The dollar index fell 0.28% after wild swings due to below forecast U.S. GDP accompanied by Q1 inflation gauges well above forecast and an unexpected drop in jobless claims that sent Treasury yields to their highest since November and left only one Fed rate cut this year fully priced in.

The euro and most other currencies initially rose in response to the GDP miss, then fell on the core PCE rise to 3.7% and frothy 5.1% services prices ex energy and housing, a metric Chair Jerome Powell has mentioned as a gauge of embedded inflationary pressures.

But EUR/USD rose 0.3% after rebounding from its lows that held Wednesday's 1.0678 low, as the U.S. soft landing and dollar exceptionalism narrative came under review.
Keep in mind the Q1 GDP drag from inventories and below trend government spending may set the stage for rebounds in Q2.
And growth in personal income increased more than in Q4.

EUR/USD's 1.0741 high on EBS Thursday retraced half of April's 1.0885-601 slide.
A further recovery might need Friday's March U.S. core PCE, income and spending data to be softer than forecast.

USD/JPY rose 0.13% in the face of rising Treasury-JGB yields spreads, but with gains moderated ahead of Friday's BoJ meeting where what, if anything, might be done to stem the yen's slide and risk of imported inflation will be the focus.

The MoF has yet to make good on repeated threats to support the yen, which markets had thought might happen in defense of the 155 level that prices now trade above.
Those threats were further weakened by comments Wednesday from an LDP official that the party is not yet actively discussing what yen levels would be deemed worth intervention, though 160 or 170 might be eyed.

Adding to uncertainty about intervention was U.S. Treasury Secretary Janet Yellen on Thursday noting that dollar strength is due to economic divergence, and that interventions by other governments in currency markets is acceptable only in rare and extraordinary circumstances.
Hardly a green light for the MoF to step in soon.

Sterling rose 0.4%, with the FTSE 100 hitting a record high and being the only major European equity index not in the red.
That despite British retailers suffering their worst April for sales since 2020, although the timing of the Easter holidays could be to blame, a CBI survey showed on Thursday.

The market is pricing in 42bp of BoE rate cuts by year-end versus 35bp by the Fed, 61bp by the ECB and 22bp of hikes from the BoJ.

For more click on FXBUZ

Synopsis:

Société Générale assesses the potential for USD/JPY to test the Japanese Ministry of Finance's (MoF) intervention limits due to persistent US rate expectations and recent market dynamics. The bank highlights upcoming US economic data as critical to future currency movements.

Key Points:

• US Yield Curve Dynamics: The correlation between Fed funds futures and 10-year yields is notably high, reflecting a flat yield curve. This correlation significantly influences the USD/JPY exchange rate, with current US rate expectations supporting continued yen weakening.

• Potential for Yen Intervention: Given the strong correlation and current trends in US rate expectations, SocGen suggests that USD/JPY may soon test the MoF's willingness to intervene significantly in the currency market to support the yen.

• Impact of US Economic Data: The recent market response to US PMI data indicates that positions in long dollar and short Treasury trades might be becoming overstretched. This situation sets the stage for next week’s US ISM and payroll data, which are expected to be crucial in determining short-term directions for USD/JPY.

• BoJ Meeting Expectations: While the upcoming Bank of Japan (BoJ) meeting is not anticipated to bring significant surprises, it remains a variable that could influence yen dynamics. Any unexpected shifts or statements from the BoJ could impact market expectations and potentially affect USD/JPY trends.

Conclusion:

SocGen emphasizes the importance of upcoming US economic indicators in shaping market expectations and influencing USD/JPY movements...Additionally, the potential for large-scale intervention by Japan's MoF adds a layer of uncertainty and importance to the monitoring of these developments.

GBP/USD has sustained recent advances, despite a slew of hawkish U.S. data releases, and a closing break above resistance at 1.25 would add to topside momentum and see traders pin their sights on the 200-DMA (1.2559).

However, cable bulls with have a difficult path to walk.

Thursday's Q1 core PCE price advance of 3.7% versus 3.4% expected along with below-forecast initial jobless claims were latest in the series of reports weighing on Fed rate-cut bets.

Also, as mentioned previously, short-term risks remain in favour of the dollar while month-end rebalancing flows are touted to be supportive for the U.S. currency given the underperformance in U.S. stocks month-to-date.

Friday is also corporate month-end, which as shown in the chart below, tends to coincide with GBP/USD downside.
Although, this has eased in recent months.

Alongside this, with Treasury yields reaching fresh multi-month highs, the 10-year now at 4.7%, hitting its highest level since November 2023.
This does make it difficult for traders to look away from the dollar.

For now, given the stronger price pressures shown in the Q1 U.S. GDP report, this will naturally heighten the markets sensitivity to Friday’s PCE data – the Fed’s preferred measure of inflation – which on a three- and six-month annualized rate, has risen to 3.5% and 2.9% respectively from sub-2% at the end of last year.

For more click on FXBUZ

Synopsis:

Barclays' proprietary month-end fixing model forecasts a robust buying signal for the USD against most major currencies as the month concludes, marking a notable shift from the prevailing trends observed since the last significant signal in November.

Key Points:

• Shift in Trend: This month-end's strong dollar buying signal diverges sharply from the patterns seen year-to-date and represents the first significant indication for dollar strength at month-end since the Federal Reserve's pivot last November.

• Driving Factors: The change is attributed to the culmination of the global equity rally, which has been influenced by heightened geopolitical risks and rising commodity prices. These factors have contributed to a reevaluation of currency positions, favoring the USD.

• USD/JPY Specific Outlook: While the general trend indicates strong buying for the USD, the signal for USD/JPY is comparatively weaker. This is due to the underperformance of Japan's Nikkei index, which necessitates some rebalancing towards the JPY, moderating the buying signal for USD against the Japanese yen.

• Market Implications: The indication of strong USD buying suggests potential volatility and shifts in currency markets as traders and investors adjust their portfolios in response to the changing economic and geopolitical landscape. This could have significant implications for currency trading strategies and international investment flows.

Conclusion:

Barclays' analysis points to an imminent shift in currency market dynamics by month-end, with a strong inclination towards the USD buying.

EUR/USD turned lower Thursday after striking a 10-session high as the latest U.S. inflation and employment data have investors leaning towards the Fed delaying rate cuts, potentially putting the 1.0450/1.0500 in the spotlight.

U.S.
headline Q1 GDP came in below estimates but the GDP deflator and core PCE components increased more than expected, suggesting inflation may be running hot again.

Treasury yields US2YT=RR, US10YT=RR hit their highest since November 2023 on the back of the price data as well as drops in weekly and continuing claims.

The dollar's yield advantage over the euro increased sharply as German-U.S.
2-year spreads US2DE2=RR hit their widest since April 16 and neared the base of the channel they've been in since September 2023.

Short-term rates markets reacted by pricing only 34bps of Fed cuts for 2024, down from 45bps just Wednesday, pushing EUR/USD lower and increasing bearish technical signals.

EUR/USD fell away from the 21-DMA and top of the bear flag on daily charts.
Daily RSI diverged on the day's high and a daily inverted hammer formed.
Those signals reinforced bear signals from falling monthly RSI and monthly inverted hammer.

Investors are now focused on March PCE, the Fed's favored inflation gauge, which is due on Friday.

Above estimate PCE may see Fed hikes priced in and EUR/USD test 1.0450/1.0500.

For more click on FXBUZ

Synopsis:

CIBC provides an analysis of the U.S. Q1 GDP figures, which showed a slowdown in economic growth, raising concerns about the pace of inflation and the potential timing of Federal Reserve policy adjustments.

Key Points:

• Q1 GDP Overview: The U.S. economy expanded at a 1.6% annualized rate in the first quarter of 2024, significantly below the consensus forecast of 2.5% and a decrease from the previous quarter’s 3.4% growth. This marks the first instance in a year and a half where growth has dipped below potential.

• Contributors to Slowdown: The GDP report highlighted several factors contributing to the slowdown, including a notable drag from net exports, which subtracted 0.9 percentage points from the growth rate due to weak exports and rising imports. Inventory adjustments also had a negative impact, reducing growth by 0.4 percentage points. Additionally, government spending and business investment growth decelerated during the quarter.

• Strengths in Domestic Demand: Despite broader economic softness, components of domestic demand showed resilience. Consumer spending continued to lead growth, increasing by 2.5%, although this was slightly below the expected 3.0%. Residential investment also saw an acceleration, underscoring continued strength in certain sectors of the economy.

• Inflation Concerns: The core Personal Consumption Expenditures (PCE) price deflator, a key indicator of inflation watched by the Federal Reserve, rose to 3.7% on a quarterly annualized basis, exceeding expectations and marking a significant acceleration from the previous quarter’s 2.0% rate. This higher-than-expected inflation figure may complicate the Fed’s policy path.

• Federal Reserve Policy Outlook: CIBC notes that the combination of cooling economic activity and higher inflation poses challenges for the Federal Reserve, which seeks sustainable economic cooling and abating price pressures before considering policy easing. CIBC anticipates that the Fed might observe the necessary conditions to adjust policy by September this year.

Conclusion:

The latest U.S. GDP figures indicate a more pronounced slowdown than anticipated, with inflation pressures remaining a concern. CIBC suggests that the Federal Reserve will proceed cautiously, potentially adjusting policy later in the year if economic conditions align with their objectives.

Synopsis:

As the USD/JPY surpasses the 155.00 level, MUFG discusses the increasing ineffectiveness of verbal interventions by Japanese officials and the growing market pressures for direct action to support the weakening yen. This comes ahead of a critical policy meeting by the Bank of Japan (BoJ), where market participants will be keenly watching for any shift in policy rhetoric or indications of possible intervention.

Key Points:

• Recent Yen Weakness: The yen has weakened by nearly 6% against the US dollar from last month’s lows, continuing to decline despite repeated verbal interventions from Japanese officials. The USD/JPY's rise above 155.00 highlights the diminishing impact of these statements on market behavior.

• Ineffectiveness of Verbal Intervention: Recent comments by Finance Minister Suzuki, including reiterations of close monitoring and readiness to act, have not succeeded in halting the yen’s depreciation. This has led to increased skepticism about the willingness and readiness of Japanese authorities to intervene directly in the FX market.

• Pressure for Action: With the USD/JPY now trading above previously watched levels like 152.00 and 155.00 without any intervention, there is growing pressure on Japanese officials to move beyond rhetoric to tangible policy actions. Market participants are testing the resolve of Japan's MoF and BoJ to defend the yen amid rising US yields and a strengthening US dollar.

• BoJ Policy Meeting Expectations: While a more hawkish tone is anticipated from the BoJ at the upcoming policy meeting, there is skepticism about whether policy rhetoric alone can counter the strong trend of yen weakening. Market participants are looking for definitive steps rather than mere verbal indications.

Conclusion:

As the BoJ approaches its April policy meeting, the efficacy of verbal intervention by Japanese officials is under scrutiny, with market forces seemingly demanding more decisive action to support the yen. The outcome of the meeting could be pivotal in determining the near-term direction of USD/JPY, as traders and investors gauge the potential for real intervention or policy shifts.

• Sterling stalling just ahead of Fibo levels, 1.2526-28

• We have squared our 1.2395 long for just over a percent profit

• Weekly action shows a topside cloud breach, reinforcing bullish potential

• However, there is increasing corrective pullback risk

• A bid left by the 1.2415 hourly cloud top

• Negative daily momentum has now faded and RSI is rising

  For more click on FXBUZ

• FX option implied volatility meets demand after setbacks from recent highs

• Benchmark 1-month expiry EUR/USD paid 5.9-5.95 early Thursday

• Contract up from late 2021 lows at 4.9 late March to 7.15 mid April high

• Mid-east related risk aversion and USD gains lifted implied vol/demand

• 1-month daily realised vol (fair value measure) is currently 6.2

• 3-month and 1-year implied vols also half-way between recent highs and lows

• 1-week expiry implied vol elevated by May 1 FOMC inclusion nL2N3GY0M6

• Focus on JPY and BoJ intervention risk on Friday nL2N3GY0P9nL2N3GY0TW

For more click on FXBUZ

• Cable rises to 1.2516 as the pound benefits from BHP-Anglo news

• Australian miner BHP makes $39 billion bid for London-listed Anglo American

• 1.2516 is highest level since April 12 (1.2558 was high that day)

• It is also more than two cents above Monday's five-month low of 1.2299

• US Q1 GDP data due at 1230 GMT; growth of 2.4% is consensus forecast

• Scotland's SNP-Green government coalition collapses - Sky News nL5N3GY32B

• EUR/USD recently failed under 1.0611 Fibo, ahead of the 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

• We are short at 1.0725 for a slump, our stop is above kijun line at 1.0772

• EUR/USD Trader TGM2334. Previous update nL2N3GX0LY

• 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 166.06-166.87 EBS range on Thursday

• AUD/USD extends modest gains to 0.6512 from 0.6498

• Advancing toward 200 DMA resistance at 0.6528

• That chart barrier deflected it lower on Wed

• Rally steered by AUD/JPY and other yen crosses soaring

• Fear of intervention fades as 155.00 breached uneventfully

• Traders see 160.00 as the new USD/JPY line-in-the sand

• For more click on FXBUZ

• A marginal new high for the reversal from Monday's hammer candle

• Climb to 1.2470 allows us to raise our long stop to 1.2395 entry

• Our target tightened to 1.2550, ahead of the 200DMA

• Fourteen day momentum remains negative and daily RSI flattening out

• Recent high close to market and could resist further gains

• Will hold long for now but will monitor any test of the 1.2484-98 area

  For more click on FXBUZ

• AUD/USD hits an intraday high of 0.6511 from low of 0.6493

• Pulled up by AUD/JPY cross as USD/JPY hits new decades-high

• Briefly pops above 0.6503, the 50% retracement of April drop

• But retreats to 0.6502 as 200 DMA resistance 0.6528 bears down

• Australia financial markets closed Thurs; liquidity thinned

• Yen weakens past 155.00 vs USD before BOJ decision Fri

• For more click on FXBUZ

Synopsis:

ING reports a significant reaction in the Australian dollar following higher-than-expected inflation data for Q1. The inflation figures, showing sustained high core rates and a headline rate of 3.6% YoY, have led to adjustments in monetary policy expectations and bolstered the AUD.

Key Points:

• Inflation Data Overview: Australia's Q1 inflation data surpassed expectations, with core inflation measures remaining above 4% and the headline rate decelerating slightly to 3.6% year-on-year. The March CPI specifically exceeded forecasts at 3.5%, against a consensus of 3.4%.

• Market Reaction: Following the release, Australia’s two-year swap rate saw a significant jump of about 15 basis points, reaching its highest level since November 2023. This reflects a shift in market expectations, notably pricing out any rate cuts for the remainder of the year, leaving only a minimal 8 basis points of easing expected by the December meeting.

• RBA Policy Outlook: Despite the hot inflation figures, ING assesses that another rate hike is not entirely necessary, suggesting that the Reserve Bank of Australia (RBA) might achieve its inflation targets without further rate increases. However, the central bank is expected to approach any dovish policy shifts with increased caution given the persistent inflation pressures.

• Impact on AUD: These developments have positively impacted the Australian dollar, which has climbed back above the 0.6500 mark. The AUD is positioned to benefit from delayed policy easing expectations and remains one of the currencies likely to be supported in a stable risk environment, albeit still vulnerable to shifts in global risk sentiment.

Conclusion:

The recent Australian inflation data has notably shifted market dynamics and monetary policy expectations, strengthening the AUD against major counterparts. ING highlights that while the RBA may avoid further rate hikes, cautious communication will likely prevail due to the ongoing inflation concerns. 

• USD/INR to open up, rally in USD/JPY above 155 leads; DXY, UST yields rise

• Pair closed at 83.32, likely to open around 83.37, NDFs last at 83.39-83.44

• DXY last at 105.77, US March durable goods rise 2.6% nL2N3GX27Q

• 10yr UST yield bounces off 4.60% to 4.65%, eyes Q1 GDP data nL2N3GX1ZO

• USD/INR supports at 83.30, stronger at 83.20; resistance 83.40, 83.50

• Related nL3N3GY0F8

• For more click on FXBUZ

• AUD/USD edges up to 0.6504 from Wed close 0.6498

• Could have another go at testing 200 DMA resistance 0.6528

• Break of that barrier may send it past 61.8% Fibo 0.6537

• Dollar a touch softer in Asia despite equities risk-off

• Yen crosses may be fuelling the move as yen weakens more

• Australia financial markets closed Thursday

• For more click on FXBUZ

• USD/KRW jumps to 1376.2 from Wed close 1369.2; Kospi -1.1%

• Bollinger uptrend channel engaged on close above 1381.1

• Triggered by USD/JPY surging past 155.00 line-in-the-sand

• Yen weakening to new decades-low pulls KRW, CNH along

• S. Korea Q1 GDP smashes forecasts at +3.4% y/y nP8N3EO001

• Early BOK rate cut seems even more unlikely now

• For more click on FXBUZ

• USD/SGD opens higher, tracks higher DXY, USD/JPY nL2N3GX27Q

• DXY last at 105.82, traded 105.59-95 range overnight

• US March durable goods orders rise 2.6% nL2N3GX1F6

• UST yields rise ahead of Q1 GDP, 10yr yield last 4.64% nL2N3GX1ZO

• USD/SGD traded 1.3607-24 range in NY, closed at 1.3620

• Supports 1.3570, 1.3550; resistance 1.3650, 1.3670

• Related nL2N3GX2SP

• For more click on FXBUZ

• AUD/USD rally deflected by 200 DMA resistance on Wed

• Key barrier at 0.6528 might prove resilient for now

• Consolidation lower toward 38.2% Fibo 0.6470 may ensue

• Pullback cued by UST yields rebounding, renewed JPY weakness

• USD/JPY spikes through 155.00 despite FX intervention threat

• BOJ meeting concluding Fri eyed; Australia closed Thurs

• For more click on FXBUZ

Synopsis:

HSBC analyzes the implications of potential intervention by Japan to support the yen, noting that such actions could significantly affect the USD/JPY exchange rate. Despite a general trend of a strengthening USD, the bank highlights several factors that might moderate the currency pair's movements.

Key Points:

• USD Strength Against G10 Currencies: HSBC expects the USD to gradually strengthen against most G10 currencies in the coming weeks, influenced by various macroeconomic factors. However, the pace of appreciation might be moderated by the market's anticipation of potential intervention from Japan's Ministry of Finance (MoF) to support the yen.

• MoF Rhetoric and Market Sentiment: Continued statements from the MoF regarding the stability of the JPY, along with recent international discussions on currency volatility, have helped stabilize the JPY against a rising USD. The meeting between the finance ministers of Korea, Japan, and U.S. Treasury Secretary Yellen emphasized a shared commitment to monitoring and potentially acting on rapid movements in the JPY and KRW.

• Impact of Potential Intervention: HSBC suggests that any actual intervention by Japan to support the yen could have a significant, albeit potentially short-lived, impact on the USD/JPY exchange rate. The current market positioning and valuation stretch make USD/JPY particularly sensitive to intervention.

• Yield Gap and Market Reactions: Following any potential intervention, the yield differential between the US and Japan could prompt renewed buying of USD/JPY, potentially offsetting some of the initial effects of the intervention.

• Speculative Market Positioning: HSBC’s flow data indicates that speculative accounts have predominantly been selling USD/JPY over the last month. This suggests that the market positioning might not be as heavily skewed towards a weaker yen as previously thought, which could influence the effectiveness and consequences of any intervention.

Conclusion:

While HSBC anticipates a general strengthening of the USD against G10 currencies, the bank underscores the significant role that potential Japanese intervention could play in shaping USD/JPY movements.

• USD/JPY buyers took the leap of faith with a rise above 155

• Had been fear Japan's MoF/BoJ would intervene near there

• That after this year's 10% rise to 34-year highs prompted MoF warnings

• Prices have now cleared 161.8% Fibos off 2023 lows by 155.20

• A 155.20-plus close would create space for a run at 156 next

• But a rise to 1990's 160.35 high will need more solid US data fuel

• An LDP official noted there's no talk about intervention levels yet

• Party executive Takao Ochi said a slide to 160, 170 may be deemed excessive

• Bulls are happy to hang on given the attractive carry trade

• Downside risk would have to come from U.S. data misses, faster Fed rate cuts

• US Q1 GDP on Thur may beat f/c as Atlanta Fed GDPNow favors bigger increase

• Bigger event risk comes from Fri's core PCE, next Fri's payrolls

• Also have Tokyo CPI and BoJ on Friday, but no key policy news is expected

For more click on FXBUZ

• NY opened near 0.6500, an early lift near 0.6510 was sold, 0.64835 traded

• US yields US10YT=RR supported a broad based rally for the US$

• USD/JPY traded above 155.30, UDS/CNH rallied above 7.2730 on D3

• Equities ESv1 giving up early gains also weighed on AUD/USD

• Gold XAU=, copper HGv1 gains helped to keep AUD/USD up on the session

• AUD/USD neared 0.6500 late in the session with help from AUD/JPY's lift

• Daily inverted hammer formed after 55- & 200-DMAs neared; is a bear signal

• US Q1 GDP & its PCE component and weekly claims are data risks Thursday

• For more click on FXBUZ