Synopsis:

Credit Agricole predicts a continued downward pressure on EUR/USD due to diverging monetary policies between the European Central Bank (ECB) and the Federal Reserve. Despite potential inflationary pressures from a weak euro and high commodity prices, the bank sees limited impact from exchange rate movements on Eurozone inflation.

Key Points:

• Monetary Policy Divergence: The ongoing divergence in monetary policy between the ECB and the Fed is expected to be a key driver for EUR/USD. The Fed's outlook and the ECB's ability to match this stance will significantly influence the currency pair.

• ECB's Exchange Rate Concerns: ECB President Christine Lagarde has highlighted concerns that further weakening of the euro, coupled with high commodity prices, could increase inflationary pressures and potentially disrupt the ECB's plans for easing. However, Credit Agricole expresses skepticism about the market's reaction, suggesting that investors might test Lagarde's resolve on this issue.

• Exchange Rate Pass-through (ERPT) Effect: Recent data suggests that the pass-through effect of a weaker euro on Eurozone inflation has diminished compared to previous years. For instance, a 10% depreciation in the euro's nominal effective exchange rate (NEER) is now estimated to increase headline CPI by only 0.2-0.3% after four quarters, compared to 0.5% in earlier periods.

• Resilience of the Euro NEER: Despite the weakness observed in EUR/USD, the euro's nominal effective exchange rate has remained relatively stable, supporting the view that direct impacts on inflation might be subdued.

• Upcoming Inflation Data: The upcoming Eurozone April flash Harmonised Index of Consumer Prices (HICP) is expected to indicate further disinflation, reinforcing expectations for an ECB rate cut in June followed by additional easing measures later in the year.

• EUR/USD Outlook: Given these factors, Credit Agricole advises that EUR/USD should remain a sell on rallies next week, anticipating that any upward movements in the currency pair may be short-lived.

Conclusion: As the ECB and Fed continue on their divergent paths, EUR/USD is likely to face downward pressures, influenced by policy decisions and evolving economic indicators. Investors should closely monitor upcoming inflation data and ECB communications, as these will play crucial roles in shaping market expectations and the trajectory of EUR/USD. Selling on rallies could be a prudent strategy in this environment, given the limited efficacy of a weaker euro in driving up inflation and the anticipated monetary easing by the ECB.

Cable went on the back foot to close out the week, failing to maintain a foothold above the 1.25 handle and in need of a solid foray across the 200-day moving average beyond that figure to change the soft-sterling narrative.

After the worrying price data in the Q1 U.S. GDP report, traders appeared to breathe a sigh of relief following March PCE figures.

Despite a topside surprise relative to expectations, a 0.1ppt beat on both the core and headline figures were arguably less than what could’ve been given the GDP report.
In turn, market pricing over Fed policy was little changed with 35bps of easing seen by year-end 0#FEDWATCH.

The data reaffirms the current stance from Fed officials that more confidence is needed until they can consider cutting interest rates -- a message that will likely be reiterated at next week’s FOMC meeting.

For GBP/USD, while 1.25 is a key pivot zone – prior support, now resistance – the 200-DMA situated at 1.2555 needs clearing before bulls can get excited.
As previously highlighted, month-end flows will continue to favor the greenback in the immediate future.

For more click on FXBUZ

Synopsis:

Bank of America forecasts a ceiling on the potential rally of USD/CAD, despite imminent monetary policy divergence, citing inflation risks and structural financial concerns within Canada that could limit the pair’s upward movement.

Key Points:

• Monetary Policy Divergence: BofA expects the Bank of Canada (BoC) to begin its rate cutting cycle in the summer, while anticipating the first Federal Reserve rate cut towards the end of the year. This policy divergence is recognized by many investors, potentially influencing USD/CAD dynamics.

• Impact of CAD Weakness: A sharp sell-off in the CAD following the BoC’s rate cuts could lead to significant inflationary pressures within Canada. BofA estimates that for every significant rise in USD/CAD, there could be an additional 15 basis points added to Canadian CPI. A surge to 1.45 in USD/CAD could increase Canada’s CPI by a full percentage point.

• Market Reaction and Ceiling on Rally: The potential inflationary impact and structural portfolio outflows due to a weaker CAD may concern FX markets, thereby imposing a ceiling on how much USD/CAD can rally. This is in contrast to other currency pairs where similar dynamics may not be as pronounced.

• Relative Position of CAD: Compared to other major developed country currencies, the CAD is in a more favorable position, making it a less preferred option for those holding a bullish USD view.

• Bank of Canada’s Potential Interventions: While the current risk of FX intervention by the BoC is low, the bank has a history of intervening in the FX and repo markets. Such measures could be considered if USD/CAD movements threaten economic stability.

• Outlook and Forecasts: BofA maintains a downward forecast path for USD/CAD, expecting it to revisit the 200-day SMA of 1.35 by the end of the year. However, the long-term forecast for 2025 has been adjusted from 1.30 to 1.32 due to diverging terminal policy rates between the Fed and BoC.

Conclusion:

While the impending divergence in monetary policies between the U.S. and Canada suggests potential for a USD/CAD rally, BofA advises caution, highlighting structural and inflationary risks that could cap significant gains.

• EUR/GBP hits 0.8563 after extending south from 0.8643 (16-week high Tuesday)

• 0.8563 is lowest level since April 19 (0.8556 was low that day)

• GBP supported by lower risk of BoE rate cut before August, re: Pill Tuesday

• Probability of BoE June cut has halved to 32% since Pill spoke 0#BOEWATCH

• HSBC expects another 8-1 BoE MPC rate hold vote on May 9 (as per March)

• French President Macron calls on ECB to nuance its focus on inflation

Synopsis:

ANZ projects a rise in the AUD/CAD exchange rate, driven by robust Australian CPI data and improved risk sentiments. The bank anticipates that the Reserve Bank of Australia (RBA) will maintain its current policy stance until at least November, further supporting the Australian dollar's strength against the Canadian dollar and other major currencies.

Key Points:

• Australian CPI Data: The recent CPI print from Australia showed significant strength in non-tradable and services inflation, particularly in the health and education sectors. This robust inflationary pressure supports the view that the RBA will not alter its policy rate until November, providing a stable backdrop for the AUD.

• AUD/USD Outlook: Strengthened by the Q1 CPI data and a favorable risk environment, the AUD/USD pair is well-supported heading into the next week. A convincing breach of its 200-day moving average at 0.6527 could pave the way for further gains, potentially testing higher resistance levels at 0.6588 and 0.6650.

• AUD/CAD Dynamics: With Canadian inflation showing signs of easing and risk sentiment improving, ANZ sees a potential for higher AUD/CAD rates. The pair has previously overstretched beyond 0.90, yet changes in the economic landscape could push it towards 0.95 under favorable conditions.

• Comparative Inflationary Pressures: The AUD is expected to perform stronger on G10 crosses, particularly against currencies like the CAD, NZD, and JPY, where inflationary pressures are more evidently subsiding.

Conclusion:

ANZ's analysis indicates a bullish outlook for the AUD, especially against the CAD, driven by persistent inflationary pressures in Australia contrasted with easing inflation in Canada. The anticipated stability in Australian monetary policy, coupled with favorable global risk sentiments, may enhance the AUD's position in the forex markets.

Synopsis:

Société Générale assesses the potential for a final significant surge in USD/JPY, following the Bank of Japan's decision to maintain interest rates and adjust inflation forecasts upward. The analysis focuses on the impact of diverging yield dynamics between the U.S. and Japan and the fundamental valuation of the yen.

Key Points:

• Bank of Japan’s Policy Decision: As expected, the Bank of Japan held interest rates steady at its recent policy meeting but raised its inflation forecasts for the fiscal year 2025/26, anticipating core inflation at 2.1% and real GDP growth at 1%.

• Yield Differentials: The ongoing disparity between U.S. and Japanese yields, with U.S. yields on the rise and Japanese yields constrained by low short-term rates, continues to fuel the ascent of USD/JPY. This yield differential, historically aligned with more than nominal GDP growth over time, suggests potential narrowing in the future but remains wide for now.

• Long-Term Valuation of the Yen: According to SocGen, the yen is fundamentally undervalued, with purchasing power parity (PPP) for USD/JPY estimated in the mid-90s, while a fair value adjusted for U.S. exceptionalism and Japanification would be around 110. The current levels are significantly above these estimates due to the large yield gap.

• Potential for a Final Surge: There is a concern that unless Japanese policymakers adopt more aggressive measures, both in terms of intervention and monetary policy adjustments, the continued upward pressure on USD/JPY could lead to an excessive final spike before the eventual normalization.

Conclusion:

SocGen's analysis indicates that while a correction in USD/JPY is inevitable due to fundamental undervaluation and expected shifts in yield differentials, the timing and nature of this adjustment could be dramatic unless there is significant policy action from Japan. The firm suggests that market participants should prepare for potential volatility in USD/JPY, especially as U.S. yields continue to climb and Japanese rates remain low.

• Ichimoku cloud twists have a habit of attracting

• EUR/USD has been drawn toward weekly cloud twist at 1.0740

• The daily cloud twists soon too but higher around 1.0840

• EUR/USD has been directionless for a long time

• The lack of volatility heightens chance that the twist attracts

• Cheap natural gas likely to underpin EUR/USD nL2N3GZ0NP

• Cable has traded a 43 pip range since the London open; 1.2498-1.2541

• 1.2541 is highest level since April 12 (1.2558 was high that day)

• GBP supported by Anglo's rejection of BHP's 31 bln pound takeover proposal

• Consensus growing that BHP will have to sweeten its offer to get deal done

• US March core PCE data due 1230 GMT; upside risk to 0.3% MM, 2.7% YY f/c

• WSJ-Trump allies draw up plans to blunt Fed's independence (election Nov 5)

• USD/JPY dropped from 156.82 to 154.97, on EBS, before a quick rebound

• No MOF comment after yen's sharp but brief jump versus dollar nL2N3GZ0KX

• Sudden drop in Ldn highlights market nerves about intervention nL2N3GZ0LM

• Weekly chart show spot remains on track to soar to test 160 nL2N3GZ0JA

• Huge rate differential between Fed and BOJ keeps USD/JPY bias on the upside

• Japan frets over relentless yen fall, BOJ keeps ultra-low rates nL2N3GY49Z

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

• 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 166.73-168.23 EBS range on Friday

• EUR/USD's recent failure under 1.0611 Fibo has led to later recovery moves

• 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 in anticipation of a slump to our 1.0525 target

• EUR/USD Trader TGM2334. Previous update nL2N3GY0PB

• FX Option strike expire at 10-am New York/3-pm London - Friday April 26

• EUR/USD: 1.0675-85 (1.9BLN), 1.0700 (1BLN), 1.0725-30 (1.4BLN)

• 1.0750 (1.7BLN), 1.0785 (1.1BLN), 1.0800 (548M)

• USD/CHF: 0.9100-10 (765M), 0.9200 (276M). EUR/CHF: 0.9775 (357M)

• GBP/USD: 1.2430 (1.1BLN), 1.2490-1.2505 (1.1BLN)

• AUD/USD: 0.6500 (469M), 0.6515-25 (390M), 0.6540-50 (556M), 0.6570 (377M)

• NZD/USD: 0.5905 (329M), 0.5925 (229M), 0.5940 (385M)

• USD/CAD: 1.3560-65 (600M), 1.3650 (259M), 1.3770-85 (1.1BLN)

• USD/JPY: 155.00 (1.5BLN), 156.00 (376M), 156.25 (320M), 156.50 (530M)

For more click on FXBUZ

• EUR/GBP pierced the 10 and 100-DMAs Thurs then struck a four-session low

• Slide stalled near the daily cloud top and a bounce ensued

• A long legged doji-hammer formed, a concern for our short

• A close below those daily MAs needed to bolster the trade

• Cloud top and 50-DMA are at 0.8558

• Daily momentum has just nudged to negative and RSI falling

• Short is risk free: drop under 0.8565, Thurs low, sees stop lowered

  For more click n FXBUZ

• Off 0.1% at the base of a tight 1.2495-1.2511 range with moderate D3 flow

• UK consumer sentiment returns to a two-year high in the last month - GfK

• Optimism based on falling inflation and hopes of upcoming tax cuts

• There are no UK data or BoE events today - USD and risk appetite lead GBP

• Charts; 5, 10 & 21-day moving averages coil, 21-day Bollinger bands slip

• Daily momentum studies rise - the daily signals are neutral from bearish

• Close above 1.2522 21-DMA and 1.2526 0.382% Mar/Apr fall would be bullish

• NY 1.2457 low and 1.2526 0.382% Fibo is the initial support/resistance

For more click on FXBUZ

Synopsis:

Bank of America revises its G10 FX outlook as continuous high U.S. inflation readings contribute to market unease and lead to adjustments in monetary policy expectations. While longer-term forecasts still predict a softer dollar, near-term projections now anticipate a relatively stronger USD.

Key Points:

• Persistent U.S. Inflation: The start of the year has seen three consecutive higher-than-expected U.S. inflation data points, causing discomfort in financial markets and prompting policymakers to reconsider their strategies. This persistent inflation is challenging initial expectations of easing monetary policies.

• Impact on Federal Reserve Policy: The unexpected inflation data has led to a shift in market expectations regarding the Federal Reserve's actions, with anticipated near-term rate cuts being pared back. This adjustment reflects growing concerns about sustained inflationary pressures.

• Dollar Strength and FX Outlook Revisions: In response to the ongoing economic conditions and the shift in policy expectations, BofA has updated its G10 FX outlook. Initially expecting a broadly softer dollar towards the year-end, the bank now sees potential for a stronger dollar in the near term, contingent on continued inflation pressures.

• Long-Term Outlook: Despite the revisions for the near term, BofA still projects a softer dollar by the end of the year. However, this outlook is tempered by caution, as persistent inflation could extend the dollar's strength further into the year than previously expected.

Conclusion:

Bank of America's revised G10 FX outlook reflects a complex interplay between unexpected inflation persistence, adjustments in monetary policy expectations, and broader economic indicators. The bank cautions that if inflation remains high, the risk of a stronger dollar could increase, influencing global currency markets.

• Flat after closing +0.4% with the USD off 0.3%, as US economic growth eased

• GBP bid despite rising spreads, 10yr gilt +3bp 4.369%, 10yr UST +5bp 4.706%

• Weak UK April retail sales due to Easter in March, but supplier orders fell

• There are no UK data or BoE events so the USD and risk appetite lead GBP

• Charts; 5, 10 & 21-day moving averages coil, 21-day Bollinger bands slip

• Daily momentum studies rise - charts no longer have a bearish bias

• Close above 1.2522 21 DMA and 1.2526 0.382% Mar/Apr fall would be bullish

• NY 1.2457 low and 1.2526 0.382% Fibo are the initial support/resistance

For more click on FXBUZ

• Steady after closing +0.3% with the USD off 0.25% after soft US growth data

• ECB policymaker Fabio Panetta called for timely small interest rate cuts

• Yield differentials widened, 10yr bund +4bp 2.624%, 10yr UST +5bp 4.706%

• Charts - 5, 10, and 21-day moving averages coil, 21-day Bollinger bands slip

• Daily momentum studies rise - the downtrend has stalled - signals have based

• 1.0745 Fibo resistance, 0.382% of the March/April fall is under pressure

• Close above would target a test of the 1.0790 0.5% retracement

• 1.413 BLN 1.0723/30 April 26th strikes may act as a magnet today in Asia

For more click on FXBUZ

• AUD/USD opens +0.32% after a whippy trading day that ended with USD easing

• It whipped between 0.6539/0.6486 in the aftermath of mixed US GDP nL2N3GX390

• Market torn between weak US growth & higher US yields due to high inflation

• AUD/USD may remain elevated in Asia as E-Minis +0.80% in after hours

• It floows Strong after the bell reports from Alphabet and Microsoft nL3N3GY5L3nL6N3GY0LO

• AUD/USD traded above the 200-day MA (0.6526) but failed to close above

• A close above 0.6530 targets April 9 high at 0.6644

• Support is at the 10-day MA, which comes in at 0.6459

• Upside may be limited if Asia follows weak Wall Street lead

• For more click on FXBUZ

Synopsis:

ING discusses the complexities of potential Japanese intervention in the currency market as USD/JPY trades above the anticipated intervention threshold of 155. Despite high expectations following a recent trilateral meeting, current market conditions may not fully justify intervention based on historical precedents of volatility and rate changes.

Key Points:

• Current USD/JPY Levels: USD/JPY has surpassed the 155 level, a point many market analysts had anticipated might prompt intervention from Japanese authorities to support the yen. However, the actual market response and conditions have not yet aligned with typical precursors for such measures.

• Historical Context for Intervention: ING references September 2022, when the Bank of Japan intervened by selling $20 billion in one day, a response triggered by specific market conditions including one-month implied volatility trading between 12-15% and a 20-day rate of change in the 5-8% range.

• Comparison with Current Market Conditions: Currently, the one-month traded volatility for USD/JPY remains below 10%, and the 20-day rate of change is approximately 3%, both significantly lower than the levels seen during previous interventions. These more subdued metrics suggest less market disruption and may complicate the justification for immediate intervention.

• Implications of Trilateral Meeting: While last week's meeting between U.S., Japanese, and Korean finance ministers was significant, particularly for the intervention narrative, the joint press release alone does not meet all the criteria needed for action. The sufficiency of conditions for intervention requires clear evidence of disorderly market movements, which may not yet be present.

Conclusion:

While USD/JPY's breach of 155 has heightened speculation about potential intervention by Japanese authorities, ING notes that current market conditions characterized by lower volatility and modest rate changes do not strongly support the case for immediate action. It will be challenging for Japan to argue that the market conditions are sufficiently disorderly to warrant intervention based on historical intervention criteria.

• USD/JPY's new 34-yr high at 155.75 Thur was aided by Tsy-JGB yld spreads

• Weak but inflationary U.S. Q1 GDP and core PCE crushed Fed cut pricing

• That amid doubts about Japan's plans to support the falling yen

• Friday's BoJ meeting eyed for QE exit plans, but no rate hike is expected

• Slowing the 155 breakout was the broader dollar softening on Thursday

• Prices have come closer to the upper 30-day Bolli by 156

• That Bolli was by key highs earlier this month and in prior two months

• Friday data features are Tokyo April CPI and U.S. core PCE

• That as nearby MoF yen intervention looks less likely or acceptable to US

For more click on FXBUZ

• NY opened near 1.0725 then spiked up to 1.0741 on EBS after GDP, claims data

• Below estimate headline GDP drove the spike up but gains were quickly erased

• Above estimate GDP PCE, drop in claims rallied US yields US2YT=RR, US$

• Stocks ESv1, gold XAU= fell and USD/CNH rallied towards 7.2700

• EUR/USD fell to 1.0679 on EBS but bears ran out of steam, rally ensued

• US$, yields slid from highs while stocks & gold rallied off the NY lows

• EUR/USD turned positive, neared 1.0740, traded up +0.37% late in the day

• Daily techs lean bullish; RSI is rising & a daily bull hammer candle formed

• Monthly techs are mixed; doji is place and RSI is falling slightly

• US March PCE & its potential impact on Fed policy is a key risk Friday

• For more click on FXBUZ

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