• USD/JPY ending NorAm +0.27% at 156.60; Wednesday range 156.63-156.12

• USD remained bid as UST yields ticked higher after Click here

• Fed data dependent, disinflation taking longer than previously thought

• Goldman Sachs CEO says Fed unlikely to cut rates this year nS0N2ZE02J

• $JPY dominated by US rate advantage, w/Fed on hold USD likely to remain bid

• USD/JPY bulls still hold the advantage nL1N3HP21J

• Res 156.63 Wed high, 156.80 May 14 high, 158 upper 21-d Bolli

• Supt 156.12 Wednesday low, 155.90 rising 10-DMA, 155.25 May 17 low

For more click on FXBUZ

• NY opened near 1.0840 after 1.08633 traded on EBS overnight, drop extended

• US$ buying driven by yield US2YT=RR gains weighed on the pair

• USD/CNH rally to 7.2550, equity ESv1 & gold XAU= falls added weight

• EUR/USD pierced the 10- & 21-DMAs, 1.0822 hit on EBS then pair bounced

• Pair sat near 1.0840 and was down -0.15% heading into the Fed minutes

• Muted reaction to the Fed minutes, US$ firmed a bit, EUR/USD neared 1.0830

• Techs are mixed; monthly RSI is rising but daily RSI is falling

• US weekly claims and May S&P Global PMIs are key data risks Thursday

• For more click on FXBUZ

With markets in somewhat of a holding pattern on Wednesday but bias for risk appetite remaining firm, USD/JPY drifted to fresh weekly peaks, but the near-term term focus is on the May 14 high at 156.80, a break of which would likely open the door to 157.50, where intervention is suspected to have taken place.

As has been covered at length, the preference among traders is to be long carry, which is an environment where both the yen and the franc can be expected to underperform in and Wednesday’s session was no exception.

What’s more, a hawkish RBNZ - who had considered a rate hike - and UK inflation report, with closely watched services CPI falling to 5.9% versus the BoE projection of 5.5%, gave bond yields a lift, further adding pressure on the low-yielding yen and keeping bears very much in charge.

Looking ahead, the upcoming U.S. PMI survey will garner attention.
Though, while U.S. data has been softening of late, a continuation of this trend is unlikely benefit the yen significantly.
Dollar downside is likely better expressed versus GBP or AUD.

For more click on FXBUZ

Danske Research push their forecast for the BoE rate cut from June to August.

"Following today's topside surprise and the May print unlikely to deliver an equally large downside surprise to sway the majority of the MPC to vote for a cut, we now expect the first 25bp cut in August," Danske notes.

"Our call. We now expect the BoE to deliver the first cut of 25bp in August (June previously). Given the later start to the cutting cycle, we subsequently now only expect one 25bp cut in the following quarter, totalling 50bp of cuts for 2024 (previously 75bp). Markets are pricing 40bp for the remainder of the year with the first 25bp cut fully priced by November," Danske adds.

Sterling rallied to a 2-month high at 1.2761 in early European trading, after hotter than forecast UK CPI diminished recent dovish BoE rate cut expectations providing fodder for further gains toward late-March highs by 1.2803 as UK-U.S.
rate spreads narrow.

The data, core and headline, showed continued progress lower, though the upside miss pared market expectations of June and August rate cuts.

The flash rise to 1.2761 post-CPI hints that traders are leaning toward a less-dovish BoE direction in the near-term, diminishing some of the rate cut speculation that resulted from the May 9 MPC meeting.

Though cable fell back toward recent peaks in the 1.2720s, it stabilized at stronger levels on the day.

With a June cut seemingly off the table, and a August move priced just below 50%, sterling bulls appear poised to make a run at upside targets at the March 21 high 1.2803, and the March 8 2024 high at 1.2894.

Sterling IMM positioning 1096742NNET in early 2024 had been rising as UK rate expectations, owing to above target inflation, were expected to remain above U.S. rates.

Should UK inflation reduction stall as it has in the U.S., high-for-longer UK rate sentiment could dominate, leading the current net short GBP positioning to flip back to long as bulls target 2024 highs.

For more click on FXBUZ

Synopsis:

Bank of America outlines its expectations for a modest easing cycle by major central banks, highlighting the continuation of supportive conditions for carry trades. The firm maintains a short position on the Swiss Franc (CHF) based on the anticipated shallow rate cuts and robust market conditions.

Key Points:

• Central Bank Easing: BofA anticipates that central banks may initiate rate cuts despite the ongoing scenario of strong economic indicators, such as resilient equities, persistent inflation above targets, and growth exceeding expectations.
• Support for Carry Trades: The expected shallow rate cuts are seen as bolstering carry trades, particularly benefiting high beta G10 currencies like NZD, CAD, AUD, SEK, and NOK.
• Short CHF Strategy: BofA remains short on CHF via options, influenced by the broader market dynamics and the differential in market pricing of terminal rates compared to historical averages.
• Risk Considerations: There is an ongoing risk of a more significant economic slowdown, which BofA refers to as a "proper landing," that could alter the current market trajectory and central bank policies.

Conclusion:

Bank of America expects a limited easing cycle from major central banks, continuing to support carry trades and high beta currencies. The firm remains strategically short on CHF, anticipating that the current financial conditions will persist. However, it remains cautious about the potential for a significant economic correction that could shift central bank strategies and market dynamics.

Synopsis:

MUFG outlines a bullish outlook for NZD/CAD, driven by diverging monetary policy directions between the Reserve Bank of New Zealand (RBNZ) and the Bank of Canada (BoC). The firm attributes its stance to recent hawkish updates from the RBNZ and dovish shifts in BoC rate expectations.

Key Points:

• RBNZ Hawkish Update: The RBNZ's recent policy projections indicate a slight increase in the expected peak for the official cash rate (OCR), hinting at a potential additional rate hike this year.
• BoC Dovish Shift: In contrast, Canadian monetary policy expectations have softened, with markets now anticipating a possible rate cut as early as June, influenced by a series of lower-than-expected core inflation readings.
• Market Reactions: These developments have fostered a favorable environment for NZD strength against CAD, further supported by improving external market conditions.
• Forecasts: MUFG predicts continued NZD and AUD outperformance against CAD, with USD/CAD likely maintaining higher levels in the near term due to the anticipated policy divergence.

Conclusion:

MUFG maintains a bullish stance on NZD/CAD, expecting that the widening policy divergence between the RBNZ and BoC will bolster the kiwi. The bank also anticipates broader strength for the NZD and AUD against the Canadian dollar, reflecting a significant shift in central bank policies between New Zealand and Canada.

• AUD/USD hit 0.66855 in Asia, sellers then emerged and 0.6654 hit in Europe

• NY opened near 0.6665, pair traded down -0.04% in early NY trading

• Pair's drop aided by US yield US2YT=RR gains driving US$ buying

• Equity ESv1 and gold XAU= drops weighed on risky assets & AUD/USD

• Techs lean bullish; monthly RSI rising, consolidation phase persists

• Hold above 10-DMA, structural support near 0.6650 reinforces bull signs

• Fed's Goolsbee, minutes of Fed's April 30-May 1 meeting may impact risk

• US April existing home sales a risk in NY, May Judo Bank PMI a risk in Asia

• For more click on FXBUZ

• EUR/USD has traded mainly within 1.05-1.10 since start of 2023

• From Sep 2022 until April this year traders continually bet on pair rising

• The 1.5% interest rate gap weighing EUR/USD is expected to widen this year

• One-year forward swap has risen from around 150 points toward 200 points

• Reduced FX risk is likely to encourage sellers who can bank the carry

• Risk appetite in wider fin markets is robust which suits carry trades

• USD/JPY remain weak as a consequence of the 1985 Plaza Accord

• To correct it's long-term drop USD/JPY must reach 183

• The target for a minor correction of 1971-2011 USD/JPY drop is 183.22

• U.S. interest rate is no longer seen falling far nor to be trimmed soon

• The yen's plunge to a record low in April eases monetary policy

• BOJ is still buying huge quantities of bonds - easing policy

• If oil continues to fall it would support yen, but also depress CPI

• Short and caught, our 1.2684 trade stopped at 1.2730

• An early Wed high of 1.2761 followed by a 1.2745 pullback

• Price has removed the 76.4% Fibo of the 1.2893-1.2299 drop, 1.2753

• Sterling now clear above its daily Ichimoku cloud

• Bulls target the 1.2803 high from March 21

• Positive daily momentum extending: RSI nearing 70 and over bought territory

• We are side lined for now

  For more click on FXBUZ

• NZD/USD options were primed for post RBNZ NZD/USD fx volatility and got some

• NZD/USD from early 0.6094 low to 0.6152 post RBNZ, setback to 100-dma 0.6114

• RBNZ hawkish hold (higher for longer rates) should limit NZD setbacks

• Implied volatility drop reflects lower realised volatility risk post RBNZ

• 1-week NZD/USD implied volatility 8.5 to 7.5, 1-month 8.7 to 8.35

• 1-month implied volatility nears lower end of 10.5 - 7.6 2024 range

• Past 1-month realised volatility at 9.0 may limit deeper implied vol loss

For more click on FXBUZ

• Cable rises to 1.2753 after hotter than expected UK April inflation data

• UK CPI up 2.3% YY vs 2.1% forecast. Services CPI up 5.9% vs 5.5% forecast

• 1.2753 is highest level since March 21, and 76.4% Fibo of 1.2893-1.2299

• 1.2709-1.2722 was Asia range (pre-CPI data). 1.2687-1.2727 was Tuesday range

• Above forecast UK CPI is blow for doves advocating BoE rate cut on June 20

• BoE's Bailey assessed money market impact of gilt sales in Tuesday speech

• NZD/USD up 0.45% heading into Europe but off day high of 0.6152

• Likely to remain bid on dips as RBNZ signals higher-for-longer on rates

• RBNZ holds rates at 5.5% but increases OCR path, raises annual CPI forecast

• Sees rates peaking at 5.7% end 2024, compared with 5.6% three months ago

• Governor Orr confirms that MPC had real consideration on raising rates Wed

• NZ yields rise, AUD/NZD down 0.4%; Asia NZD range 0.6093-0.6152

• NZD/USD resistance 0.6170, 61.8% Fibo of Dec-Apr drop; support 0.6090-0.6100

• For more click on FXBUZ

• AUD/USD unchanged in Asia after trading in a 0.6666-0.66855 range

• Rises to day high as NZD/USD rallies on hawkish RBNZ

• Fails to sustain gains as AUD/NZD sellers cap, cross down 0.7%

• AUD's inability to gain despite slew of positives a worrying sign for bulls

• Ignores higher-for-longer RBA, elevated commodities, carry demand

• Rallies capped as Fed officials urge patience on timing of initial rate cut

• Fed April 30-May 1 meeting minutes, Nvidia earnings key Wednesday

• Supports 0.6645-50, 0.6620-25, resistance 0.6690-95, 0.6710-15

• For more click on FXBUZ

Synopsis:

Danske Bank analyzes the implications of recent US data on EUR/USD movements, anticipating a near-term continuation of the currency pair's historically narrow trading range due to persistent inflation concerns and the close watch on upcoming US and EU economic indicators.

Key Points:

• US Data Impact: Recent US CPI data provided a slight relief by breaking the trend of consistent inflation surprises, stabilizing EUR/USD movements.
• Continued Range-Bound Trading: Given the increasing correlation between US and EU front-end rates, EUR/USD is expected to remain within a tight range of 1.06-1.09.
• Upcoming Data Releases: Key data such as the US PCE inflation, ISM, and non-farm payrolls will be critical to watch, likely keeping EUR/USD around the 1.08 level until these releases.
• Central Bank Policies: The Fed is anticipated to start rate cuts in September, with the ECB expected to make a 25bp cut in June, followed by two more cuts within the year.
• Market Pricing: Current market pricing aligns closely with Danske’s forecast, showing expectations of more aggressive ECB cuts compared to the Fed.

Conclusion:

Danske Bank forecasts a continuation of the narrow range trading for EUR/USD in the near term, influenced by US data releases and central bank policy decisions. The bank notes potential risks including a possible earlier Fed rate cut and fewer ECB cuts than anticipated, which could introduce some volatility to the currency pair’s movements.

• NZD/USD rallies 0.85% as RBNZ holds rates at 5.5% but increases OCR path

• RBNZ sees official cash rate at 5.54% in June 2025 vs. previous 5.33%

• Raises annual CPI forecast to 2.6% in June 2025 from previous 2.4%

• Committee discussed possibility of raising ratesthis meeting

• NZD likely to rally further as RBNZ categorically hawkish

• Resistance at 0.6172, 61.8% of December-April decline

• Support 0.6130-40, 0.6100-10; Asia range 0.6093-0.6152

• For more click on FXBUZ

• Steady after closing up 0.05% resilient with the US dollar up 0.05%

• UK pay deals average almost 5% in the crucial April period: Brightmine

• Wages now outstrip inflation but may ease if inflation expectations fall

• Today's UK CPI and PPI will be a major factor for the BoE rate outlook

• Charts; positive daily momentum studies, 5, 10 & 21-day moving averages

• 21-day Bollinger bands rise - a strong positive trending setup

• Targets a test of 1.2766, 0.786% March/April fall then the 1.2893 March high

• A close below 1.2575 21-day moving average low would end the topside bias

For more click on FXBUZ

• +0.05% after closing -0.05% with the U.S. dollar +0.05% in low-key trading

• ECB President Lagarde is "really confident" inflation is under control

• Bundesbank's Nagel believes after the June cut yields should be data-driven

• EUR/USD remains resilient - ECB June cut priced - US rate outlook now key

• Charts - momentum studies conflict, 10, and 21-day moving averages climb

• 21-day Bollinger bands rise - uptrend stalled, but no longer overbought

• 1.0898, 0.786% March/April fall break needed soon to sustain the uptrend

• Friday's 1.0836 low, then the 1.0835 rising 10 DMA are initial supports

• 1.0830 1.015 BLN - 1.0855/60 872mln May 21 strikes may contain in Asia

  For more click on FXBUZ

• AUD/USD opens unchanged after trading in a narrow 0.6679-0.66465 range Tue

• Markets on-hold as RBA, Fed signal higher-for-longer rate stance

• RBA pondered raising rates in May, says inflation expectations well anchored

• Fed officials urge patience on timing of initial rate cut

• AUD downside limited as 25 bps RBA cut is close to fully priced only in Apr

• Elevated commodity prices and carry-trade also demand buoy AUD outlook

• RBNZ rate meeting, Fed Apr 30-May 1 meeting minutes, Nvidia earnings key Wed

• Supports 0.6645-50, 0.6620-25, resistance 0.6690-95, 0.6710-15

• For more click on FXBUZ

Synopsis:

Goldman Sachs discusses the current foreign exchange landscape, highlighting the challenges in advocating for new USD shorts following recent developments with the Fed and CPI data.

Key Points:

• Market Dynamics: Recent data and Federal Reserve actions have blurred the clear divergence in monetary policy that had previously supported a bearish USD outlook.
• Carry Trade Interest: There is a renewed interest in carry trades, indicating a shift in market sentiment towards holding currencies with higher yields.
• Strategists' View: Goldman Sachs strategists see limited potential for further pressing USD shorts, given the current market conditions.
• Trading Position: The current positioning in various currency pairs makes it challenging to recommend initiating new USD shorts.

Conclusion:

In light of recent economic indicators and central bank activities, Goldman Sachs advises caution against establishing new USD short positions. The current environment suggests a more complex and less predictable FX market, with limited opportunities for leveraging USD weaknesses.

USD index held firmer on Tuesday but off early session highs after Fed Governor Christopher Waller reiterated that the next move by the U.S. central bank is unlikely to be a hike.

Wednesday’s Fed minutes will be a key focus but given recent comments by policymakers highlighting persistent inflation but also keeping hikes off the agenda could leave markets in a holding pattern for more U.S. data to provide direction.

Falling Canadian inflation reported on Tuesday may prod the BoC to join the rate-cutting community as early as June.

After the CPI data, LSEG’s IRPR page indicates June cut odds at 56%, with a full cut priced in for July.

Traders will be eying Wednesday’s UK CPI keenly for hints that the BoE may move more dovishly.
IRPR now projects 50% odds for a 25bp BoE rate cut in June.
A soft CPI release could open the way for BoE cuts in June and August.

EUR/USD was down 0.03% at 1.0853, off session highs at 1.0875, though near the May 16 peak at 1.0895 as more-hawkish Fed expectations continue to recede.

Recent upbeat euro zone data has also diminished 2024 ECB rate cut expectations, providing incremental boosts for the EURO.

USD/JPY dipped 0.1% to 156.11 in NorAm afternoon trading.
U.S.-Japan rate differentials are still heavily skewed in the dollar's favor, but the less-hawkish lean by Waller has seen some USD selling, with support building just below 156.

GBP/USD eked out a 0.03% rise to 1.2708.
The pair put in a new two-month high at 1.2727, extending its streak of higher highs and lows despite market expectations of a further drop in UK inflation.

Risks are skewed to the downside if UK inflation slows as forecast.
A surprise to the downside may open up the way to the May 9 low at 1.2446.
Should June cut odds rise significantly, a pullback to the April 22 low at 1.2299 may be on the cards.

Bitcoin held a 0.5% gain at $69.8k, well off the session high at $72k.
BTC continues to follow ethereum higher.
ETH rose 7.1% to $3,742 as traders prepare for an ETF registration that is expected to boost demand for the cryptocurrency further.

For more click on FXBUZ

• GBP$ flat at 1.2705 into NY close, Tuesday range 1.2727-1.2687

• Early NorAm high faded ahead of Wednesday's UK CPI release

• Sterling hovers near trend highs ahead of key UK CPI Wednesday

• UK core and HL CPI f/c lower may increase odds for June BoE cut

• Should odds for June and August cuts increase GBP$ likely gets hit hard

• GBP$ has put in higher high, higher low for 5 straight sessions

• Res 1.2727 Tues high, 1.2734 38.2% Fib of 1.3144-1.2070, 1.2803 Mar 18 high

• NY opened near 1.0870 after 1.08745 traded on EBS overnight, slide extended

• Pair fell despite US yield US2YT=RR slip, equity ESv1 & goldXAU= gains

• 1.0843 traded, bounce above 1.0860 ensued but pair slid again

• US$ buys weighed; USD/CNH traded above 7.2480 while stocks, gold turned down

• EUR/USD sat near 1.0850, traded down -0.05% late in the session

• Pair still consolidating gains off the May 9 low which is a bull signal

• Rising monthly RSI, hold above many daily MAs reinforce bullish signals

• Minutes of Fed's April 30-May 1 meeting are a key risk Wednesday

• Fed's Goolsbee speaks Wednesday, may impact risk sentiment

• For more click on FXBUZ