• USD/JPY's 155.95 high Thur shy of 156.05, 50% Fibo of last week's collapse

• Might have been cleared, but highest claims since last August weighed

• One week's claims only market moving after last week's dovish jobs data

• Treasury yields the main driver and fell 6-8bp from pre-claims session highs

• Daily drop in Tsy yields only about 3bp, but softer data now on market radar

• Thus May 15 CPI and retail sales reports have become even bigger event risks

• Futures still not favoring a Fed cut until Sep, two by year-end

• BoJ pricing continues to favor a 10bp hike by July and second by December

• Japan's sickly wage and compensation data dim rapid BoJ rate hike view

• Prices now flat and by the kijun at 155.53 vs tenkan & 50% Fibo at 156.05

• May consolidate ahead of next week's key U.S. data, also f/c to cool

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• GBP$ firm into NorAm close, +0.17% at 1.2520; Thursday range 1.2523-1.2446

• Pair sank to 2-wk low 1.2446 post-dovish BoE hold; Ramsden flips to cut tack

• U.S. claims rise lifts more-dovish Fed view, UST yields dip aids GBP bid

• BoE, claims whipsaw leaves sterling fragile nL1N3HC1I0

• U.S., UK CPI May 15/22 in focus for more clarity on cenbank policy path

• IRPR indicating June cut odds near 50%, Aug fully priced, -57bp by Dec MPC

• Fed rate view less dovish, 1st cut seen in September- 20% odds, -46bp by Dec

• Res 1.2524 the 30-DMA, 1.2544 200-DMA, 1.2593 May 6 high

• A close above 1.2596, 50% Fib of 1.2894-1.2299 may add to bullish fervor

Synopsis:

Credit Agricole discusses the possibility of ongoing interventions by Japan's Ministry of Finance (MoF) to support the weakening Japanese Yen (JPY). The report highlights the challenges and potential strategies the MoF might employ to stabilize the currency amid rising U.S. Treasury yields and domestic monetary policy constraints.

Key Points:

• Persistent Weakness: The JPY continues to face downward pressure, largely driven by U.S. Treasury yields and a lack of aggressive monetary policy adjustments from the Bank of Japan (BoJ).
• Official Statements: Masato Kanda, Japan's Vice Minister of Finance for International Affairs, has reiterated warnings about potential intervention, although he remains non-committal about past interventions.
• Intervention Capacity: Estimates suggest the BoJ has utilized approximately USD 55 billion of the MoF's readily available USD 155 billion in liquid reserves for intervention. There are additional strategies, such as using futures or selling short-term securities, which could enhance the MoF's intervention capacity.
• Intervention Strategy: The MoF aims to create an asymmetric risk-reward dynamic to discourage short positions on the JPY, emphasizing the readiness to intervene "anytime whenever it is necessary."

Conclusion:

Credit Agricole outlines a scenario where the MoF continues to play a critical role in influencing the JPY's trajectory through potential interventions. The report underscores the complexity of Japan's current economic situation, where external factors heavily influence currency movements and internal policy measures may be insufficient alone to prevent further depreciation. The effectiveness of these interventions will largely depend on external economic conditions and the market's perception of the MoF's commitment and capability to defend the yen.

EUR/USD has drifted higher throughout Thursday’s session, receiving a boost from the much softer than expected U.S. jobless claims data – highest since August 2023 -- which leaves bulls setting their sights set on the 200-DMA (1.0794).

So far that marker has kept a lid on the EUR/USD topside, but the miss on jobless claims backs the view that U.S. data is beginning to soften, particularly after last week’s payrolls report.

It is important to highlight that this is just one jobless claims report and thus it is difficult to discern whether the figures represent noise or signal.

What the data will do is heighten the risk attached to next week’s figures, but before then will be the all-important U.S. inflation report due May 15.

EUR/USD is potentially forming a bullish outside day.
Completion of that pattern would be an encouraging sign for longs, though, a break of the 200-DMA will be needed to see a pick-up in topside momentum.

On the downside, support resides at 1.0732 (200-HMA), whereby a break below would likely put the single currency on course for a test of 1.07.

As has been the case for this week, volatility is subdued, consequently price action is likely to remain contained amid a dearth of key catalysts.

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Synopsis:

In their analysis of the recent Bank of England (BoE) May meeting, ING suggests that the central bank is progressively nearing its first rate cut, potentially as soon as this summer. Despite the unchanged rates in the latest policy announcement, the overall tone of the communication has grown increasingly dovish.

Key Points:

• Policy Rate Decision: The BoE maintained the Bank Rate at 5.25%, aligning with expectations but adjusting the narrative to reflect a more positive inflation outlook compared to the U.S.
• Forward Guidance: The BoE's forward guidance on keeping rates restrictive remains unchanged, indicating hesitance to commit to a June rate cut despite a more dovish tone elsewhere.
• Governor Bailey’s Remarks: During a news conference, Governor Andrew Bailey mentioned that a June rate cut is not assured, emphasizing the Bank’s cautious stance ahead of upcoming inflation reports.
• Inflation Forecasts: The Bank's updated forecasts show a two-year inflation projection at the target rate of 2%, based on current market rate expectations, signaling some level of comfort with the market’s anticipation of two rate cuts this year.

Conclusion:

While the BoE is signaling a readiness to begin reducing rates, the exact timing remains uncertain, with ING leaning towards an August commencement. The decision hinges significantly on forthcoming inflation data, particularly in the service sector, which could sway the BoE's hand sooner if results are unexpectedly high. The BoE is positioning itself to potentially move ahead of the Fed in adjusting rates, reflecting a strategic divergence in monetary policy paths between the two central banks.

GBP/USD whipsawed on Thursday, falling to the day's low 1.2446 after a dovishly interpreted BoE decision to hold rates steady, then rallying toward 1.25 after above-forecast U.S. jobless claims, leaving sterling in a cautiously negative trend as traders await U.S. and UK inflation reports in the next two weeks.

An unexpected increase in the number of MPC members voting for a rate cut -- with Deputy Governor Dave Ramsden joining Swati Dhingra -- produced the dovish impetus.

That heaped downward pressure on GBP/USD before the jobless claims brought the pound some relief, with traders now awaiting the U.S. CPI report on May 15 and UK inflation data on May 22.

The dovish BoE hold initially lifted BoE June cut odds, as expressed on LSEG's IRPR page, to near 60%, before falling back to 45%, which facilitated cable's rise off session lows to 1.2500.

Considering the steady GBP/USD fall in the past week from Friday's post-payrolls high at 1.2634, recent shorts may lighten positions ahead of the weekend.

However, any combination of CPI reports that hints at a widening of U.S.-UK rate spreads is likely to reignite bearish GBP/USD tones, putting the April 22 2024 low at 1.2299 in focus.

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Synopsis:

BofA provides an analysis of the upcoming US CPI report for May, predicting continued high inflation levels that may cause discomfort for policymakers. This forecast comes amid expectations for slight moderation but persistent pressure on core inflation metrics.

Key Points:

• Headline CPI Forecast: BofA anticipates a 0.3% month-on-month increase in headline CPI for May, with a year-on-year rate potentially ticking down to 3.4%. The headline NSA index is projected to reach 313.621.
• Core Inflation: Core CPI is also expected to rise by 0.3% month-on-month (0.28% unrounded), indicating a moderation from the first quarter's average of 0.37% month-on-month but still high enough to cause concern.
• Implications for Federal Reserve: The predicted levels of inflation are likely not sufficient to assure the Federal Reserve, suggesting continued vigilance in monitoring inflationary pressures.

Conclusion:

BofA's forecast for the May CPI underscores the ongoing challenge faced by the Federal Reserve in combating inflation, which remains above comfortable levels despite some signs of moderation. The report will be crucial for shaping monetary policy decisions, particularly if inflation metrics do not show significant easing.

Synopsis:

Société Générale has updated its outlook on EUR/GBP, raising the floor for buying the currency pair from 0.8500 to 0.8600. This adjustment reflects the ongoing economic and political uncertainties in the UK, which may limit the pound's resilience against the euro.

Key Points:

• Bank of England's Recent Decision: The MPC’s decision to hold rates steady was expected. The market's fluctuating expectations for a rate cut reflect uncertainty about the timing of policy easing, with a fine balance between June and August.
• Rate Differential and Currency Valuation: The current EUR/GBP levels are considered low relative to shifts in rate differentials between the UK and the Eurozone. Historical comparisons suggest that the pound may be slightly overvalued.
• UK's Economic and Political Landscape: SocGen highlights potential challenges due to the UK's political climate and fiscal constraints, which could affect GBP's performance.

Conclusion:

SocGen sees a shift in the strategic buying levels for EUR/GBP, suggesting increased caution towards GBP strength. The bank anticipates that GBP may underperform against major European currencies through the end of the year, advising a more conservative approach to trading EUR/GBP based on recent and expected shifts in monetary policy and broader economic indicators.

• Cable falls to 1.2446, its lowest level since April 24, on BoE's dovish hold

• Ramsden joins Dhingra in voting for rate cut. UK CPI forecasts lowered

• 1.2471 was Ldn am low for GBP/USD (pre-BoE). BoE presser starts at 1130 GMT

• If BoE cuts rates in June, it will likely be by narrowest of margins, 5-4

• 1.2427, 61.8% Fibo of 1.2299-1.2634, and 1.2400 are GBP/USD support points

• Fed's communications style scores well with analysts but not public

The positive impact on German exports to the United States from the relatively low EUR/USD exchange rate may help to keep the U.S. as Germany's top trading partner into November's U.S. presidential election.

EUR/USD has traded sub-1.09 through the second quarter-to-date, thereby maintaining its chunky discount to the approximate 1.21 mid-point of its lifetime range (0.8228-1.6040, EBS levels).

The U.S. overtook China as Germany's most important trading partner in the first quarter of this year, according to Reuters' calculations.
China was Germany's top trading partner in 2023 for the eighth year in a row.

Data published earlier this week showed German exports to the U.S. rose by 3.6% in March.

Events will dictate whether the U.S. remains Germany's top trading partner beyond November 5. "Trump trade advisers plot dollar devaluation" was the headline of a Politico article published last month (April 15).

Related comment: nL2N3GZ0PG

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Trade flow in forward looking FX options can offer clues about the direction and potential volatility of a currency pair and there's a clear theme at work in USD/JPY.

Demand for USD call/JPY put options has increased over recent sessions and would suggest that more traders are expecting USD/JPY to return toward 160.00 over coming weeks and months.

There has been an increasing number of trades with buyers of strikes between 156.00 and 160.00 with expiries between 2-weeks and 2-months.
However, some of these options have upside triggers (RKO) attached above 160.00, levels where the BoJ is assumed to have initially intervened.
The trigger can significantly reduce the initial cost of the option, although the option is dead if the trigger trades at any time before the expiry.

For example, with USD/JPY at 155.85 - a regular 1-month expiry 156 JPY put/USD call vanilla option allows the holder to buy USD/JPY at 156.00 at expiry for an up-front premium of 132 JPY pips.
The profit potential is unlimited above the 157.32 break-even point.
By comparison, a 1-month expiry 156.00 JPY put/USD call with a knockout trigger at 160.00 has a premium of just 23 JPY pips, making the break-even 156.23, but capping the profit potential and killing the option if 160.00 trades any time before expiry.

Extending the duration to expiry and/or lowering the trigger will reduce the premium further, with a 2-month 156.00 RKO 159.00 costing a mere 4 JPY pips.

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• AUD/USD traders are talking about option hedging influencing AUD/USD Thurs

• Early Asia bounce, despite a lack of news, said to have been option related

• Some huge option strikes do actually expire 10-am New York/3-pm London Thurs

• A$3.5-billion between 0.6525-50, A$4-billion 0.6600-35 nL1N3HC0E3

• Those with exposure often cash hedge near strike to neutralise currency risk

• That hedging typically increases as expiries draw closer

• AUD/USD options might just offer the best value in G10 FX nL1N3HB0WA

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• 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 is positive, highlighting the overall upside bias

• A break above the daily Ichimoku cloud would be quite a bullish sign

• The daily cloud currently spans the 1.0827-1.0838 region

• However a close back under the tenkan line at 1.0731, would be negative

• EUR/USD Trader TGM2334. Previous update nL1N3HB0M6

• Cable eases to 1.2482 before BoE rate decision: dovish hold expected

• 1.2482 = intra-day low. 1.2469 was one-week low after Riksbank cut Wednesday

• Ultra-dovish hold from BoE at 1100 GMT could depress GBP/USD towards 1.2400

• Cable was below 1.24 on April 23 (before pound rose on BoE's hawkish Pill)

• Markets currently see 47% chance of BoE rate cut in June 0#BOEWATCH

• UK election winner should scrap debt cut target, think tank NIESR says

• Not a smooth move lower but the bias remains bearish

• Wednesday long lower candle shadow hinted at supply fade

• Early Thursday action tight within a 1.2490-01 range

• Initial support at 1.2467, May 1 low

• Bears can target a 50% Fibo level at 1.2434, off 1.2299-1.2569

• Fourteen day momentum yet to confirm price drop but RSI pointing down

• We lean bearish but wait for stronger signals

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• Steady in a tight 1.0742-1.0751 EBS range in a low-key FX session in Asia

• German and French bank holidays, so likely quiet into the BoE rate decision

• EUR/GBP flows may lead EUR after the decision - expecting a dovish hold

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

• 21-day Bollinger bands expand - bounce stalled awaiting the next trigger

• 1.0790 upper 21-day Bolliger band and last week's 1.0812 high key resistance

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

• 1.0750/55 1.242 BLN and 1.0760 1.003 BLN are the close strikes for May 9th

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Synopsis:

ING predicts that the upcoming Bank of England (BoE) meeting will not significantly weaken the GBP, despite the current bearish positioning ahead of the event. The EUR/GBP rate has shown resilience early this week, influenced by recent US monetary policy events.

Key Points:

• EUR/GBP Resilience: The pair has maintained levels above 0.8600, finding support from shifts in the EUR:GBP short-term rate differential post-US monetary developments.
• Sensitivity to Fed Pricing: The sterling curve shows more sensitivity to Federal Reserve movements than to those of the European Central Bank, influencing the current market stance on GBP.
• BoE Meeting Expectations: While the market has adopted a bearish view on GBP due to external factors, ING does not foresee the BoE's upcoming decision causing further significant weakening of GBP.

Conclusion:

ING suggests that the GBP's response to the BoE meeting may be subdued, with limited additional weakening expected. The bank advises keeping an eye on the EUR/GBP pair as it navigates through central bank influences from both the Fed and the BoE.

• AUD/USD consolidates in a narrow but well supported 0.6569-0.6583 range

• Steadies as bargain hunters emerge after 1.35% drop from Fri 0.6650 high

• Likely to stay bid on dips as traders mull higher-for-longer RBA rate stance

• RBA's more hawkish stand contrasts with easing bias of most other DM c.banks

• AUD/JPY sought on dips despite Japan's verbal warnings on JPY

• Supports 0.6560 and 0.6541, the 38.2% Fibo retracement of April-May rally

• Resistance 0.6600-05, 0.6625-30, 0.6645-50; China trade dataawaited

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• Off 0.05% early after closing down 0.1% with the USD up 0.1%

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

• The Bank of England rate decision will likely leave GBP sidelined in Asia

• Rates on hold with a cautious but more dovish tone is expected from the BoE

• 5, 10 & 21-day moving averages slip - as 21-day Bollinger bands edge lower

• Daily momentum studies show mixed signals - charts turn net negative

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

• 1.2466/67 0.5% of April/May rise and last week's base are initial support

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• Steady early, closed down 0.1% with the USD up 0.1% - likely low-key in Asia

• Yield spreads a touch tighter, 10yr bund +4bp 2.460%, 10yr UST +3bp 4.492%

• ECB can cut rates in June but should rethink how it sets policy - Wunsch

• Current ECB models miss large economic shifts, struggle with extreme events

• Charts - neutral 5, 10, and 21-day moving averages, mixed momentum studies

• Horizontal 21-day Bollinger bands - bounce still stalled, no strong bias

• 1.0790 upper 21-day Bolli band and last week's 1.0812 high key resistance

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

• 1.0750/55 1.242BLn and 1.0760 1.003BLN are the close strikes for May 9th

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• AUD/USD cautiously bid Thu as traders mull higher-for-longer RBA rate stance

• RBA rate expectations diverge from those of other major c.banks, supports

• Markets now do not expect a RBA rate cut until April next year

• Fed rate cut chances in Sep at 66%, BOE cut priced in for Sep, ECB in June

• Bargain hunters emerge after 1.35% drop from Fri 0.6650 high

• Supports 0.6560 and 0.6541, the 38.2% Fibo retracement of April-May rally

• Resistance 0.6600-05, 0.6625-30, 0.6645-50; Wed range 0.6599-0.6558

• AUD/JPY moves and China trade data key for direction in Asia

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Synopsis:

Danske Bank anticipates a rise in the EUR/GBP exchange rate following the upcoming Bank of England (BoE) meeting. Expected dovish adjustments in the BoE's stance and communication could influence market perceptions and currency valuations.

Key Points:

• Unchanged Bank Rate: Danske predicts the BoE will maintain the Bank Rate at 5.25%, with a voting split of 7-2, aligning with market consensus.
• Dovish Shift: Expectations lean towards a dovish pivot, with potential signals from the BoE about the commencement of a rate-cutting cycle, likely starting with a 25 basis point cut in June.
• Inflation Forecast Revision: The BoE may adjust its medium-term inflation forecasts downward, which could further support a dovish outlook.
• Market Impact: Such dovish developments are expected to weaken GBP against EUR, leading to an increase in the EUR/GBP rate by the day's end.

Conclusion:

Danske forecasts a higher EUR/GBP exchange rate as a result of the BoE meeting, driven by anticipated dovish shifts in monetary policy outlook and inflation expectations.

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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