• EUR/GBP downside risks pick up, putting key support at 0.85 in focus

• Wider EZ/UK 10-year yield spreads lean in favour of sterling

• Hawkish wage data in UK jobs report will concern BoE officials

• Private sector regular pay growth posts largest monthly rise since May

• Markets slightly reduce BoE easing bets - 2024 cuts = 46bps from 50bps

• However, the bigger focus is on CPI. Particularly services CPI

• A hot CPI print will likely take EUR/GBP through 0.85

• Near-term resistance: 0.8550 (55-DMA), 0.8580-85, 0.8600-05 (200-DMA)

For more click on FXBUZ

• 155.00 is considered to be the true BoJ line-in-the-sand for intervention

• However, some of the recent option trade flow would suggest otherwise

• There's been buyers of options that cover the risk of gains beyond 155.00

• 156, 158 stand out, but a few at 160.00 with sub 3-month expiries

• Big 155.00 option barriers can fuel short gamma/USD/JPY gains if breached

• Topside strike options would cover risk and increase in value above 155.00

• Topside strikes trade at large implied volatility discount to downside

• That discount shows the scale of perceived intervention risk nL2N3GO0FV

• FX warning signals as option risk premiums trade Jan highs nL2N3GP0FD

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• FX option implied volatility reflects FX realised volatility risk premium

• It's surged from 2+year lows in mid March to highs since Jan across G10 FX

• EUR/USD 1-month implied vol now 2.0 above mid March lows - trades 6.9

• Even 1-year expiry has rallied to 6.9 vs its own 2+year lows around 6.1

• Implied vol premium for EUR puts over calls has also surged

• 1-month risk reversals highest downside vs upside vol premium in a year

• 1.0600 contains large option barriers, break risks deeper declines

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• Cable drops to 1.2409 (new five-month low) after disappointing UK jobs data

• UK jobless rate 4.2% vs 4.0% forecast; employment down 156k vs +58k f/c

• 1.2423 was Asian session low (pre-UK data). UK wages up 6.0% vs 5.8% f/c

• Cool UK jobs data is boost for doves advocating BoE rate cut before Q3

• Incoming BoE deputy governor Lombardelli to address UK TSC from 0915 GMT

• 1.2400 and 1.2375 (Nov 17 low) are GBP/USD support points. UK CPI Wednesday

• A marginal close below the daily Ichimoku cloud but a doji candle too

• Tight open-close hints at market indecision

• We are holding a short from 0.8568 for 0.8510 with an 0.8580 stop

• A new low of 0.8527 for the current bear run

• Early Tues gains stalling the fall in the 0.8530s

• Key resistance at 0.8551, the 50-day moving average

• May 2 0.8556-57 cloud twist a concern for our short play

  For more click on FXBUZ

• AUD/USD opened -0.31% at 0.6441 after USD moved up on higher US yields nL2N3GO2H7

• AUD/USD came under pressure in early Asia as risk assets sold off nL2N3GP032

• USD/CNH climbed higher to put more pressure on the AUD/USD nL2N3GP02Z

• AUD/USD traded down to 0.6408 before steadying above 0.6410

• There was a muted reaction to mixed China data as GDP beat and IP and Retail sales missed nP8N3FE05DnP8N3FE05C

• AUD/USD support at 76.4 of Oct-Dec rise at 0.6412 proving a bit sticky

• Trend lower is developing and a break below 0.6400 targets Oct low at 0.6271

• Resistance is at 0.6530/35 where the 10 & 21-day MAs converge

• For more click on FXBUZ

Synopsis:

HSBC notes that while the European Central Bank (ECB) and market expectations are currently aligned on starting the rate-cutting cycle in June, the near-term direction of the EUR will likely be influenced by further ECB communications regarding the future trajectory of rates. Upcoming speeches by ECB officials, including President Christine Lagarde, are pivotal as the market assesses the likelihood of additional rate cuts in 2024.

Key Points:

• Alignment on Initial Rate Cuts: Both ECB policymakers and financial markets anticipate the commencement of a rate-cutting cycle by the ECB in June. Any reaffirmations of this timeline in upcoming ECB communications are unlikely to significantly impact the EUR, as this expectation is already priced in.

• Focus on Future Rate Trajectory: The crucial factor for the EUR will be any new guidance on the trajectory of future rate cuts. ECB Governing Council member Simkus recently mentioned the possibility of a follow-up rate cut in July and suggested a greater than 50% likelihood of more than three rate cuts in 2024. These comments have introduced new variables for market consideration.

• ECB President Lagarde's Upcoming Speech: ECB President Christine Lagarde is scheduled to speak on Wednesday, and her remarks will be closely watched for any indications that might suggest a deviation from or confirmation of the anticipated rate path. With the market pricing in a roughly 50% chance of a July rate cut, her comments could be a significant catalyst for EUR movement.

• Market Sensitivity to Rate Expectations: The EUR remains sensitive to shifts in expectations regarding the ECB's rate-cutting strategy. Any signals that suggest an acceleration or deepening of rate cuts beyond the initial June reduction could provoke volatility in the currency's valuation.

Conclusion:

The EUR's near-term trajectory is poised to be heavily influenced by upcoming ECB communications. As market participants look for clarity on the pace and depth of future rate cuts, statements from ECB officials, especially President Christine Lagarde, will be critical in shaping currency strategies. Investors and traders should stay alert to these developments, as they could present opportunities or risks in currency markets.

• AUD/USD testing 76.4 of Oct-Dec 2023 rise at 0.6412 as USD firms in Asia

• A break below 0.6400 targets eventual move to the Oct 26 trend low at 0.6271

• Key China data out shortly with Q4 GDP, March IP and retail sales on tap

• Talk of sellers at 0.6440/45 and more ahead of 0.6500 likely to cap rallies

• For more click on FXBUZ

• USD/KRW soars to new 1.5-yr high 1392.5, last 1391.8

• Major psych barrier 1400.0 becomes a clearer target

• Follows USD/JPY hitting new 34-year peak overnight

• S. Korea to take measures to calm market nP8N3FX01G

• But given USD is broadly stronger, action may be limited

• Strong US retail sales lifted UST yields nL2N3GO13X

• For more click on FXBUZ

• Steady early after closing down 0.05% resilient to the USD closing up 0.2%

• Venture capital investment in UK start-ups fell in Q1 2024 - UK 3rd globally

• UK jobs data leads event risk in London - Employment change RTRS poll +58K

• Strong US retail sales added to the recent strong US data - caps GBP/USD

• Techs; 5, 10 & 21-day moving averages fall, 21-day Bollinger bands expand

• Daily momentum studies slip - last week's fall left a bearish outside week

• Friday's 1.2426 low supports - break targets 1.2368, 0.618% Oct-March rise

• The 1.2498 London high and the 1.2558 top on Friday are initial resistance

  For more click on FXBUZ

• -0.15% amid broad USD strength on strong retail sales and safe-haven demand

• Yield spreads widened, 10yr bund +8bp to 2.431%, 10yr UST +13bp to 4.628%

• ECB's chief economist Philip Lane said inflation is heading back to 2%

• The disparity in the US and EU economic performance weighs on EUR/USD

• Charts - daily momentum studies fall, 21-day Bollinger bands expand

• 5, 10, and 21-day moving averages slide - bearish daily and weekly charts

• 1.0665 early European high and prior 1.0695 2024 base are first resistance

• 1.0620 New York and 2024 low then 1.0594, .786 of the Oct-Dec rise support

• 1.0650 801mln and 1.0660/70 2.597BLN close significant strikes for April 16

  For more click on FXBUZ

• AUD/USD opens -0.31% as US yields rose and risk-aversion persisted nL2N3GO28AnL2N3GO2H7

• AUD/USD made a fresh 2024 low at 0.6438 and there is no bounce

• Next support is at the 76.4 of the Oct-Dec 2023 rise at 0.6412

• Resistance is at 0.6535 where the 10 & 21-day MAs converge

• Sellers are tipped ahead of 0.6500 to cap rallies

• China Q4 GDP along with March retail sales and IP to be released today

• For more click on FXBUZ

Synopsis:

ING emphasizes the significance of the upcoming release of key UK economic data, including February wage and March services figures, in determining the trajectory of the Bank of England's (BoE) potential easing cycle in 2024. With market expectations of a June rate cut currently low, any surprises in the data could have substantial effects on the value of sterling.

Key Points:

• Key Data Releases: This week, the UK will release crucial economic data with February's wage figures due on Tuesday and March's services data on Wednesday. These reports are pivotal in assessing the economic health of the UK and the potential for monetary easing by the BoE.

• Impact on Monetary Policy: Analyst James from ING is slightly more optimistic than the consensus regarding the upcoming services CPI data. A confirmation of his forecast could support sterling, signaling a more robust economic outlook than currently priced into the market.

• Market Pricing and Sterling Vulnerability: Current market pricing indicates only a 31% expectation of a BoE rate cut in June. Consequently, any negative surprises in the wage or services data could adversely impact sterling. Particularly, GBP/USD is noted as appearing vulnerable, with potential downside targets around the 1.2365/75 range.

• EUR/GBP Stability: Despite potential volatility, the EUR/GBP exchange rate remains stable, currently trading within a mid-range between 0.85 and 0.86.

Conclusion:

This week's economic data releases are crucial for shaping market expectations regarding the BoE's monetary policy direction in 2024. With sterling appearing vulnerable to negative data surprises, these releases could potentially prompt significant movements in currency markets.

The dollar index gained 0.2% due largely to a 0.6% USD/JPY rise toward major resistance by 155, while EUR/USD and sterling slumped following febrile U.S. retail sales data and another wave of Middle East related derisking.

The yen was the weakest of the major currencies.
JGB yields remain puny compared to all major currencies except for the Swiss franc and the MoF and BoJ have yet to follow through on threats to support the yen, which hit 34-year lows versus the dollar.

Concerns about an escalating Middle East conflict reappeared and added to dollar gains from the major retail sales beat and upward revisions.

USD/JPY's 34-year high at 154.45 took it within easier reach of major resistance at 155.00/20.
The 155 level is seen as a potential BoJ FX intervention spot and is also suspected to contain a large barrier option.

Intervention would have to be based on containment of excessive price moves and volatility, as recent U.S. inflation, employment and retail sales data all back dollar gains and higher Treasury-JGB yield spreads.

If intervention occurs it would benefit from USD/JPY being at its most overbought since October 2022, when Japanese officials stepped in to protect against a 152 breakout.
IMM specs are the most net long since 2007 amid heavy demand for the carry trade.

EUR/USD fell 0.14%, with its 1.0622 low on EBS right by Friday's 1.06225 trough and weakest since Nov.
3.
Divergence between the ECB, which has signaled a possible June rate cut, and the Fed remaining hesitant to ease leaves EUR/USD at risk of retesting 2023's lows unless the macro and monetary policy outlook improves.

Sterling fell just 0.07%, but Monday's slide from 1.2498 was near Friday's trough of 1.2423, which was its lowest since Nov.
17.

A deluge of key UK data this week are now eyed as a guide for whether the BoE can cut rates as soon as June and whether inflation retreats enough to allow for the two rate cuts priced in by year-end versus the 44bp now expected from the Fed after a July or September initial rate cut.

The risk-sensitive sterling was also under pressure from Monday's S&P 500 break below 50-day moving average support.

For more click on FXBUZ

• NY opened near 0.6485 after 0.6493 traded overnight, slide extended

• US yields US2YT=RR rallied on upbeat sales data; US$ also rallied broadly

• Equities ESv1, sank & USD/CNH eroded some of its overnight drop

• AUD/USD traded to a 2-month low, 0.6452 hit, pair down -0.16% late

• Techs are bearish; RSIs falling, daily & monthly inverted hammers in place

• February's low is support ahead of support from t-l, Nov. monthly low

• China March industrial output, retail sales & Q1 GDP are risks in Asia

• For more click on FXBUZ

Synopsis:

Barclays reports that the USD/JPY exchange rate has surged to the mid-154s, a level high enough to potentially prompt intervention. While past interventions have temporarily appreciated the JPY, Barclays notes that lasting effects on market trends require fundamental economic changes. Upcoming G20 meetings and speeches by BoJ officials are anticipated to be closely watched for indications of potential policy responses.

Key Points:

• Recent Surge in USD/JPY: The USD/JPY has reached levels around 154, which historically have been high enough to trigger interventions from Japanese authorities. Such interventions in 2022 resulted in an average JPY appreciation of 3.4%, though these effects were typically short-lived.

• Effectiveness and Limitations of Interventions: Past interventions have shown that while they can influence the exchange rate temporarily, a durable correction in the JPY’s value against the USD requires changes in economic fundamentals rather than just tactical currency purchases.

• Role of BoJ Rate Decisions: Barclays believes that further rate hikes by the Bank of Japan (BoJ) are necessary for a more sustained correction of the JPY's weakness. Current policies and interventions without fundamental shifts are unlikely to have a lasting impact.

• International Discussions on JPY Policy: Attention is turning to the upcoming G20 finance ministers and central bank governors meeting, as well as a scheduled speech in Washington, D.C. by BoJ Governor Ueda. Comments on the JPY’s depreciation and potential policy measures are highly anticipated.

Conclusion:

As USD/JPY enters a range that has historically prompted intervention, all eyes will be on the Japanese authorities for potential responses. Barclays highlights the need for fundamental economic changes, alongside tactical interventions, to achieve a more stable and sustained adjustment in the JPY’s valuation.

• USD/JPY rises rapidly toward the next major technical targets at 155.00/20

• The 155 level is a major psychological hurdle

• While two 161.8% Fibo objectives off key 2023 lows are by 155.20

• Breakout above 152, by prior two years' highs, brings 34-year highs

• Daily RSIs are now most O/B since Oct 2022's key 151.94 price peak

• Weekly ATR top @155.18 also lifts pullback risk before a 155.20 breakout

• The daily tenkan is now by Friday's 152.60 low

• The long-legged Doji off that low makes it more important support

For more click on FXBUZ

Synopsis:

Despite rising geopolitical tensions in the Middle East following recent military actions involving Israel, Iran, and Syria, ANZ maintains a short-term price target for Brent crude oil at USD 95 per barrel. The bank argues that an immediate surge in oil prices is unlikely due to ample spare capacity and an already elevated geopolitical risk premium.

Key Points:

• Geopolitical Developments: Recent escalations include an Israeli strike on Iran’s embassy in Syria and Iran’s retaliatory drone and missile attacks. While these incidents have heightened tensions, ANZ does not anticipate a significant immediate impact on oil prices due to the managed nature of the responses and existing high geopolitical risk assessments.

• Market Reaction and Risk Assessment: The oil market's initial response to the conflict has been muted, reflecting pre-existing concerns about potential escalations in the region. ANZ suggests that the geopolitical risk premium has been sufficiently priced into current oil valuations.

• Spare Capacity and OPEC's Role: There is significant spare oil capacity, approximately 6.5 million barrels per day, which can be mobilized quickly if supply disruptions occur. OPEC has reaffirmed its supply policy and extended production cuts until the end of June, providing further stability to oil supply expectations.

• Price Target Rationale: ANZ’s decision to maintain a USD 95 per barrel price target for Brent crude in the short term (0-3 months) is based on the above factors, coupled with the ongoing global energy market dynamics and the existing cushion of spare capacity.

Conclusion:

ANZ's analysis indicates that while geopolitical risks in the Middle East remain a concern, the potential for these to translate into significant crude oil price fluctuations in the near term is limited. The combination of ample spare capacity, pre-emptive pricing of risk premiums, and strategic reserves allows the market some degree of insulation against sudden geopolitical shifts. Investors should therefore consider these dynamics when assessing energy sector investments and market responses.

• EUR/GBP hunting for a new low below last week's 0.8529 base

• We have lowered our short stop to 0.8580, just above the 100DMA

• Target remains 0.8510 but might adjust on a sub daily cloud close

• Daily Ichimoku cloud base currently 0.8540

• Fourteen day momentum is confirming latest price drop

• Daily RSI also falling and now below the 40 level

  For more click on FXBUZ

Synopsis:

Credit Agricole projects further near-term gains for the U.S. Dollar, dubbing it "King USD" following its robust performance driven by recent U.S. CPI data and geopolitical tensions. Despite some Federal Reserve-related positives already priced in, the ongoing global financial conditions and geopolitical risks are expected to sustain demand for the high-yielding, safe-haven USD.

Key Points:

• Support from Rate Appeal and Safe-Haven Demand: The strong return of the U.S. Dollar is attributed to its growing rate appeal following strong U.S. CPI data and increased safe-haven inflows due to rising geopolitical tensions in the Middle East. These factors have reassessed investors' expectations regarding the Fed's monetary policy.

• Expectations of Fed Rate Cuts: The U.S. rates market has aligned with Credit Agricole's forecast of two Federal Reserve rate cuts in the second half of 2024. However, this adjustment in expectations has somewhat capped the Fed-related upside for the USD.

• Potential for Continued USD Demand: The tightening of global financial conditions, exacerbated by persistent geopolitical risks and potential spikes in oil prices, could depress risk sentiment further. This environment is likely to drive continued investment into liquid USD assets, bolstering the U.S. Dollar's appeal.

• USD Valuation against G10 Currencies: The USD continues to trade at a discount relative to its rate appeal against other G10 currencies, such as the EUR and GBP. This undervaluation, coupled with its safe-haven status, suggests potential for the USD's ongoing recovery in the near term.

Conclusion:

Credit Agricole's analysis supports a bullish outlook for the U.S. Dollar in the near term, underpinned by its dual role as a high-yielding safe haven amid volatile global markets. The convergence of rate expectations and geopolitical risks are likely to keep the USD in demand, with potential further gains as it continues to benefit from its relative safety and liquidity advantages compared to other major currencies. Investors are advised to monitor these dynamics closely, as they could have significant implications for currency markets and broader financial strategies.

Synopsis:

Goldman Sachs highlights the Bank of Canada (BoC) as a prime example of near-neighbor policy divergence within the G10, suggesting that this divergence is more effectively captured in rates rather than FX. Despite potential policy differences, the Canadian Dollar (CAD) has shown resilience and even strength, particularly in the context of a robust US Dollar and favorable market conditions.

Key Points:

• Context of CAD Performance: The Canadian Dollar typically excels during periods of US Dollar strength, alongside rising equity and oil prices, reflecting its beta relationship to the US Dollar. This occurs despite potential dovish shifts by the BoC, showcasing the CAD's robustness in risk-on market scenarios.

• Short EUR/CAD Strategy: Goldman Sachs recommends a short EUR/CAD position to capitalize on the dynamics of US exceptionalism, the anticipated rise in oil prices, and a weakening Euro. This position is expected to benefit from the overarching market trends and the relative strength of the Canadian economy.

• Rates vs. FX Expression of Policy Divergence: While the BoC’s policy divergence is notable, Goldman advises that such divergence is best expressed through rates rather than direct FX positions. This approach allows for a more nuanced capture of the implications of Canada's monetary policy relative to its G10 peers.

Conclusion:

Goldman Sachs maintains a strategic position that aligns with the strength of the Canadian Dollar against the backdrop of broader market trends and US economic performance. The firm underscores the effectiveness of expressing near-neighbor policy divergence through rates, providing a refined strategy for capturing economic disparities within the G10. Investors are encouraged to consider both the short EUR/CAD position and rate differentials as tools to navigate and capitalize on these dynamics.

Changes back to still on line 2

• Lower spot and risk aversion boosted GBP/USD option premiums last week

• They remain elevated despite a de-escalation of geopolitical risk

• GBP/USD still below 1.25 Monday, seemingly limiting further option setbacks

• Benchmark 1-month expiry implied volatility spiked 6.2 to 7.1 Friday

• Its 6.8 now and was trading post Brexit lows at 5.4 in mid March

• 1-month risk reversal premium for GBP puts over calls 0.35 to 0.7 since Fri

• That's its higjhest downside over upside strike vol premium since July

• Price shows market wary of more spot weakness that would raise option cost

For more click on FXBUZ

• Mooted offers ahead of 0.65 are helping to keep a lid on AUD/USD

• There is a large 0.6500 option expiry for the 10am ET NY cut nL2N3GO09R

• 0.6455 was fractionally fresh one-month low for AUD/USD in early Asian trade

• AUD/USD slid on pre-weekend flight to USD safety Friday, re: Iranian threat

• Iran says there was no pre-arranged deal on its response to Israel

• US March retail sales data due at 1230 GMT; up 0.3% MM f/c vs 0.6% in Feb

• Unwind of risk off hedges puts pressure back on safe-havens

• EUR/CHF hold of key pivot is encouraging for bulls

• Aside from rising geopolitical tensions. CHF gains are likely to be shallow

• Keep in mind, CHF is the preferred funding currency given dovish SNB outlook

• As such, bias remains to fade upside in CHF

• Key support resides at 0.9690. Resistance at 0.9800

• Looking ahead, ECB Chief Economist Lane speaks at 1300GMT

For more click on FXBUZ