• $CAD a tad soft in NorAm, -0.12% at 1.3649; Tuesday Range 1.3691-34

• Pair drips lower after US PPI revisions hint at slowing inflation

• Canada wholesale trade downside miss tempers CAD gains

• US CPI Wednesday the main event; Rtrs consensus f/c core 3.6% vs 3.8% pvs

• Should CPI show upside surprise Fed steady, higher hike tones will lift USD

• Supt 1.3633 50% of 1.3420-1.3847, 1.3609 lwr 21d Bolli, 1.3566 the 200DMA

• Res 1.3691 Tuesday high, 1.3707 the 21-DMA, 1.3782/85 the May1/Apr 30 high area

Synopsis:

Bank of America anticipates a potential bullish breakout for EURUSD in the context of the upcoming US CPI release for April. Market sentiment is shifting towards a bearish outlook on the USD, influenced by recent changes in FX options positioning and technical indicators.

Key Points:

• Bearish USD Sentiment: There has been a noticeable shift in market sentiment against the USD, as evidenced by option skews moving towards USD puts and the unwinding of long USD positions.
• EURUSD Technical Setup: EURUSD is testing significant technical resistance levels, including the 200-day and 50-day moving averages, suggesting a potential breakout from the year-to-date downtrend.
• Inflation Expectations: Expectations for a weaker US core CPI print are setting the stage for EURUSD strength. Historical data indicates that such a pattern of consecutive upside surprises in core CPI is rare, enhancing the potential for a miss.
• Market Positioning: Current FX options positioning and technical analysis signal bullish prospects for EURUSD, especially if the CPI data underperforms market expectations.

Conclusion:

Bank of America holds a bullish view on EURUSD heading into the release of the US CPI data, citing easing concerns over persistent inflation if the data meets or falls below expectations. However, a higher-than-expected inflation figure could pose risks to this outlook, potentially reinforcing USD strength.

• USD/JPY briefly spiked up to 156.80 after seemingly hawkish PPI headlines

• But deep downward revisions then noticed and Tsy ylds and dollar backed down

• In fact, 2- & 10yr Tsy-JGB ylds spreads are lowest since April 5 & March 28

• Pullback finding a foothold on hourly kijun at 156.24 by Mon's 156.26 high

• Kijun and Mon's low are next supports at 155.91/50

• Pricing of likely Sep & Dec Fed cuts only modestly changed at 21 and 44bps

• Probabilities of BoJ rate hikes in July and Oct, beyond trend slowly higher

• Japan's wholesale inflation adding to BoJ tightening prospects

• But still wide spread between US and Japan rates and yields

• Keeps carry traders in dip-buying and bullish mode for now

• Focus now on Wed's U.S. CPI and retail sales, with Powell later today

• If the data are hawkish, 61.8% of 160.245-151.86 at 157.04 is next target

• Followed by May 1's 157.99 pre-2nd suspected intervention daily high

• Intervention threat seen most acute if 160.245 & 1990's 160.35 highs at risk

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Synopsis:

TD provides an outlook for the FX markets ahead of the upcoming April US Consumer Price Index (CPI) report. The analysis highlights concerns that recent USD selloffs, driven by technical market movements, may face challenges, indicating potential shifts in currency valuations based on divergent inflation trends and upcoming US elections.

Key Points:

• USD Performance: The US dollar ended a two-week losing streak with modest gains, suggesting a reassessment of the fundamental economic indicators influencing the currency.
• Inflation Divergence: US inflation indicators diverge significantly from those of the rest of the world (ROW), particularly the G10 countries, potentially impacting monetary policy decisions differently in the US compared to other nations.
• Election Impact on Fed Policy: The proximity of the US election introduces constraints on the Federal Reserve's policy actions, possibly limiting the scope and timing of interest rate cuts, unlike other central banks which may face fewer political constraints.
• Growth and Inflation Dynamics: While growth rates are converging globally, inflation disparities provide a rationale for continued rate divergence, supporting a stronger USD based on relative economic strength.

Conclusion:

TD anticipates that the US dollar may find support from the country's unique inflationary trajectory and economic conditions relative to other major economies. The upcoming CPI data will be crucial in testing market narratives around inflation and monetary policy, potentially influencing currency markets significantly.

Synopsis:

Goldman Sachs predicts a subtle deceleration in the US core CPI for April, projecting an increase of 0.28%, slightly below the consensus expectation of 0.3%. This forecast suggests a cooling from the 0.37% average increase observed in Q1, potentially impacting future monetary policy decisions.

Key Points:

• Core CPI Slowdown: Expected to rise by 0.28% in April, marking a slowdown from the first quarter's average of 0.37%.
• Transportation Costs: Anticipated decreases include a 2.5% reduction in airfares and a 0.8% drop in used car prices, with new car prices expected to remain stable.
• Housing Costs: Rent is forecasted to increase by 0.37%, with Owners' Equivalent Rent (OER) expected to rise by 0.45%.
• Insurance and Services: Car insurance rates are expected to decelerate to 1.6% (from 2.6% in March), while health insurance rates are projected to remain flat. Tax preparation services are expected to provide a 2bp boost.
• Energy and Food Prices: Energy prices are projected to increase by 1.7%, and food prices by 0.3%, contributing to an overall headline CPI rise of 0.37%.
• Annual Core CPI Adjustment: The forecast would lower the year-on-year change in the core CPI by two tenths to 3.6%.

Conclusion:

Goldman Sachs' analysis indicates a possible easing trend in inflation, which could reduce the urgency for aggressive monetary tightening. This mild slowdown, if confirmed by actual data, may encourage the Federal Reserve to maintain a cautious approach to interest rate hikes, balancing growth with inflation control.

USD/JPY bulls might stamp their hooves before charging towards the 160 level again if U.S. CPI data comes in hotter than expected on Wednesday.

USD/JPY rose beyond 160 on April 29 - the catalyst for the first of two rounds of suspected yen-buying FX intervention from Japan, with a sub-152 low plumbed during the second of those suspected intervention rounds on May 3.

U.S.
April CPI is forecast up 0.4% on the month, 3.4% on the year.
Core CPI is forecast up 0.3% on the month, 3.6% on the year.
The numbers will be revealed on Wednesday at 1230 GMT.

Hotter than expected CPI data could lift the dollar by reducing the perceived probability of a Federal Reserve rate cut in July or September.

CFTC data on FX positioning showed hedge funds and speculators slashed their net yen short position by 20% to 134,922 contracts, its lowest level since March, in the week ended May 7.

Related comment: nL1N3H20MN

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• Overnight expiry FXO implied volatility gains reflect Wed's CPI data risk

• Overnight EUR/USD around 12.0 Tuesday from 7.0 on Monday

• Premium/break-even now 54 USD pips from 31 USD pips in either direction

• 1-month expiry included June 12 U.S. CPI and Fed policy decision from Monday

• 1-month expiry EUR/USD implied volatility now 6.1 from 5.5 on Friday

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• Tight ranges the broader market theme ahead of U.S. PPI data

• Main events: Wed's U.S. inflation numbers and Powell speaking in Amsterdam

• EUR/USD 1.0782-93 so far with the Monday rally blunted by tight action

• A clear break of the 200-day moving average needed to bolster EUR's chances

• The average currently at 1.0791: recent highs 1.0807 and 1.0812

• ZEW numbers for May due at 0900GMT: a jump in German sentiment expected

• Reuters poll consensus for economic sentiment 46.00 vs 42.9 previously

• 1.0750 1.52 BLN and 1.0800 1.55 BLN close major option strikes for May 14th

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• FX traders have taken USD/JPY higher to break Fibo supply at 156.05

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

• Spot registered a fifth weekly close in a row above the 152.60 Fibo

• It overcame the very long-term 152.60 Fibo level back in April

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

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

• EUR/JPY 168.60-81 EBS range on Tuesday. USD/JPY Trader TGM2336

• Sterling looking constructive and eyes the May 3 1.2634 high

• Price closed above the 200-day MA Mon and opened clear above Tues

• The average at 1.2541 today

• The 100-day MA and daily cloud base provide bull targets

• Average at 1.2634 and cloud base at 1.2670

• Weekly action continues to hold above the weekly cloud, top at 1.2474

• Gain consolidation favoured for Tues

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• Cable nudges up towards 1.2568 on hotter than expected UK pay growth data

• Regular pay up 6.0% YY vs 5.9% forecast. Total pay up 5.7% vs 5.5% forecast

• 1.2568 was Monday's high, and May 7 peak. 1.2547 was Asian session low

• Above-forecast UK pay growth is boost for hawks opposed to BoE June rate cut

• BoE Chief Economist Pill to speak about the economic outlook at 0730 GMT

• 70 out of 108 economists polled by Reuters expect first Fed cut in September

• Off 0.05% at the base of a tight 1.0785-1.0793 range in quiet trading

• A slow session overall in Asia as markets wait for U.S. CPI on Wednesday

• ZEW economic sentiment data and economic forecasts will be interesting

• U.S. PPI followed by Federal Reserve Chair Powell talk lead event risk

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

• 21-day Bollinger bands rise - daily charts sustain a positive setup

• Recent 1.0812 high and 1.0818 upper 21-day Bollinger are first resistance

• Friday's 1.0760 low and then the 1.0724 double-bottom are initial supports

• 1.0750 1.518 BLN and 1.0800 1.549 BLN close major strikes for May 14th

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Synopsis: I

NG observes a fluctuating sell-off in the British Pound, influenced by recent economic data and upcoming reports. Despite a positive surprise in the UK's first quarter GDP for 2024, ING remains skeptical about its long-term impact on the Bank of England’s policy direction.

Key Points:

• Recent GBP Dynamics: The unexpected strength in Q1 2024 GDP provided temporary support to GBP, but ING doubts this will significantly alter the Bank of England's policy outlook, which remains oriented towards easing.
• Upcoming Data: Attention now turns to the March jobs data, though the Bank of England has reduced the emphasis on this in favor of inflation metrics, particularly the April services CPI due on May 22, which is seen as crucial for determining the timing of potential rate cuts.
• BoE Commentary: Market participants are also keen to hear any new insights from BoE Chief Economist Huw Pill regarding the timing of the anticipated easing cycle.

Conclusion:

While the recent GDP figure offered some respite, the overarching sentiment towards GBP remains bearish, with expectations for continued weakness over the coming quarters. The focus remains heavily on inflation data, which will be pivotal in shaping the Bank of England's upcoming monetary policy decisions. EUR/GBP is expected to find support in the 0.8550 to 0.8575 range amid these developments.

Repeats for wider audience, adds topic codes

• AUD/USD down 0.1% in Asia but holds within 0.6580-0.6630 range

• Weak JPY and caution ahead of latest U.S. inflation data weigh

• Traders also await Australian government's annual budget due later Tue

• Budget will prioritise efforts to fight stubbornly high inflation- Treasurer

• AUD supported as RBA rate expectations diverge from those of other c.banks

• Markets pricing in around a 15% chance next RBA move in rates will be up

• Easing chances this year seen as negligible; cuts seen from Fed, ECB, BOE

• Higher metal prices provide underlying AUD support; Asia range 0.6612-0.6599

• Support 0.6585-90, 0.6560 resistance 0.6625-30, 0.6645-50, 0.6667-77

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• Steady early after closing up 0.2% as the USD fell 0.1% in a low-key session

• Yield spreads were unchanged with both 10yr bund and 10yr UST off just 2bp

• The 'Choose France' campaign attracted a record $16BLN in fresh investment

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

• 21-day Bollinger bands rise - daily charts maintain a positive setup

• The recent 1.0812 high and 1.0818 upper 21-day Bollinger likely cap in Asia

• Friday's 1.0760 low and then Thursday's 1.0724 base are initial supports

• 1.0750 1.518 BLN and 1.0800 1.549 BLN close major strikes for May 14th

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Repeats for wider audience

• AUD/USD consolidation in 0.6580-0.6630 range to continue as risk events loom

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

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

• Copper climbs towards two-year peak, Dalian iron ore gains 2%, underpin AUD

• Australia budget, US PPI Tue; Powell participates in a moderated discussion

• Support 0.6585-90,0.6560 resistance 0.6630, 0.6650; Mon range 0.6586-0.6629

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• USD/JPY rose 0.28% having cleared 156.05, 50% of its 160.245-151.86 plunge

• So far modest breakout was catalyzed by NY Fed survey's higher inflation

• Tues's US PPI and Wed's CPI & retail sales are hard data tests for Fed, USD

• The last new y/y low in CPI was 3.0% in June 2023; April f/c at 3.4% vs 3.5%

• Fed still favored in futures to cut by Sep, 43bp by year-end

• BoJ swaps have a 10bp hike in July. 23bp by year-end: up after QE cut Monday

• JGB yields on slow, but steady rise this year as Fed cut pricing swings

• Close above 158.28 May 2 high would be bullish and eye 61.8% at 157.04

• The May 1 high by 158 is the next pivot point if US data are supportive

• MoF directed intervention possible in a rapid rise toward 2024/1990 peaks

• If US data prove dovish, props are at 155.50 and by 150

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Synopsis:

Credit Agricole provides an analysis of the EUR/CHF exchange rate, predicting a steady  0.97 to 1.00 range through the end of the year influenced by both domestic and international factors.

Key Points:

• Current Stability: EUR/CHF has stabilized around 0.9750, influenced partly by a surprising rise in Swiss CPI in April and a relatively calm domestic news flow.
• Limited Domestic Impact: Upcoming events in Switzerland, including remarks from SNB President Thomas Jordan and expected producer price index data, are not anticipated to significantly influence the CHF.
• Global Influences: The Swiss Franc is expected to be more responsive to international events, particularly the impact of the US CPI data on global equity and interest rate movements.

Conclusion:

While domestic factors provide limited impetus for significant movements in the CHF, international dynamics, especially from the US, could impact the currency pair. Credit Agricole reaffirms its forecast for EUR/CHF to remain within a 0.97 to 1.00 range in the coming months, suggesting a continued period of relative stability barring major global economic shifts.

• GBP$ firm into NY close, +0.28% at 1.2558; NorAm range 1.2569-33

• Pair anchored by 200-DMA at 1.2542, capped Monday by May 7 high 1.2569

• UST yields trickle lower, GBP shorts lightening as dovish Fed tones rise

• Wednesday's U.S. CPI, May 22's UK CPI key events as policy paths evolve

• Beware misleading moves as sterling eschews extremes nL1N3HG178

• GBP$ res at 1.2569, 55-DMA at 1.2603, May 3 trend high at 1.2634

• Close above 1.2596, 50% Fib of 1.2894-1.2299 shifts momentum to bulls

• Support at Monday low 1.2518, Daily base line 1.2504, May 9 low 1.2446

• NY opened near 1.0785 after 1.0766 traded EBS overnight, rally extended

• USD/CNH drop from its session high, equity ESv1 gains helped buoy

• Tighter DE-US spreads US2DE2=RR, lower US yields US2YT=RR aided the lift

• EUR/USD rallied to a 6-session high of 1.0807, sellers then emerged

• NY Fed report for April indicated Americans expect higher inflation

• EUR/USD slid near the 55- & 200-DMA, top of trend line off the March 8 high

• Pair dipped below 1.0790, sat near 1.0795 late, was up only +0.19%

• Techs lean bullish; RSIs are rising & pair traded above the 10- & 21-DMAs

• US April PPI, remarks from Fed's Powell, Cook may impact risk Tuesday

• US CPI, retail sales for April are bigger risks looming for Wednesday

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• NY opened near 0.6610 after 0.6586 traded overnight, rally extended early

• Pair hit 0.6629 with help from commodity HGv1DCIOc2, equity ESv1 gains

• Risk softened after NY Fed report showed Americans expect higher inflation

• US yields US2YT=RR firmed, equities fell & USD/CNH rallied toward 7.2400

• AUD/USD briefly turned lower, hit 0.6602 then sat near flat late in the day

• Daily doji formed, implies indecision; monthly techs remain bullish though

• US April PPI, remarks from Fed's Powell, Cook may impact risk Tuesday

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Synopsis:

Danske Bank provides insights on the near-term trajectory of EUR/USD, expecting the currency pair to range-trade with a potential upside tilt influenced by market dynamics and upcoming economic data releases.

Key Points:

• Current Trading Range: EUR/USD is navigating between 1.07 and 1.08, with FX volatility at lower levels contributing to a resurgence in carry trades.
• Market Expectations: The market has stabilized its expectations for Federal Reserve rate cuts in 2024 at around 45 basis points, following recent Fed communications and labor market data.
• Influence of Upcoming Data: This week’s US CPI data is pivotal, with the consensus predicting a slight decrease in core inflation. The outcome could impact US yields and Fed rate cut timing, potentially tilting earlier than the currently anticipated September.

Conclusion:

Danske Bank suggests that while EUR/USD is likely to maintain its current range, there exists an upside risk due to the potential for lower-than-expected US inflation and overstretched USD positioning.

GBP/USD rose 0.3% on Monday, but the gains may be misleading given its tendency to retreat from market extremes in either direction recently, while traders are also unlikely to commit to a move before key U.S. and UK inflation reports this week and next.

Cable has yet to break significantly away from its 200-DMA and it remains near the 50% Fib of its recent trend high and low near 1.2540.

Traders will focus on the upcoming U.S. CPI data on Wednesday and the comparable UK report on May 22 to refine relative monetary policy expectations, which remain the key market driver.

Relatively high Fed and BoE policy rates due to elevated inflation in both the U.S. and UK have kept both the dollar and sterling strong versus other majors this year.

Since Fed officials recently tamped down tail risk of a U.S. hike and the BoE shifted to a more dovish rate vote, the upcoming inflation data may be seminal events in near-term rate evolution.

A resumption of the late-2023 inflation slide would increase market betting on a July Fed rate cut, potentially providing a lift for GBP/USD toward its recent flash high at 1.2634.
Similarly, a slide in UK inflation would cap sterling's rise by early April highs at 1.2709.

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Synopsis:

Morgan Stanley discusses the highly anticipated US CPI release scheduled for Wednesday at 8:30 am New York time, emphasizing its critical role in shaping Federal Reserve rate cut expectations amidst evolving inflation trends.

Key Points:

• Market Focus: Global markets are keyed in on the upcoming CPI data, which will play a crucial role in determining the timing of the Fed's rate cuts, previously adjusted from an aggressive seven cuts to a more cautious two, with the first expected no earlier than September.
• Inflation Trends: Morgan Stanley predicts a 0.29% month-over-month increase in core CPI, with expectations for gradual declines in rent inflation and a slight decrease in core goods prices. There is also an anticipated mild correction of previously high services inflation.
• Impact of CPI Data: While the April CPI data is crucial, Morgan Stanley believes it won’t dramatically alter the expected disinflationary trend for the year. Any deviations from their forecast could shift market expectations for the timing of Fed rate cuts, either earlier or later.

Conclusion:

Morgan Stanley maintains a confident outlook that inflation will continue to decrease throughout the year, leading to eventual rate cuts by the Fed. The firm underscores that the key indicators mostly point towards continued disinflation, suggesting that significant changes to the overall monetary policy path for the year are unlikely, regardless of the upcoming CPI outcomes.