week moving averages fall, 21-day Bollinger bands expand

• Daily and weekly momentum studies slip - charts retain the bearish bias

• Signals target a test of the 1.2224, 0.786% October-March rise

• Monday's 1.2391 top and then Friday's 1.2467 high are initial resistance

  For more click on FXBUZ

• Steady after closing down just 0.05% with the U.S. dollar little changed

• ECB governors stick to plan for multiple rate cuts, despite the cautious Fed

• June ECB cut is priced, but the timing of future cuts are data-dependent

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

• Daily momentum studies show mixed signals after an inside day - net bearish

• 1.0594, 0.786 of the October-December rise remains the initial support

• The 1.0695 prior 2024 low in February is the initial significant resistance

• 1.0650 1.446 BLN strikes may act as a magnet today in Asia

For more click on FXBUZ

• AUD/USD opens +0.47% after retaining gains made in Asia yesterday

• AUD broadly underpinned by fading geopolitical concerns nL2N3GV2QW

• AUD/USD sellers 0.6455/60 capping gains for time being

• Resistance is at 10-day MA at 0.6453 and break targets 21-day MA at 0.6508

• AUD/USD bids are tipped ahead of 0.6400 with support at Friday's 0.6362 low

• AUD/USD likely to trade in range in Asia with now data to inspire action

• Key will be moves in Asian equities and direction of USD/CNH

• For more click on FXBUZ

Synopsis:

MUFG forecasts a limited upward trajectory for the Canadian dollar (CAD) in the near term, with the USD/CAD pair expected to continue trading in the high 1.30s over the coming months. The bank cites diverging inflation paths between Canada and the U.S. as a key factor influencing this outlook.

Key Points:

• Recent Performance of CAD: The Canadian dollar showed strength last week, performing well alongside the Swiss franc. Despite this, MUFG predicts that these gains are not likely to sustain, anticipating that the USD/CAD will remain in the high 1.30 range.

• Diverging Inflation Trends: A significant driver behind the anticipated movement in USD/CAD is the divergent inflation trajectories in Canada and the U.S. While the U.S. has experienced a series of upside inflation surprises, Canada's core inflation has been surprisingly low in the early months of the year, following persistent highs in the latter half of the previous year.

• Canadian Inflation Dynamics: Canada’s core inflation, which had been stubbornly high, has begun to decrease since the start of the year. The Bank of Canada’s (BoC) preferred measures of core inflation — median and trimmed — slowed to an annual rate of 3.0% in March. This deceleration is more pronounced when looking at the last six months' data, adjusted for seasonality, which shows an annualized rate increase of only 2.5%.

• Monetary Policy Implications: The softening core inflation in Canada is likely to open the door for the BoC to start reducing interest rates, contrasting with the inflation scenario in the U.S., where the Federal Reserve faces ongoing inflation pressures.

Conclusion:

While the Canadian dollar has recently shown some strength, MUFG maintains a cautious outlook, expecting limited gains with potential downward pressure influenced by broader economic factors, particularly inflation and monetary policy divergences with the U.S.

Sterling was again the weakest of the major currencies as markets sees the BoE nearly as likely to cut rates in June as the ECB after a dovish shift in rhetoric, while firm U.S. data keeps Fed easing off the agenda until September or November.

Sterling fell 0.16%, but was well off Monday's 1.2299 low and lowest since Nov.
14, with 2-year Gilts yields falling 9bp and the spread below Treasury yields marginally exceeding 2024's wide.

The limited 1.2300 breach likely enticed some buying ahead of Jonathan Haskel and Huw Pill appearances on Tuesday that will be closely scrutinized after the normally hawkish Bank of England Deputy Governor Dave Ramsden on Friday expressed more confidence that UK inflation risks are receding.

USD/JPY made a new 34-year high and is extremely close to the 155 level many see potentially inducing Japanese verbal or actual FX intervention to cushion the yen's 5.7% drop since early March and nearly 10% slide this year.

An easing of geopolitical derisking that triggered Friday's fleeting dip to 153.49 and the rising 10-day moving average there has given way to another run at heavy 155 optionality.

IMM specs are the most net long USD/JPY since 2007 due to rewarding interest rate differentials and doubts that FX intervention to support the yen would do more than delay further USD/JPY gains.
Even further BoJ rate hikes of perhaps 20bp by year-end might not provide much of a deterrence unless U.S. data and Fed policy become dovish again.

EUR/USD fell 0.04%, remaining in a choppy range above April's 2024 lows at 1.0601.
Prices slid on Monday from 1.0671 highs by the falling 10-DMA and are digesting the more negative Bund-Treasury yield spreads since hot U.S. data forced the expected delay on Fed rate cuts.
Total 2024 Fed cut pricing is at 40bp from over 150bp earlier this year versus the 75bp of cuts expected from the ECB, perhaps starting as soon as June.

Flash April PMIs on Tuesday and German Ifo on Wednesday will be watched ahead of Thursday's U.S. GDP and Friday's BoJ meeting, April Tokyo CPI and U.S. core PCE, with income and consumption eyed if PCE inflation data is as forecast.

Beyond that the focus is on the April U.S. employment report on May 3.

For more click on FXBUZ

• GBP$ pared early NorAm losses, -0.16% at 1.2350; Mon range 1.2392-1.2299

• Dovish Ramsden, Bailey comments, soft UK data stirs UK-US rate divergence

• BoE June cut odds 60%, Fed 20%; BoE -57bp to Dec, Fed -40bp favors USD gains

• Dovish BoE echoes heighten sterling vulnerability nL2N3GV16M

• GBP$ supt 1.2299 Mon low, 1.2287 100-WMA, 1.2272 Nov 14 2023 low

• Res 1.2392 Mon High, 50% of 1.2484-1.2299 dip, 1.2471 falling 10-DMA

• Traders eye UK/US April flash PMIs Tuesday; US core PCE price IDX on Friday

• NY opened near 0.6435 after 0.64555 traded overnight, slide extended early

• US yields US10YT=RR buoyed the US$ & weighed on goldXAU=, copper HGv1

• 0.6425 hit then buyers emerged & yieldsUS2YT=RR sank, stocksESv1 gained

• AUD/USD neared 0.6450 late, traded up +0.45% late in the session

• Daily techs worry shorts; RSI rising, gains follow Friday's long legged doji

• Australia April Judo Bank mfg, services, composite PMIs are risks in Asia

• For more click on FXBUZ

Synopsis:

ING assesses the recent movements of USD/JPY, predicting potential intervention as the pair approaches historically sensitive levels. With broad dollar strength pushing USD/JPY towards 155, intervention risks increase, reminiscent of previous market actions. Meanwhile, ING forecasts further rate hikes by the Bank of Japan, though doubts persist regarding their efficacy in reversing the yen's trend without broader dollar adjustments.

Key Points:

• USD/JPY Movement and Intervention Risk: USD/JPY has recently surpassed 152 and is approaching 155, a level widely regarded as a threshold for potential FX intervention by Japanese authorities. This follows historical precedents where significant interventions occurred, such as the $70 billion sale in September/October 2022 when the rate was around 150.

• Bank of Japan Monetary Policy: ING anticipates that the Bank of Japan (BoJ) may implement two additional rate hikes this year, likely in July and October. Despite these expected adjustments, bringing the policy rate to 0.50% by year-end, the overall downward trend of the JPY may not reverse unless there is a broad depreciation in the dollar.

• Impact of Geopolitical Risks: The yen's position is further complicated by global geopolitical risks, which can lead to mixed outcomes for the currency. While heavy short positioning in the yen might cause abrupt appreciations during periods of broad market deleveraging, higher energy prices, a typical detriment to the yen due to Japan's reliance on energy imports, continue to pose challenges.

• Market Volatility: The movement toward the intervention zone has already triggered an increase in traded volatility, with 1-month levels climbing back above 9%. This underscores the market's sensitivity to both domestic policy shifts and broader international financial dynamics.

Conclusion:

As USD/JPY approaches levels that historically prompt intervention, and with ING forecasting further rate hikes by the BoJ, market participants should brace for potential volatility and intervention actions. The effectiveness of BoJ policy adjustments in altering the yen's trajectory will likely depend on broader trends in the dollar and international risk sentiment.

The USD/JPY uptrend shook off Friday's fleeting flight-to-safety setback and is again focused on testing the 155 level and Japanese authorities' willingness to defend it, with a BoJ meeting, Tokyo CPI and U.S. core PCE at the end of this week key to supporting Treasury-JGB yields spreads and a breakout.

If Friday's April Tokyo CPI and the BoJ meeting's economic projections weaken the case for the two 10bp BoJ rate hikes currently priced in by year-end, an above-forecast March U.S. core PCE could bring the 155 breakout.

Core PCE is forecast up 0.3% month-on-month, with the year-on-year slipping to 2.7% from 2.8%, though the overall rate is expected at 2.6% from 2.5% last and 2.4% in January, much of why the Fed has shied away from rate cuts.

Unless the Japanese and U.S. data are substantially off forecast, a breakout above 155 options defenses could be limited initially, with two major Fibo objectives by 155.20 and other daily and weekly resistance in the mid to upper 155.00s.

Options pricing also shows greater hedging against pullbacks than a big bullish breakout.

Other than data misses this week, BoJ intervention or a slide in Treasury yields on worsening geopolitical risks, the biggest net spec USD/JPY long since 2007 may have to wait for the monthly U.S. employment report next Friday to learn its fate.

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