Citi discusses the USD outlook and adopts a bearish bias over the medium-term.

"We continue to flag that positive data surprises appear to already be in the price as outlined by CitiFX Quant. Note too that CitiFX Strategy expects further dollar downside to materialize in the medium term," Citi notes,. 

"With the pace of US yield increases set to slow, vaccinations picking up in the rest of the world, data momentum turning against the US, and the overall risk environment supported by abundant liquidity. Technical signals also reinforce this," Citi adds. 

• EUR/USD 1.2000 former option barrier level now seen as support

• Since breaking above 1.20 Mon, setbacks met demand 1.1999

• Huge vanilla option expiries here next week - the bulk on Wednesday

• 2.5-billion 1.2000, another EUR 2-billion 1.1980-85 Wed's

• Related delta hedging can reinforce level before FOMC policy announcement

• Option implied volatility off highs - but 1-week flags Fed risk nL1N2MF0RO

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• Cable elicits support by 1.3886 after sliding from 1.3946 (early Ldn high)

• 1.3886 was Wednesday's low -- before rally towards 1.3950 after hawkish BoC

• See: nL1N2MF0MC. Gains for safe-haven USD influenced by news from India

• India sets record for new COVID cases; oxygen running out nL4N2MF0SC

• More GBP/USD bids expected near 1.3863, 50% retracement of 1.3717-1.4009

• British shoppers rush back to reopened clothes stores nL8N2MF2XW

• Citibank one of many that don't expect a big ECB FX reaction Thursday

• They expect June ECB to be more of a market moving event

• Citi note U.S. corps selling into recent EUR/USD recovery to mid 1.20's

• Suggest any post ECB gains will attract U.S. names to cap 1.2075-1.2100

• Citi say 1.2000 support vulnerable if ECB leave door open to more stimulus

• FX options not betting on big post ECB EUR/USD reaction nL1N2MF0GS

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Traders were similarly positioned last year and EUR/USD broke above similar levels as it rallied from 1.1065 to 1.1913 in 45 days.
While the next rise may be slower it could easily be similar in extent. nL1N2MF0G7

There's a good chance the pair will rise more slowly this time.
Volatility has dropped and there's no news like last year's the European Union's rescue plan, but positioning now suits a rise and techs continue to support bigger gains.

The biggest change in favour of a rally is the change in betting.
Two-thirds of last year's record long bet has been trimmed without changing a bullish situation.

Bullish signs are powerful.
EUR/USD rose to 1.2080 this week meeting the 50% Fibo target drawn off the November 2020 low, January 2021 peak and the March 2021 low, which was 1.2077, swiftly after almost reaching the minimum objective to correct its 2020-2021 1.0636-1.2349 rise at 1.1695 on March 31.
Next targets are 1.2166, 1.2451 and 1.2913.

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• EUR/USD rebounds from yesterday's 1.1999 low to 1.2047 today nL1N2ME0II

• A close over 100-DMA at 1.2057 will spark new life into uptrend

• Close above daily Ichimoku cloud at 1.2092 should confirm new upleg

• High probability pair close back above key 100-MMA at 1.1808 this month

• EUR much more attractive in wake of coronavirus nL1N2ME0OF

• This weeks setback followed achievement of big bull target at 1.2077

• Next big fibo targets off same levels: 1.2166, 1.2451 and 1.2913

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• Risk of a deeper corrective pullback while below its cloud top

• Cloud parameters currently 1.3845-1.3955

• A Wed hammer candle, long lower shadow, offers bulls some hope

• Speed and magnitude of the Frid-Mon rally has exhausted short-term demand

• Profit taking could tame any further up-ticks

• Key levels 1.4017 Mar 4 high and 1.3789 trend res. now supp.

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• FX options expire at 10-am New York/3-pm London

• EUR/USD: 1.1980-85 (700M), 1.2045-50 (500M). USD/CHF: 0.9175 (500M).

• EUR/GBP: 0.8550 (580M), 0.8590-0.8600 (250M), 0.8640-65 (500M)

• AUD/USD: 0.7750 (600M), 0.7820 (480M)

• NZD/USD: 0.7060 (1BLN), 0.7090 (900M)

• USD/JPY: 108.0 (1.6BLN), 108.30-40 (2.6BLN)

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• AUD/USD opened 0.23% higher @ 0.7753 and traded in a 0.7748/64 range in Asia

• Pair recovered from 0.7698 during US session on Wall Street gain and BoC nL1N2ME2Q7 nL1N2ME2BL]

• AUD/USD support is at the 10-day MA at 0.7707 and yesterday's 0.7698 low

• Resistance is at Tuesday's 0.7816 high and 61.8 fibo of 2021 move at 0.7825

• Hawkish shift by Bank of Canada may underpin AUD is RBA follows suit nL4N2ME478

• ECB meeting later today may inluence general direction of the USD

• For more click on FXBUZ

GBP/USD has stalled and reversed off 1.4000 four times in March and April making this a resilient range resistance, but USD weakness, an improved UK economic outlook, and a positive technical picture all suggest a topside break is viable.

President Joe Biden's COVID-19 stimulus and upcoming infrastructure package boost U.S.
economic growth prospects, while the battle with COVID-19 is showing improvement nL1N2MC1W6.
This scenario encourages investors to buy riskier assets, undermining the safe-haven =USD, which has fallen 2.25% in April, leaving a bearish technical setup.

Optimism towards a strong UK recovery is gaining traction, as the vaccine rollout continues and lockdowns ease nL8N2ME3GX, providing underlying support for sterling.

GBP/USD faces significant resistance at 1.4000/25, spanning option activity around the psychological 1.4000 level, the 1.4017 March-April range top and the 61.8% retracement of the 2021 fall at 1.4022.

Cable charts show 5, 10 and 21 daily moving averages moving higher with the 21-day Bollinger bands, which is a strong trending setup that supports a sustained 1.4022 break.
The next level of resistance is 1.4105, 76.4% of the 2021 fall, then the year's 1.4240 high.

A close below 1.3879, 38.2% of the April bounce, would undermine the topside bias and support a continuation of the 1.3670-1.4017 range.

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• EUR/USD opens Asia unchanged at 1.2035 for the third straight day

• Pair moved down to 1.1998 before risk rally and hawkish BoC weighed on USD nL1N2ME2Q7nL1N2ME2BL

• EUR/USD trend higher intact as 5, 10 & 21-day MAs in bullish alignment

• Support is at the 10-day MA at 1.1983 and break signals weakening momentum

• Resistance is at the 61.8 of the 1.2349/1.1704 move at 1.2202

• EUR/USD likely to trade in narrow range in Asia ahead of ECB meeting today

• ECB to remain on hold and key will be tone of Lagarde press conference

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• AUD/USD opens 0.23% higher after touching below 0.7700 at one stage

• Move higher sparked by Wall Street gains and hawkish shift by Bank of Canada nL1N2ME2Q7nL1N2ME2DD

• The 1.48% move up in NY copper to two month high also underpinned AUD/USD

• AUD/USD fell to 0.7698 at one stage - one pip shy of the 10-day MA at 0.7697

• The 10-day MA ascends to 0.7707 today and should be solid support

• Key AUD/USD resistance is at the 61.8 of 0.8007/0.7532 move at 0.7825

• For more click on FXBUZ

Credit Agricole CIB Research likes buying AUD on dips over the coming weeks.

"Trading the AUD in the coming months will remain a trial with several events, that we know of, having the potential to generate significant volatility in the currency. These events include (1) rising US inflation numbers and the likely accompanying rise in UST yields; (2) Australia’s vaccination situation as it heads into winter; and (3) the Australian Budget and how well the Australian labour market data performs after the removal of the Federal Government’s JobSeeker wage subsidy," CACIB notes. 

"We remain AUD bulls and continue to think dips during the coming volatility are opportunities to buy," CACIB adds. 

The dollar gave up earlier gains on Wednesday, trading near flat as markets settled in to await the ECB's meeting, with EUR/USD erasing most of its earlier probe of the 1.2000 level after it failed to produce a bigger correction of this month's 3% rally.

With no policy changes expected, markets will scrutinize any references to unexpectedly paltry buying under the ECB's Pandemic Emergency Purchase Programme or signs of growing division between governing council members over when to taper ultra-accommodative measures.

EUR/USD's April rally has been fueled by rising 10-year Bund-Treasury yield spreads, as aggressive Treasury shorts were pruned and bets against Bunds increased partly on the PEPP slowdown and hopes faster EU vaccinations will hasten the economic recovery.

But EUR/USD's rally may need an unexpectedly hawkish ECB to get further support from Bund-Treasury yields spreads.
Greater reluctance from the Fed at next week's meeting to taper eventually would also help the euro bulls' cause.

The market may consolidate until after Thursday's ECB and April flash PMI readings on Friday, and it might possibly await next Wednesday's Fed meeting.

A bounce in Treasury yields before Wednesday's London close came amid rebounding equities that dimmed demand for the haven dollar and yen.
But the re-opened 20-year Treasury auction went quite well, trimming early yield gains.

Sterling followed EUR/USD's pullback and recovery lead to end roughly unchanged.
As with most dollar pairings, a bounce in stocks reduced demand for the haven dollar after Tuesday's risk-off jag.

Tuesday's 1.4009 peak in the pound ran into prior highs, the 61.8% Fibo of the slide from February's high and the underside of a prior up trend-line, while Wednesday's 1.3886 low found support at the 38.2% Fibo of the February-April 1.4240-1.3670 fall that bottomed out with the help of the 100-day moving average nL1N2ME1DO.

USD/JPY's March slide found temporary technical respite near Wednesday's 107.88 lows on EBS, but options expiries, technical resistance near 109 and an overhang of spec long positions above current prices suggest consolidation of the downtrend before the key central bank meetings, rather than a meaningful rally nL1N2ME1LO.

A hawkish steer from the BOC nL1N2ME1G6 sent USD/CAD down about 1%, to its lowest since March 18th's 3-year low at 1.2361, but a greater than 2% drop in WTI likely staved off a test of that key support.

Other than the ECB meeting, Thursday features U.S. jobless claims ahead of global April PMIs on Friday.

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• EUR/USD rally off the March 31 low stalls short of the daily cloud top

• A slide ensues & the pair nears flat on Tuesday, a gravestone doji forms

• Slide extends today, nears the 23.6% Fib of 1.1704-1.2008 but stalls

• A sharp bounce takes hold, pair nears flat today, long legged doji forms

• Recent daily candles send mixed signals, longs now ponder if rally resumes

• Monthly techs lean bullish but show potential for a head & shoulder top

• For more click on FXBUZ

• EUR/USD sink overnight on soured risk, US$ buys, equity & bond yield drops

• NY opens near 1.2010, pair dips to 1.1999 (EBS) but buyers emerge

• Risk improves, Bank of Canada move nIfp25XCtm drive gains for growth ccys

• US$ & yen buying abates, EUR/JPY rallies above 130.00, EUR/USD lifts sharply

• Pair nears 1.2040, the slips towards 1.2025 late in the session

• Monthly techs are bullish, daily techs send mixed signals ahead of the ECB

• For more click on FXBUZ

Bank of America Global Research highlights the importance of the ECB Strategy Review for the EUR direction over the remainder of the year.

"The ECB communication remains problematic. Recent comments by ECB hawks point to risks of early policy normalization...All this may reflect the discussions behind closed doors during the Strategy Review that is supposed to conclude this summer...Lagarde may try to balance the opposing views in the Strategy Review, leading to even more confusion about the policy reaction function," BofA notes. 

"For now, we have to wait for the Strategy Review, in order to get some clarity. As we have argued before, the Review itself can go either way. It is succeeds, it should clarify how an open-ended QE program can continue after the PEPP ends early next year. In the other extreme, the end of the PEPP will signal the end of QE. Where we end up in the middle of these extremes will determine the EUR impact," BofA adds. 

• USD/CAD falls 1.05% to 1.2475 after dovish BoC hold; Wed range 1.2654-1.2459

• BoC reduces Weekly APP amt, sees inflation hitting target H2 2022 vs Q1 2023

• CAD gains despite falling oil on upbeat recovery tone, pot'l early rate rise

• USD/CAD supt 1.2458 Apr 21 low, then 1.2385 lwr 21-wk Bolli, 1.2361 2021 low

• Bears in control, bulls need to retake 10-DMA by 1.2538 to slow bearish tide

Citi discusses its expectations for tomorrow's ECB policy meeting.

"We expect the ECB to sound modestly dovish at Thursday’s Governing Council meeting, given slow progress in vaccination and stalling inflation expectations.  We don’t expect any major policy news as financing conditions remain favorable. The asset purchase pace is likely peaking, while the Review, the potential expiry of the PEPP and the EUR probably are increasingly relevant, but not quite yet," Citi notes. 

"We don’t expect much market impact from this Meeting and see upside for EURUSD overall,' Citi adds. 

GBP/USD slipped on Wednesday, shying away from the previous session's trend high of 1.4009 as it drifted below 1.3900 in early U.S. trade nL1N2ME17X on rising global COVID cases, though the shallow depth of recent retreats offered bulls hope.

The spreading global pandemic has dimmed traders' early 2021 sterling optimism, which was based on the UK's rapid vaccination drive and GBP/USD's inability to make fresh gains above 1.4022, the upper 30-day Bolli, and subsequent dip within its daily cloud spanning 1.3950-1.3846 has weakened the pound's bullish structure.

But the shallow cable declines indicate lingering support, and bulls remain in control above 1.3839, the 50% Fib of 1.3670-1.4240 recent rise, which lies amid a cluster of daily moving average supports from the 55-DMA by 1.3864 to the 21-DMA by 1.3800.

A close below 1.3800 could shift momentum firmly back to sterling bears, but the ECB's meeting and news conference on Thursday may be critical after the pound's 3.3% year-to-date gains versus the euro.

A growing divide within the ECB on asset purchases nIfpd4qcD and ongoing stimulus may push the pound higher versus the euro tempering further weakness versus the dollar.

For more click on FXBUZ

CIBC Research discusses its reaction to today's BoC policy decision.

"The Bank of Canada had some new things to say about the economy and its policy stance, most of which could be anticipated from clues dropped in recent speeches. The policy rate was of course left unchanged. A material upgrade to growth (to about 6 ½% this year, 3¾% in 2022) driven by a much better start to the year, now has the output gap closing earlier, moving the timing of the first rate hike into latter half of 2022, despite an upgrade to potential growth. Note that markets were already pricing in a second half rate hike (and our own call is for a Q4 2022 move), but there was some chance that the BoC would have nudged potential up enough to stay with a 2023 rate hike story," CIBC notes. 

"On our first take, slightly hawkish given the second half 2022 rate hike guidance, although we expect that the Fed will also end up pulling forward its hike into 2022, negating the positive impacts on the loonie," CIBC adds. 

MUFG Research sees a scope for the EUR to outperform on a potential lifting in incoming flows.

"The turn to less favourable risk appetite yesterday that provided the US dollar with some renewed strength across G10 was less evident versus the euro and the more positive fundamental backdrop is likely to continue providing support for EUR/USD, although we would not be surprised to see the euro start to consolidate rather than extend noticeably further given the scale of recovery from the low at the end of March," MUFG notes. 

"No doubt the pessimism of just a few weeks ago fuelled by the poor vaccination roll-out has shifted as the EU authorities turn the situation around and ramp up vaccinations. Furthermore, a greater degree of resilience to lockdowns, evident in some of the macro data is also reflected in the corporate earnings upgrades. This could well result in a more favourable turn in capital flows," MUFG adds. 

• AUD/USD slide from Tuesday's peak extends overnight, 0.76985 low set

• Risk bounces; US$ & yen sold, equities ESv1 & copper HGv1 gain

• USD/CNH dips below 6.4900 & AUD/JPY rallies above 83.60

• AUD/USD rallies away from the 10-DMA, 0.7730 neared ahead of NY open

• Pair turns slightly positive on the session & a long legged doji forms

• Bulls need break of resistance near 0.7750 to take greater control

• No major US data; AUD/USD cues to come from yields, stocks, commodities

• For more click on FXBUZ

A surge in the cost of options to protect against increased USD/CAD volatility can be put down to broader risk aversion and the drop in oil and equities that fuelled a 140+ USD/CAD spike Tuesday, but premiums for Wednesday's Bank of Canada policy announcement show it's not without risk, and traders shouldn't be complacent.

The broader consensus is for the BoC to taper asset purchases from C$4 billion to C$3 billion a week.
The growth outlook and forward guidance should be more optimistic after strong Canadian data and good vaccination progress.
The BoC said in January and March that slack should be absorbed and inflation sustained above 2% going in to 2023.

However, the central bank won't want the market to start pricing early hikes, and is likely to strike a dovish tone - perhaps underlining the risk of new covid variants and potential lock-downs.

Overnight expiry USD/CAD implied volatility is 12.5 - from 9.0 Tuesday - its highest in over a month, and a break-even for vanilla straddles of C$66 pips from C$47 pips in either direction.

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