GBP/USD ran into resistance near the 200-DMA on Friday, capping its rally from the previous session's rise from post-BoE lows, and fundamentals indicate that rebound -- sparked by soft U.S. jobless claims -- may be short-lived.

Rate expectations on LSEG's IRPR pages indicate an earlier and deeper UK policy easing path than in the U.S., with an inaugural cut priced at 50% for June and fully discounted by August.

In contrast, the market assigns an 80% chance of a Fed cut for September.

Looking at the full year, the BoE is seen cutting 57bp, while the market is projecting the Fed to ease by 44bp.

While the odds for a September Fed cut have risen, boosting the pound, increasingly dovish tones emanating from the BoE are likely to cap GBP gains.

That leaves the May 15 U.S. CPI report the next best hope for sterling bulls.
If U.S. inflation surprises to the downside, cable bulls would target the May 6 and 3 flash highs by 1.2593 and 1.2634.

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Synopsis:

Goldman Sachs examines the atypical response of the Canadian dollar (CAD) to rising US interest rates, a situation that typically sees less impact on CAD compared to other currencies. The firm delves into the underlying factors driving this unusual behavior, primarily focusing on monetary policy expectations in Canada relative to the United States.

Key Points:

• Heightened Sensitivity: Despite CAD's historical resilience to US interest rate hikes, recent movements suggest an increased sensitivity.
• Policy Divergence: The primary driver appears to be the anticipated divergence in monetary policies between the Bank of Canada (BoC) and the Federal Reserve, influenced by the BoC's selection of inflation metrics.
• Impact on CAD: This divergence has led to greater near-term risks for CAD, making it more vulnerable to shifts in US rate dynamics than in the past.

Conclusion:

Goldman Sachs highlights that the current economic landscape, marked by potential policy shifts in Canada, could lead to unusual movements in the CAD in response to US interest rate changes.

Synopsis:

Credit Agricole's latest analysis highlights the growing appeal of carry trades within the current FX market, characterized by range-bound trading and decreased volatility. The firm provides insights into the shifting dynamics caused by recent economic data and central bank interventions that have impacted currency valuations.

Key Points:

• USD Rally Pause: The USD's momentum has slowed due to revised expectations around the Federal Reserve's policy direction, following signals of a cooling US labor market and economic outlook.
• Impact of Official Interventions: Recent interventions aimed at supporting the JPY have prompted traders to reassess long-USD positions, contributing to a return to established FX trading ranges.
• Carry Trade Dynamics: With FX volatility subdued, the analysis identifies attractive carry opportunities, recommending the USD and GBP as investment currencies and the CHF and JPY as funding currencies. Commodity-linked currencies such as NZD, AUD, and CAD are also seen as favorable due to improving commodity terms of trade.

Conclusion:

Credit Agricole advises that the near-term FX market environment, marked by decreased volatility and persistent range-trading, presents a conducive setting for engaging in carry trades. Investors are encouraged to consider currencies with favorable rate spreads and low volatility for potential yield opportunities, while monitoring economic indicators and central bank actions that could influence market conditions

• The cash hedging of soon to expire FX option strikes can impact FX

• This cash hedging will increase as expiry draws near - can draw FX to strike

• Huge GBP/USD strikes expire very soon - 2-billion pounds 1.2500-25 today

• Monday has 674-million at 1.2530 and 621-million at 1.2565

• Tuesday has another 2-billion at 1.2495-1.2500 and 500-million at 1.2525

• light trading before U.S. CPI Wed gives more reason for FX to stay contained

• Related comments nL1N3HD0FVnL1N3HD0IL

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• EUR/GBP bull run stalled Thursday at 0.8620: pullback to 0.8611 by the cls

• The 76.4% Fibonacci level can attract profit taking

• Fibo was at 0.8617 with 0.8643 the full retracement level

• Price closed above the 200DMA Thurs, 0.8605: average is quite flat

• Fourteen day momentum has flipped to negative and RSI pointing down

• Bearish pointers emerging but stronger signals needed

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May 10 (Reuters) - Sterling bears hope to avoid being singed by UK data ahead of the next Bank of England interest rate decision on June 20, the longest day of the year in the Northern Hemisphere.

Two rounds of UK inflation figures and two sets of UK labour market data are due before June 20 - with the BoE's decision currently seen as a coin toss between a 25 basis point rate cut or a seventh consecutive hold. 0#BOEWATCH

If the data tilts the scales towards another hold, it could prompt the liquidation of some GBP short positions.

CFTC data on FX positioning, due at 1930 GMT, will show if the net GBP short increased again in the week ended May 7, after climbing to a 16-month peak of 28,990 contracts in the week ended April 30.

GBP/USD rose to 1.2541 on Friday, its highest level since May 7, after data showed the UK economy grew by a higher than expected 0.6% in the first quarter.

Related comment: nL1N3H60CV

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• Those that are bullish need to overcome major technical resistance

• A break above the daily cloud, that now spans 1.0827-38, would be bullish

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

• 14-day momentum remains positive, highlighting the overall upside bias

• Spot had failed under the 1.0611 Fibo, in April, a bear trap

• EUR/USD Trader TGM2334. Previous update nL1N3HC0HO

• USD/JPY outlook bullish since spot overcame major 152.60 Fibo in April

• Spot is set for the fifth weekly close in a row above 152.60 Fibo

• 152.60 Fibo, a 38.2% retrace of major 277.65 to 75.31 (1982 to 2011) drop

• However, there needs to be an initial break above the 156.05 Fibo

• 156.05 Fibo, a 50% retrace of the 160.24 to 151.86 2024 (EBS) drop

• We remain long at 155.25 for 165.00, meanwhile our stop is just below 150.00

• EUR/JPY 167.44-167.88 EBS range on Friday. USD/JPY Trader TGM2336

• Back to back daily hammer style candles

• No preceding bear trend but the candles still significant

• Fourteen day momentum confirming the price lift to 1.2540

• Initial resistance at the 200-day moving average, 1.2543

• With recent long upper-lower candle shadows risk is for sideways bias

• We lean bullish but will look for stronger bull signals before trading

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• Cable rises to 1.2539 (three-day high) on better than expected UK GDP data

• UK Q1 GDP up 0.6% vs 0.4% forecast. March GDP up 0.4% vs 0.1% forecast

• 1.2529 was Asia high (pre-UK GDP data). 1.2446 was Thursday's two-week low

• That low was plumbed on BoE's dovish hold, 7-2 MPC vote, lower CPI forecasts

• Subsequent gains aided by higher than expected US jobless claims data

• UK GDP data beat is boost for hawks opposed to BoE rate cut in June

• AUD/USD drops 0.25% in Asia as traders book profits after its 0.6% Thu rally

• Small rise to 0.6623 after 0.6616 open met by sellers as JPY, CNH weakened

• China inflation data Sat, US inflation data next week lead to caution

• Downside limited; RBA rate expectations diverge from those of other c.banks

• Fed, ECB, BOE rate cuts being priced in but RBA rate hike chances at 27%

• Support 0.6595-0.6600, 0.6575-80, resistance 0.6625-30, 0.6645-50

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• USD/SGD edges higher, tracks DXY and rise in USD/JPY

• Pair last at 1.3535-40, traded 1.3520-36 range so far

• Nearby hurdle at 1.3550, break to see retest at 1.3570 overnight high

• DXY last at 105.29, traded 105.21-30 range so far in Asia

• USD/JPY entrenched in uptrend, markets intent on fresh challenge at 160

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• AUD/USD -0.1% in Asia as s/term accounts book profits after 0.6% Thu rally

• Downside limited; RBA rate expectations diverge from those of other c.banks

• Markets imply a 27% chance of a RBA rate hike, price out cuts this year

• Contrasts with a 69% chance of a Fed rate cut in Sep as jobs market slows

• Chances of ECB cut in June at 88%, 50-50 chance of BOE cut in some month

• Caution ahead of US inflation data next week, China inflation data Sat caps

• Support 0.6590-0.6600, resistance 0.6625-30, 0.6645-50, 0.6667-77

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• Steady - closed +0.2% with the USD off 0.3% - 10yr gilt closed flat 4.144%

• The BoE meeting provided a dovish hold - price action suggests as expected

• BoE Chief Economist Huw Pill- confidence to cut building- need more evidence

• UK GDP, construction, and industrial production will be key today in London

• Bullish outside day on Thursday, horizontal 5, 10 & 21-day moving averages

• 21-day Bollinger bands contract, mixed daily momentum studies- neutral setup

• Resistance starts at Tuesday's 1.2568 top then 1.2595 upper 21-day Bolli

• A close below 1.2427, 0.618% of the April/May rise would be a bearish signal

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• Steady after closing +0.3% with the USD off 0.3%, as yield spreads tightened

• The 10yr bund closed up 3bp to 2.497% and 10yr UST yields fell 5bp to 4.449%

• The bounce in bund yields appears to be profit-taking after the recent fall

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

• 21-day Bollinger bands expand - bullish outside data turned signals positive

• 1.0804 upper 21-day Bollinger band and recent 1.0812 high key resistance

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

• 1.0825 1.321 BLN are the only close major strikes for May 10th

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• AUD/USD opens 0.6% higher as soft U.S. data boosts rate -cut hopes

• U.S. weekly jobless claims increase more than expected as jobs market slows

• U.S.10-year yield falls 3bps and has declined by 28bps in 2 weeks

• Next week's PPI and CPI readings seen as key for Fed rate expectations

• China trade data shows April imports rise more than expected, underpins AUD

• Iron ore imports up almost 13% on a year earlier; Australia a major exporter

• Higher-for-longer RBA rate stance will continue to support for AUD

• Support 0.6590-0.6600, resistance 0.6630, 0.6650; China inflation data Sat

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Synopsis:

Goldman Sachs examines the significance of USD/CNY and USD/JPY movements on Asian FX, in light of recent notable fluctuations. While both currency pairs have been central to the performance of Asian currencies, there are distinctions in their impacts.

Key Points:

• Recent Movements: USD/CNY recently crossed the significant threshold of 7.10, influencing the broader USD/Asia rates. Concurrently, suspected large-scale interventions by the Bank of Japan (BoJ)/Ministry of Finance (MoF) aimed to stabilize USD/JPY after it momentarily surpassed 160.
• Sensitivity Analysis: Historical data and recent trends suggest that Asian FX markets are more sensitive to changes in USD/CNY than to USD/JPY fluctuations. The analysis shows that movements in USD/CNY have a more pronounced effect on the broader Asian FX landscape.
• Market Outlook: Over the next three months, Goldman Sachs anticipates that USD/Asia will remain strong. Although further interventions by BoJ/MoF could limit declines in USD/JPY, the prevailing rate differentials between the USD and JPY suggest minimal downward movement.

Conclusion:

Goldman Sachs concludes that for Asian FX, fluctuations in USD/CNY are more influential than those in USD/JPY. This insight is crucial for traders and investors in Asian markets, indicating a greater focus on the movements of USD/CNY for predicting trends in the region’s currencies. The ongoing developments in USD/CNY are expected to be a key driver of Asian FX dynamics, overshadowing the impact of USD/JPY under current market conditions.

EUR/USD reversed early losses that held exactly at last Friday's pre U.S. jobs data lows, and rose 0.25% after initial jobless claims jumped to their highest since August 2023, weighing on Treasury yields and the dollar.

Next, markets will be looking ahead to U.S. CPI and retail sales reports on May 15.

The dollar index fell 0.25%, and sterling's post-BoE meeting slide to 11-day lows at 1.2446 was more than reversed.
That slide came as the number of votes for a rate cut rose from one to two and Governor Andrew Bailey said the BoE might need to ease by more than the market expected and it could start at its next scheduled MPC announcement on June 20.

But sterling rebounded as a June BoE rate cut was still being priced at less than a 50% probability, with slightly more than two rate reductions expected by year-end.

The rebound was catalyzed by the unexpectedly large rise in U.S. jobless claims as that followed last week's reports showing the smallest increase in non-farm payrolls in six months, a modest 0.2% rise in average hourly earnings and a three-year low in job openings.

Markets are also trying to reconcile the much weaker than forecast and recessionary ISM indexes last week, with both posting sharp rises in their priced paid indexes.

Treasury yields fell roughly 3bp from 2- to 10-year tenors on Thursday, awaiting next week's key CPI and retail sales reports.

Cooling U.S. data also creates less angst over Fed tightness and greater risk-on flows that support the risk-sensitive pound and Aussie, which rose 0.5%.

EUR/GBP edged higher, with today's bullish key day reversal and bullish engulfing EUR/USD candlestick favoring the euro beyond the slightly more dovish than expected BoE event.

USD/JPY's rapid recovery from last week's 160.245-151.86 collapse stalled on Thursday after nearly retracing half of that collapse at 156.05, and then being tugged back to near flat by the jobless claims report.

Treasury yields and Fed expectations remain the most enduring forces driving USD/JPY as suspected Japan yen buying last week was used as a discount for carry traders and Japanese importers.

While the MoF has since reiterated action could be taken to defend the yen from excessive and speculative losses, intervention looks a bigger risk near last week's 160.245 high by 1990's 160.35 peak.

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• 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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