The dollar index rose 0.15%, with EUR/USD down 0.1%, hovering above Wednesday's lows that erased the rally triggered by Friday's quite dovish U.S. data, as the focus shifts to the May 15 CPI and retail sales reports, and as the yen continued to slide broadly.

EUR/USD only briefly recovered from Wednesday's 1.0735 low by the 50% Fibo of last week's rally and other nearby supports, moving in line with bund-Treasury yields spreads.

The dollar was broadly higher earlier in the day as its Treasury yield-led drop following Friday's dovish U.S. jobs and ISM reports came in for a further correction, except against the yield-bereft yen.

The durability of that correction will next be tested by the May 15 CPI and retail sales data.
Presently, the Fed is priced to likely cut rates in September and December, while the ECB is expected to begin easing next month, with three cuts by year-end.

Those Fed and ECB market outlooks haven't been influenced much by this week's second-tier economic data or Fed speakers, though Federal Reserve Governor Lisa Cook's fairly sanguine comments regarding the financial shape of households, banks and firms may have aided a late firming of Treasury yields and the dollar.

The Riksbank rate cut on Wednesday followed the SNB's recent move and is seen setting the stage for the ECB to also ease.
The pace of easing in Europe will be governed to some extent by the pace of Fed cuts, because too much policy divergence could cause dollar gains and European import price inflation.

USD/JPY rose 0.58%, extending its recovery from last week's 160.245-151.86 dive on suspected MoF interventions, culminated with Friday's weak U.S. data.
Prices are now nearing the mid-point of that plunge at 156.05.

There is some concern that the yen will be propped up again if it falls toward last week's peak, but the 20bp of further BoJ rate hikes priced in by year-end hasn't shifted amid hints the BoJ might have to carry more of the yen supporting load for the MoF.

Sterling fell 0.1% on the approach to Thursday's BoE meeting that is widely expected to leave rates unchanged.
The focus will be on whether there are more votes for rate cuts, and from whom.

Markets currently fully price in a first BoE rate cut in August and one more before year-end.

Wednesday's 1.2469 sterling low nearly retraced 50% of the April-May 1.2299-634 rebound that faltered between the 100- and 200-day moving averages, as Gilts-Treasury yield spreads bearishly diverged from Friday's high, and gains linked to risk-on flow faltered this week.

Aussie fell 0.33%, extending its pullback from May, April and March highs near 0.6650, the reciprocal of which is 1.5, this week after another RBA hold and softer Australian retail sales.

U.S.
jobless claims on Thursday will get a look as a nearly real-time gauge of the labor market, the condition of which appeared to cool in last week's payrolls and JOLTS reports.

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• USD/JPY rose 0.58% as MoF, BoJ yen support efforts continued to fail

• Japan's MoF and BoJ continue to lean against the yen's weakness

• But even with dovish US data on Friday, USD/JPY quickly rebounded

• And did so after finding support by 2023/22 peaks near 152

• Prices now nearing 50% of last week's collapse, April 30 low at 156.05/08

• Big drops in Tsy-JGB ylds spreads appear to have bottomed out

• Those spreads remain attractive as is low-yield yen as a funding currency

• Focus beyond possible intervention risk is US CPI, sales data May 15

• Wed's Fed speakers supported Treasury yields and the dollar

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• AUD$ extends weakness, -0.3% at 0.6577; Wednesday range 0.6599-0.6558

• More-dovish Fed rate expectations ebb, dovish RBA hold stirs selling

• AUD/USD reprieve with slide halted by 200-HMA nL1N3HB1IF

• Long AU yields lower this week, as is copper HGv1 -1.3% aids AUD decline

• Relative rates in AUD favor; IRPR shows RBA on hold, Fed -44bp into YE '24

• Focus for now remains on When US will begin to cut; Sept cut at 80% odds

• AUD$ supt at Wednesday's cloud twist by 0.6555, 55-DMa at 0.6537

• Res 100-DMA at 0.6580, 0.6599 Wed high, 0.6650 upper 30-d Bolli/May 3 high

• Bulls in control abv 0.6506, 50% of 0.6363-0.6650

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Synopsis:

TD examines the current state of the FX market, describing it as delicately balanced between order and chaos following recent Federal Reserve actions and Non-Farm Payroll data. The market's focus is increasingly on inflation trends, which have become a significant driver beyond the traditional growth metrics that typically influence currency movements.

Key Points:

• Market Dynamics: Post-Fed meeting and labor market data have brought some stability, yet the potential for disruption remains as political and economic uncertainties loom.
• Data Dependence: The immediate future of the FX market appears heavily dependent on incoming economic data, with inflation taking center stage.
• USD Positioning: The US dollar is currently trading at a premium, with positioning stretched, suggesting that any shifts in macroeconomic signals could lead to significant market movements.
• Strategy Outlook: Despite potential volatility, TD views dips in USD strength as opportunities for buying, given a macroeconomic environment that favors the US dollar.

Conclusion:

While the FX market currently exhibits a semblance of order, underlying factors suggest potential for sudden shifts towards chaos, driven by economic data and geopolitical developments. Investors are advised to remain vigilant, focusing on inflation indicators and technical analysis to navigate the uncertain terrain ahead. This approach will be crucial as global markets continue to digest shifts in US economic policy and broader geopolitical risks.

Sterling weakness extended in early NorAm trading as the pound matched a one-week low at 1.2467 amid position adjustments ahead of Thursday's BoE rate vote and presser that appears to carry dovish risks that could put further pressure on the pound.

The BoE is almost unanimously expected to hold rates steady on Thursday, as indicated on LSEG's IRPR page.
As such traders will focus on the vote tally before turning attention to U.S. CPI May 15 and UK CPI data on May 22.

Should other BoE governors join Swati Dhingra voting for a 25bp rate cut, market expectations for a June cut are likely to rise from current odds near 50% and would likely send GBP/USD tumbling toward support at the April 24 low 1.2423 and perhaps the April 22 2024 low at 1.2299.

No doubt BoE members, like Fed members, are likely to tout successes bringing down inflation and their resolve to continue pushing it to target.

Should the vote or post-decision comments be perceived as dovish, traders may not wait for CPI data later in the month to crater GBP/USD.

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Synopsis:

Bank of America outlines its expectations for the upcoming Bank of England (BoE) meeting, predicting a steady approach with no change in the Bank Rate. The meeting is likely to signal a cautious shift towards rate cuts in the future, possibly beginning as early as June.

Key Points:

• Interest Rate Decision: The BoE is expected to maintain the current Bank Rate, with a majority of members favoring the status quo, but signs of dissent could emerge, hinting at future rate cuts.
• Monetary Policy Outlook: Current guidance stating that "monetary policy would need to be sufficiently restrictive for sufficiently long" is anticipated to persist, yet the minutes may show a gradual shift towards easing.
• Inflation and Economic Forecasts: Updated forecasts might show inflation trending slightly below target by 2026, which could justify upcoming rate reductions. 
• GBP Sensitivity to Rate Decisions: The British pound's performance remains closely tied to rate differentials and central bank actions. Current market pricing suggests a nearly 50% chance of a June rate cut, which could significantly influence GBP movements.

Conclusion:

The outcome of the BoE's meeting is poised to play a crucial role in GBP dynamics. With the market pricing in almost a 50% chance of a rate cut in June, any dovish signals from the BoE could significantly impact GBP valuation

• EUR/USD flat, low vol backdrop prompts narrow range (1.0735-57)

• 200-DMA (1.0795) remains a stumbling block. Break would entice bulls

• Abundance of EUR/USD option expiries around 1.0750 may have a pinning effect

• Thus, the pair may continue to trade close to current levels

• Slew of Fed speakers (Jefferson, Collins, Cook) unlikely to move the needle

• Narrative vacuum until U.S. CPI (May 15) can see tight ranges hold

• EUR/USD also fairly valued relative to EZ/US yield spreads

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Synopsis:

Goldman Sachs has revised its forecasts for GBP/USD downwards, indicating a less optimistic outlook for Sterling in the context of the upcoming Bank of England (BoE) meeting and recent market trends.

Key Points:

• Bearish Sentiment: Recent remarks from Deputy Governor Ramsden suggesting that inflation risks are tilted to the downside have contributed to a more bearish sentiment among clients.
• Revised Forecasts: Goldman now expects GBP/USD to be at 1.24 in the short (3 months) and medium term (6 months), adjusting downwards from previous forecasts. The 12-month forecast has also been adjusted to 1.28 from 1.35.
• Pro-Cyclical Backdrop: Changes in hawkish policy repricing in markets have made the pro-cyclical backdrop less supportive for GBP, placing Sterling in a challenging position.

Conclusion:

Goldman Sachs’ updated forecasts reflect a cautious stance on GBP/USD, driven by evolving risks to inflation and recent shifts in market dynamics

Synopsis:

Credit Agricole emphasizes the continued attractiveness of the USD for near-term investment, highlighting its strong fundamental qualities compared to other G10 currencies.

Key Points:

• Strong Fundamentals: The USD's appeal is supported by high nominal and real carry, superior growth prospects, and robust liquidity.
• Buy on Dips Strategy: Given the current stall in the USD rally, Credit Agricole advises buying on dips, suggesting the currency will likely recover as market corrections subside.
• Market Watch: With a light US data calendar this week, Fedspeak will be closely monitored for insights into the Federal Reserve's policy outlook and its impact on USD valuation.

Conclusion:

Credit Agricole projects that the USD will regain momentum following a brief period of correction, backed by its superior economic fundamentals

Adds link to CPI risk premium on last line

• FX option traders report many sub 1-week expiry EUR/USD 1.0750 strike trades

• It's the current spot rate and would suggest market is long gamma nearby

• An abundance of existing strikes nearby can indicate long gamma positioning

• DTCC traded options data does show some very big strikes due to expire soon

• Largest on Monday between 1.0745-55 on 5-billion euros

• 1-billion euros each expire 1.0750 on Tues, Wed and Thurs next week

• Before those - 1-billion 1.0750 expire today and 2.1-billion 1.0745-60 Thurs

• Options price volatility risk for US CPI - may be little to inspire FX prior

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• EUR/USD has traded tight ranges for 17-months

• Last year's range was one of the tightest on record

• This year's range is smaller

• Interest rates matter more when it's quiet

• The interest rate differential weighing EUR/USD has widened this year

• Selling strength to bank carry with limited FX risk may become more popular

• Ranges that have unfolded mostly within 1.05-1.10 may drop

• The 200-DMA at 1.0795 may help to define peak of a lower range

• AUD/USD tests 0.6565 (May 3 low) after extending south from 0.6649

• 0.6649 was Tuesday's high, before RBA maintained neutral stance on rates

• Lower iron ore prices weigh on AUD (iron ore is big export earner for Oz)

• Support points below 0.6565 include 0.6558, 50% retracement of 0.6466-0.6650

• 0.6466 was last week's low (May 1, before relatively dovish Powell hurt USD)

• Australia's PSC to be bought by UK's Ardonagh in A$2.26 billion deal

• Cable extends south to threaten 1.2467 following Riksbank rate reduction

• 1.2467 was last week's low. It is also 50% retracement of 1.2299-1.2634

• Riksbank rate reduction is boost for doves advocating BoE rate cut in June

• Two of the nine Times Shadow MPC members want BoE to cut rates this week

• Ramsden may join Dhingra in voting for cut on Thursday. 5-4 for cut in June?

• GBP/USD support points below 1.2467 include 1.2450 and 1.2427 (61.8% Fibo)

• EUR/USD failed to register a daily close under the 1.0611 Fibo in April

• 1.0611 Fibo is a 76.4% retrace of the 1.0448-1.1139 (Oct-Dec) EBS rise

• 14-day momentum has recently turned positive, highlighting the shift in bias

• A break and daily close above the Ichimoku cloud would be quite bullish

• The daily cloud currently spans the 1.0824-1.0838 region

• EUR/USD Trader TGM2334. Previous update nL1N3HA0HX

• Expectation of dovish BoE rate hold Thursday is weighing on the pound

• 1.2484 was cable low in Asia, lowest level since May 2 (1.2634 = May 3 high)

• Two of the nine Times shadow MPC members advocate BoE rate cut Tuesday

• Nine out of 29 economists polled by Reuters expect 2 votes for cut Thursday

• Ramsden most likely to join Dhingra in voting for cut. 5-4 for cut in June?

• 1.2530 (May 3 low) is now a GBP/USD resistance level. 1.2500 expiry today

• Had seen bearish risk Tues and market has slipped lower

• GBP/USD long upper candle shadows highlight demand fade nL1N3HA0I4

• A bearish engulfing line Tues and GBP set for back to back down days

• The reversal signal will need confirmation

• A 38.2% Fibo off 1.2299-1.2569 provides a bear target at 1.2466

• The Fibo close to the 1.2467 May 1 low point

• Key 50% retracement is 1.2434, a break here could cement the new bear trend

• We will look for an opportunity to get short for drop under 1.2400

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• Off 0.2% at the base of a 1.2484-1.2518 range with consistent flow on D3

• The U.S. dollar showed broad-based strength with firmer UST yields

• There is no UK data today, so risk appetite and the USD will lead sterling

• GBP likely quiet ahead of the BoE rate decision and outlook on Thursday

• Gilt yield fell on Tuesday suggesting markets are looking for a dovish shift

• Charts; 5, 10 & 21-DMAs plus daily momentum studies conflict - no real bias

• Resistance starts at Tuesday's 1.2568 top then at Friday's 1.2634 high

• The 1.2484 21-DMA and last week's 1.2467 base are the initial supports

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Synopsis:

Société Générale assesses the impact of the Reserve Bank of Australia's (RBA) latest policy decisions on the AUD/USD exchange rate, emphasizing the Federal Reserve's more significant role in influencing the currency pair's movements.

Key Points:

• RBA's Limited Influence: The recent RBA meeting highlights its limited impact on the AUD/USD, with the currency's future largely tethered to actions taken by the U.S. Federal Reserve.
• AUD/USD Trading Range: The AUD/USD has been confined within a USD 0.63-0.69 range over the past year, closely mirroring a stable 5-year yield differential between the U.S. and Australia.
• Yield Differential Significance: Significant shifts in AUD/USD are contingent on the yield differentials; a move towards AUD/USD 0.7 would require Australian yields to exceed those in the U.S., whereas a potential dip below 0.60 would need U.S. yields to be over 1% higher than Australian yields.
• External Economic Factors: A sluggish recovery in China and subdued Australian export prices provide little domestic support for the Australian dollar, placing greater emphasis on U.S. economic policies and the Fed's decisions.

Conclusion:

While SocGen maintains a positive long-term outlook on the Australian dollar, they underscore that its near-term fate is more closely tied to U.S. monetary policy rather than domestic factors. With the AUD/USD currently stuck in a narrow range, investors and traders are advised to keep a close eye on Fed actions and broader U.S. economic indicators.

• Off 0.15% as USD/JPY +0.3%, AUD -0.4% leads the USD higher -EUR/JPY up 0.15%

• BOJ's Ueda signals chance of policy action if yen moves affect inflation

• USD gaining broad support from Fed expecting yields to be higher for longer

• ECB to cut rates in June, ECBWATCH prices another in September or October

• Central banks will be data-driven, but sentiment and yields support the USD

• Charts - 5, 10, and 21 DMAs and momentum studies conflict - no strong bias

• 1.0888 upper 21-day Bolli band and last week's 1.0812 high key resistance

• Friday's 1.0724 base and then Thursday's 1.0675 low are initial supports

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• Off 0.15 extending Tuesday's 0.41% fall as markets price earlier rate cuts

• Yield spreads widened, 10yr gilt fell 10bp to 4.129%, 10yr UST -2bp 4.461%

• BOEWATCH priced 24.32pts of cuts in August from 22.96 at Friday's close

• Markets are betting on a more dovish tone from the BoE on Thursday May 9

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

• 21-day Bollinger bands contract - the daily charts show no strong bias

• Resistance starts at yesterday's 1.2568 top then at Friday's 1.2634 high

• The 1.2484 21-DMA and last week's 1.2467 base are the first supports

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• Trades down 0.06% after closing off 0.13% with the US dollar up 0.27%

• Mixed German data as exports rebounded but industrial orders disappointed

• EU needs a strong German economy - yield expectations lead EUR/USD

• Charts - 5, 10, and 21-day moving averages plus momentum studies conflict,

• 21-day Bollinger bands contract - the bounce has stalled, no strong bias

• 1.0889 upper 21-day Bolli band and last week's 1.0812 high key resistance

• Friday's 1.0724 base and then Thursday's 1.0675 low are initial supports

• 1.0750 962mln and 1.0775/80 726mln are the close strikes for May 8th

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• AUD/USD opens 0.4% lower as RBA refrains from reverting to tightening bias

• C.bank not ruling anything in or out on rates but vigilant on price risks

• Keeps door ajar for rate hike but hawks disappointed with unchanged stance

• Traders slash bets of another hike this year; AU 10-yr yield falls 11 bps

• RBA's higher-for-longer rate stance least dovish of major central banks

• AUD likely to remain bid on dips as a result; Tue global range 0.6649-0.6587

• Resistance 0.6625-30, 0.6645-50, support 0.6580-85, 0.6540-50

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Synopsis:

MUFG analyzes the reaction of the Australian dollar and market expectations following the Reserve Bank of Australia's (RBA) less hawkish than anticipated policy update during this week's May meeting.

Key Points:

• AUD Movement: The Australian dollar registered significant movements, weakening in the Asian trading session, largely influenced by the RBA's latest policy update.
• Market Expectations: Prior to the meeting, Australian rate markets had largely priced out rate cuts for the year and began to anticipate potential rate hikes, evidenced by a notable increase in the implied yield on December 2024 three-month interest rate futures.
• RBA Policy Signal: Contrary to market expectations for a more hawkish stance, the RBA's updated policy statement was less assertive about imminent rate hikes, leading to a recalibration of market expectations and a subsequent decrease in short-term rates by approximately 8bps.
• Inflation Outlook: The RBA noted that inflation appears to be declining more slowly than previously projected, acknowledging ongoing economic pressures.

Conclusion:

The RBA's May meeting has adjusted market perspectives on the future direction of Australian monetary policy, signaling a more cautious approach than many anticipated. This shift has implications for the Australian dollar and could influence investor strategies concerning Australian assets, particularly as the market digests the slower than expected decline in inflation.

• USD/JPY rose 0.5% and could test hurdles in the 155.00-50 range

• Prices trying to post a close above the 21-DMA at 154.63 on Tuesday

• Rebound fueled by 2nd chance to buy 152 breakout after weak NFP, ISM Friday

• The 38.2% & 50% Fibos of last week's 160.245-151.86 dive are at 155.06/6.05

• The 10-DMA and kijun are at 155.33/53, and the tenkan is at 156.05 on EBS

• The bulk of this & next week's upper option expiries are at 155.00-50

• Longs taking on risk of more suspected MoF yen buying, but BoJ still in QE

• Key from here are US CPI and retail sales on May 15, bullish contrast key

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