Credit Agricole CIB Research discusses AUD outlook into today's FOMC meeting and RBA's Lowe speech. 

"It will be important twenty-four hours for the AUD with the FOMC meeting, RBA Governor Philip Lowe speaking and the Australian labour market data and we caution investors that there could be some violent price action in the AUD. We continue to think the currency remains a buy on dips," CACIB notes. 

"Our US economist does not expect the FOMC to retreat from its temporary-spike-in-inflation mantra, which would be good news for the risk and rate-sensitive AUD. But it would take only two members of the FOMC to shift in order to bring forward for the median expected date for the start to the Fed’s rate hikes from 2024 to 2023,which could weigh on the AUD," CACIB adds. 

GBP/USD rose on Wednesday after data showing UK inflation nL2N2NY0JIunexpectedly rose above the BoE's 2% target, advancing beyond 1.4100 and flirting with 10- and 30-day resistance near 1.4130 and emboldening bulls for further gains.

The upbeat UK inflation outlook reversed Tuesday's weakness related to UK reopening delays, re-igniting UK rate hike expectations to potentially fuel a cable move back near June highs by 1.4250.

UK inflationary pressures are not unique, aspandemic base effects skew data in all economies, leaving global central bankers biased toward treating this price-growth acceleration as transitory until economies normalize.

Wednesday's Fed rate decision and news conference is likely to underscore the transitory view.

Sterling's inability to fall far from its June 1, 2021, high by 1.4250, with support firm by Tuesday's 1.4035 low and 55-DMA by 1.4001, should encourage bulls to consider new highs, especially if British inflation proves to be more entrenched, as outgoing BoE Chief Economist Andy Haldane suggested recently, and leads U.S. and UK rate hike expectations diverge.
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Bank of America Global Research sees the USD an inflation crossroads awaiting for the Fed's response

"Following another strong inflation surprise in the US last week, we are increasingly concerned. To a large extent, high US inflation has to do with the massive US fiscal stimulus. Inflation has been increasing in most of G10, but the US clearly stands out. The implications of higher US inflation for the USD depend on the Fed," BofA notes. 

"The Chart of the Day shows that FX performance and central bank hawkishness are strongly correlated this year. Assuming that some of the recent increase in inflation is indeed sustained, we would argue that the Fed will react to it, supporting the USD later this year," BofA adds. 

Credit Suisse discusses its expectations for today's FOMC policy meeting.

"Our own, more cynical, strategy base case is a 50% chance the Fed keeps most things as they are, with just a one-hike tilt for the median 2023 dot, and that Powell makes only the most modest hint of the possibility of tapering talk starting soon," CS notes. 

"What does all this mean for the USD? The market has taken a relatively cautious stance coming into this week, closing out greenback shorts and taking profits on some Q2 favourites. But beyond these short-term tactical adjustments, strategically the bulk of investors appear to be betting on the idea that this month’s FOMC will not be a game changer for messaging either on when tapering discussions will start or in terms of when / how much the Fed will hike rates. This suggests that the path to a much stronger USD after the FOMC probably lies in the Fed validating the most hawkish expectations," CS adds. 

• US$ generally lower as US 10-yr yield sinks, Dec 2022 ED price rallies

• Copper bounces and USD/CNH sinks near 6.3945 in overnight trade

• AUD/USD drifts higher in overnight trade, hits 0.77095 ahead of NY open

• Lift stalls as US$ buys emerge, USD/CNH nears 6.4000, AUD/USD nears 0.7700

• AUD/USD techs lean bearish, pair trades below daily cloud, slew of daily MAs

• Fed now in focus, if deemed less dovish AUD/USD is likely to fall

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• Benchmark 1-month expiry risk reversals lose JPY call/USD put premium

• Adopts a tiny premium for JPY puts/USD calls (upside strike options)

• Current levels last seen in Feb, prior to that was late 2016

• Means option dealers see less risk of significant USD/JPY setbacks

• Increased JPY puts/USD call premium would hint at increasing upside impetus

• However, while big risk of short term volatility from Fed nL2N2NY0GZ

• Option pricing suggests broader ranges set to hold nL2N2NY0GZ

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• AUD/USD reaches 0.7707 after pushing recovery envelope from 0.7675

• 0.7675 was Tuesday's low, as copper price drop hurt risk-sensitive AUD

• Copper nears two-month low as China says to sell reserves nL2N2NY08M

• More: nL2N2NY06O. Rise to 0.7707 precedes Fed event risk nL2N2NX1EJ

• Offers may emerge near 0.7726 (Monday's high) if AUD/USD extends north

• Australia minimum wage to rise 2.5% nL3N2NY1YU. RBA's Lowe speaks Thursday

It took a health crisis to boost EUR/USD to neutral long-term levels where it has been stuck this year and will likely stay until there's news with punch equivalent to the pandemic to spark a break-out.
That may be a long time.

The euro zone debt crisis drove EUR/USD down from 1.3995 to 1.0340 and several years later the COVID-19 outbreak fuelled a rally from 1.0336 to 1.2349.
The half-way mark or neutral ground for those moves is 1.2168.

The middle of this year's 1.1704-1.2349 extremes is 1.2026 and centre of 20-week Bollinger bands is 1.2038.

Volatility has sunk to pre-pandemic levels when EUR/USD traded ranges largely within 1.1000-1.1500 for almost two years.

Traders have bet heavily on EUR/USD rising, weighing on an already immobile pair and countering bullish techs.

The emergence of enough U.S. inflation to stir thoughts the Federal Reserve could begin to unwind easy policy is supporting USD but quick policy changes are extremely unlikely.
EUR/USD traders are likely to have a long wait on their hands.

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• Cable met fresh headwind around 1.4100 after rising on above f/c UK May CPI

• Up 2.1% YY vs 1.8% f/c nL5N2NY0YW. 1.4100 is a former support point

• Offers by 1.41 capped Tuesday's recovery rally from 1.4035 (one-month low)

• 1.4128 was Tuesday's high, after strong UK jobs data (before drop to 1.4035)

• Fed expected to signal start of monetary policy shift debate nL2N2NX1EJ

• UK tells EU on Northern Ireland: be responsible, be reasonable nS8N2NS0BH

• FX options expire 10-am New York/3-pm London - Wednesday June 16

• EUR/USD: 1.2100 (287M), 1.2115-20 (1.2BLN), 1.2130 (427M), 1.2200 (553M)

• USD/CHF: 0.9015-30 (371M).

• AUD/USD: 0.7740-45 (600M)

• USD/JPY: 109.70-75 (965M), 110.00-05 (785M), 110.25-30 (610M)

• 110.40-50 (350M)

• AUD/JPY: 84.45 (200M). EUR/NOK: 10.05 (398M)

  
  

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• AUD/USD up 0.15% in Asia on position squaring ahead of Fed statement Wed

• Vulnerable on any hint of taper talk from Fed nL2N2NV0N4nL2N2NW0Z4

• Traders also await RBA Governor Lowe's speech on the AU economy on Thursday

• Perception RBA will lag global peers on rate rises keeps Aussie on defensive

• China May retail sales, ind'l production, urban inv data due later Wed

• Support 0.7670-75, 0.7645-50, 0.7615-20, resistance 0.7710-15, 0.7730-35

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• Touch firmer in the middle of a quiet 110.04-110.15 range pre FOMC

• Japan exports jumped, machine orders rise, both miss forecasts nL2N2NX060

• Soft markets, Nikkei -0.3%, AsiaxJP stocks -0.3% and E-mini S&P flat

• Charts - continues to trade above the daily cloud - top a distant 108.87

• 109.44 Kijun line climbs - break of 109.75 Tenkan line would be bullish

• Momentum studies 5, 10 & 21 DMAs head higher - positive setup

• Break of 110.32 June high would target 110.97 March and 2021 top

• London 109.99-110.17 range is initial support and resistance

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• EUR/USD opened at 1.2126 and traded in a 1.2117/30 range in quiet trading

• Heading into the afternoon is was steady around 1.2120 with light volumes

• Resistance is at 10-day MA @ 1.2249 with option related sellers at 1.2160

• Support is at the 55-day MA at 1.2080 with bids eyed at 1.2090/95

• Market side-lined ahead of FOMC decision later today

• Key will be Treasury market reaction to statement and Powell presser

• Market may have priced in risk of more hawkish Fed so risk is both ways

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• Flat after closing a touch firmer with markets cautious into the FOMC

• EU's new pandemic recovery bonds received a warm market welcome nL5N2NX1GW

• 1.2115/20 1.175BLN and 427M 1.2130 and 260M 1.2145/55 close strikes contain

• Charts; 21 day Bollinger bands 5, 10 & 21 DMAs edge lower - negative bias

• Close below 1.2053, 38.2% March-May rise would confirm the bearish setup

• NY 1.2102 low and early European 1.2147 high are initial support, resistance

• Tight ranges into FOMC - likely more interesting than shocking nL2N2NW0Z4

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• Steady after closing off 0.15% with the USD little changed pre FOMC

• Conservative report urges government to boldly cut red tape nL2N2NX1WY

• Report suggests drastic changes in many areas - implementation will be key

• Charts; daily momentum studies 5, 10 & 21 DMA and 21 day Bolli bands slide

• Bearish setup to be confirmed by a close below 1.4028, 38.2% April June rise

• 1.4070 lower 21 day Bollinger band and 1.4035 London low are initial support

• NY 1.4095 high then 1.4128 late Asian top are first resistance

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• EUR/USD relatively buoyant in an otherwise quiet lead up to the Fed decision

• It traded as high as 1.2147 before sellers ahead of 1.2150 capped

• Resistance is at the 10-day MA at 1.2149

• Support comes in at the 55-day MA at 1.2080 with bids at 1.2090/1.2100

• EUR/USD likely to continue range trading in Asia, as market awaits FOMC nL2N2NX2BE

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• AUD/USD opens -0.32% as 4% fall in copper weighed on commodity currencies nL2N2NX0HC

• AUD/USD fell as low as 0.7674 before Wall Street closed off daily lows

• Support is at the June 3 low at 0.7646 with buyers tipped ahead of 0.7650

• Resistance is at the 10-day MA at 0.7717 and 100-day MA at 0.7727

• Focus today will be key China data including retail sales and IP

• Market will likely consolidate in range ahead of FOMC decision Wednesday

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Societe Generale Research discusses its expectations for tomorrow's FOMC policy meeting.

"Will the FOMC confirm talks about tapering are starting? Will they adjust the IOER? Will the median dot move to price in a rate hike in 2023? How high will growth forecasts go? There’s a chance the FOMC may not provide any meaningful clarity, but we can’t see them being too hawkish yet," SocGen notes. 

"The yen has been dismal this year and hasn’t even got any benefit from the most recent fall in US yields. But as USD/JPY poke sits nose above 110 again, we’re back in the selling zone," SocGen adds. 

The dollar was little changed against the euro and yen as investors shrugged off mixed U.S. data to await the conclusion of a key Fed meeting on Wednesday.

The euro was supported by overwhelming demand for the EU's next generation 10-year issue nL5N2NX1GW that was doubled to EUR20bln and was still seven times oversubscribed, which forced competing 10-year Bund yields and spreads to Treasury yields higher.

An avalanche of U.S. data, from retail sales, PPI, Empire State, industrial production and NAHB, with substantial undershooting and overshooting to forecasts and chunky revisions nL2N2NU0BI left markets none the wiser.

March's massive, upwardly revised 11.3% m/m retail sales surge in response to fresh government stimulus checks and the pandemic reopening left a lull in spending in May, as more purchases went to in-person services rather than goods.
But overall retail sales goods spending remains 20% above pre-pandemic levels, according to Citi.

Soaring PPI, above-forecast industrial production, stocks near record highs, credit spreads flimsy and more fiscal stimulus being planned tend to favor the view that the Fed's argument for remaining in emergency accommodation mode is weakening.

Nonetheless, EUR/USD came off its 1.2102 lows after the headline miss in retail sales, since peaking at 1.2131 on EBS.
But further examination of the sales, PPI and IP data left it up just 0.02% waiting for the Fed.

Sterling was down 0.21% after a tumble to 1.4035, its lowest since May 13, unimpressed by the UK-Australia trade agreement nL2N2NU0BI and hobbled by Monday's extension of UK COVID restrictions.

Monday's bearish first daily high below the 21-day moving average since April 13 and Tuesday's break below the up trendline from April's lows and bearish daily tenkan-kijun cross set the stage for the morning breakdown.
But the 1.4035 low held the 38.2% Fibo of the April-June rise at 1.4028, limiting the damage.

USD/JPY was flat in a tight 109.995-10.17 range, remaining in a choppy uptrend from April's lows but needing help from Treasury yields and a more inflation-attentive Fed to retake June's twin 110.325 highs or make a break for March's 110.97 pandemic recovery peak.

A dovish Fed could bring moving average props at 109.695 and grouped in the 109.24-44 range back into play.

Emerging market and commodity currencies fell ahead of the Fed, as any signs of sooner tightening would be viewed as a potential threat.

Bitcoin and ether consolidated gains from the start of the week instigated by Elon Musk's latest musings.

Demand for the U.S. 20-year re-opening was robust, helping keep the yield curve flatter versus steepening in Europe.

With no major U.S. data on Wednesday, the Fed will have the spotlight alone.

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• GBP/USD off early NorAm lows, ends NY -0.19% at 1.4075; NY range 1.4095-35

• Sterling dip to 100-week support fleeting as market awaits Fed nL2N2NX1B3

• Break below support at 1.4070 stirs stop selling, amid UK reopening delay

• Supt at 1.4033 Tuesday low, 1.4008 May 13 low then 55-DMA at 1.3995

• GBP bulls need to regain 10-DMA at 1.4134 to slow bearish tide

• EUR/GBP +0.23% at 0.8611, Tues range 0.8628-0.8584; recent GBP gains unwind

• UK reopen delay removes some UK recovery luster; EU-UK growth views converge

Credit Agricole CIB Research discusses its expectations for tomorrow's FOMC policy meeting.

"Ahead of the Fed, we think that while it may be too early for policymakers to debate QE taper, the updated dot-plot could suggest that support for a rate hike in 2023 is growing," CACIB notes. 

"The USD could be able to benefit, but only if there is a more meaningful bounce in US rates and UST yields," CACIB adds. 

• Monday's doji candle if followed by downside price action today

• The daily cloud base is helping to cap recent AUD/USD rallies

• Daily, monthly RSIs imply downside momentum, 10 & 21-DMAs bearishly aligned

• AUD/USD looks set to test key support in the 0.7635/45 zone again

• US data helps rally US interest rates, US$ as Fed meeting risk looms

• If Fed deemed less dovish US$ bid likely to intensify & AUD/USD should drop

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Danske Research discusses its expectations for tomorrow's FOMC policy meeting. 

"Tomorrow focus turns to the FOMC meeting, where the policy stance may be changing. We expect the dots to start reflecting expectations to a rate hike in 2023 and Powell may acknowledge they have started to think about thinking about tapering. Such slightly hawkish tones from Fed are reminiscent of Q1, and it can move EUR/USD below 1.20 over the coming months.. During Q1, the Fed was split between hawkish and dovish voices but this contributed well to limit the tail risk of outsized inflation prints becoming entrenched in markets. In turn, EUR/USD moved from 1.22 to 1.17," Danske notes. 

"Powell's alignment of communication contributed equally to weakening the dollar in Q2. As we move in to Q3, we expect to see a shift, which is reminiscent of Q1. At the current point in time where momentum in equities is shifting a bit towards tech and inflation is well priced, one could see a more hawkish Fed as a catalyst for some dollar strength over the coming months," Danske adds. 

GBP/USD bounced off one-month lows during the U.S. session but remained down on the day, undermined by delayed UK reopenings nL2N2NW091 due to the rapid spread of the Delta variant of COVID and a break of technical support by 1.4070.

Sterling stopped its slide at 1.4035, near the 10-WMA but the delayed UK reopening raises uncertainty about a return to cable's 3-year high of 1.4250, as investors reevaluate the pace of Britain's recovery.

GBP/USD dip, however, has been contained as traders await Wednesday's Fed policy statement, economic forecasts and news conference USFOMC=ECI for hints at the timing of Fed asset-purchase tapering, a precursor to rate hikes later on.

The UK reopening delay and tests of key downside GBP/USD technical levels would open the way for a further unwind of 2021 GBP gains.
Support levels by May 13's 1.4008, followed by the lower 30-day Bolli at 1.3967 and 100-DMA at 1.3932 are likely targets, particularly if the Fed takes a less-dovish stance on the U.S. recovery and taper.

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