Marc to Market

The Yuan's Quiet Rise and Next Week's Summit

noreply@blogger.com (Marc Chandler) — Thu, 7 May 2026 09:50:00 -0400

The offshore yuan appreciated nearly 5% against the dollar last year. The onshore yuan gained about 4.25%. This year has picked up were 2025 left off. Through yesterday, the offshore yuan has added roughly 2.4% this year, the onshore unit 2.6%. That puts it second among emerging market currencies in the region, trailing only the Malaysian ringgit's 3.5% advance. The yuan is not sprinting, but it is moving — and in a direction that Beijing, at least provisionally, is tolerating, if not encouraging.

The PBOC's daily fix is the tell. The reference rate was set today at CNY6.8487, the lowest since March 2023. The band around it is 2%, though the currency rarely tests those edges. What matters is the direction of the fix itself, and the direction is unmistakably toward a stronger yuan. Our working assumption is that the fix could drift toward CNY6.80, and perhaps CNY6.68-6.70 in the months ahead, consistent with our broader bearish dollar view. The PBOC rarely telegraphs its tolerance levels, but the cumulative signal from the fixes is hard to misread.

Harder to answer is why now, and how far. China's structural position is unambiguous: a large trade and current account surplus means that in aggregate, China must continue to acquire foreign assets. The surplus does not disappear; it gets recycled. The question is by whom and into what. Historically, the PBOC and state-owned banks have been the primary recyclers — parking surpluses in US Treasuries and agency paper, effectively helping to fund American deficits and anchoring the yuan. But outbound direct investment flows and some portfolio outflows suggest that the recycling has become less exclusively state-directed. Private Chinese capital is moving, too.

What is being acquired matters as much as who is acquiring it. The PBOC continues to accumulate gold, according to official reports — part of a broader global central bank trend that accelerated after Russia's reserves were frozen in 2022. Yet the structural reality remains: America's large current account deficit means foreign investors, including Chinese ones, are continuously accumulating US assets. These global imbalances--China's surplus recycled into dollar-denominated claims, America's deficit financed by foreign inflows--create a deep structural entanglement that limits how far decoupling from the dollar can actually go in practice.

That said, the direction of travel on the margins is notable. China's CIPS payment system is seeing increased activity, and the yuan appears to be settling a larger share of China's trade. This is a slow-moving structural shift, not a sudden break. But the direction is consistent and worth tracking.

All of which sets the backdrop for next week's Trump-Xi summit. The once-delayed meeting arrives at a peculiarly loaded moment. Before the two leaders sit down, China will report two sensitive data points. The April trade balance is due, and it appears to have recovered after slipping in February and March from January's record surplus of $122.4 billion. April CPI and PPI land Monday, and the expectation is that both will confirm China has moved beyond its deflation and disinflation period. Neither data point is likely to calm nerves in Washington about the bilateral imbalance.

The summit agenda is already crowded, and the Middle East war and the shutting of the Strait of Hormuz threatens to overwhelm everything else. Beijing cannot be pleased that its vessels have been denied free maritime transit, a constraint the US has imposed using the same secondary sanctions architecture that Treasury Secretary Bessent has publicly criticized when China has deployed it against American rare earth interests. The asymmetry is not lost on anyone.

Initially, Beijing seemed to deploy blocking legislation to discourage Chinese banks and companies from honoring US sanctions against Chinese refiners. However, subsequent reports suggest Chinese officials provided verbal guidance encouraging domestic banks to to grant fresh loans to the refiners. The situation is far from clear.

Then there is Taiwan. It is not exactly a state secret that a significant US arms sale to Taipei is being readied, timed for shortly after the meeting. Beijing presumably knows this too.

And underneath it all sits the rare earths question, which is becoming less a background issue and more a central one. Washington has run down its arsenal between Ukraine and the ongoing Iran conflict. Reconstituting it requires processed rare earths, and China dominates that processing.

The yuan's appreciation, the PBOC's gentle fixing lower, the surplus recycling dynamics, and the charged context of a high-stakes summit are not separate stories. They are threads of the same one. A clash or a quid pro quo between Washington and Beijing is coming. The only question is the form it takes.

Disclaimer

USD Remains Soft, Norway Hiked, Mexico to Cut, and UK Votes

noreply@blogger.com (Marc Chandler) — Thu, 7 May 2026 06:51:00 -0400

Hopes that the war on Iran is nearly over and that the Strait of Hormuz will open soon and ease the supply shock that has rippled across the global markets continues to underpin risk appetites today. The AI boom and the infrastructure and defense spending in Europe are also contributing. The dollar is mostly softer, oil prices lower and yields extending their pullback.

Preliminary data lends credence to claims that Japanese officials intervened again yesterday to strengthen the yen. The initial estimate suggests it slightly few dollars than it did on April 30. Norway’s central bank surprised the market with a rate hike earlier today, and the swaps market is pricing in another. Sweden’s Riksbank stood pat after the softer than expected CPI reported yesterday.

Prices

G10

• While equities and bonds rallied strongly yesterday, the dollar bottomed in early North American trading and gradually pared some of its decline yesterday amid heightened optimism that the war on Iran is drawing to a close. The euro peaked before 7:00 am ET yesterday, slightly shy of $1.18 and pulled back to around $1.1740 in the NY afternoon. That area held today, and after a subdued Asia Pacific session, the euro has returned to the $1.1780 area in the European morning.

• The dollar plummeted quickly yesterday amid speculation that the BOJ stepped back in as the market approached JPY158. Within minutes, the greenback had been sold to almost JPY155.00. The preliminary estimate is that the BOJ sold around $30 bln. The initial rebound carried it back slightly through JPY156.55. European and North American participants pushed it down to around JPY155.60 before bids returned but the market seemed reluctant to push it above the JPY156.60 area ahead of the return of Japanese markets today. It has been confined to about today between JPY156 and JPY156.55. Options for $1.5 bln at JPY156 expire today.

• Sterling peaked around the same time the euro did yesterday. It straddled the $1.3640 area before it finally gave up and retreated to around $1.3580 in the NY afternoon. It has held above $1.3590 today but below $1.3625. The UK holds local elections today A large loss for Labour is seen renewing pressure on Prime Minister Starmer. Concerns about the implications for fiscal policy were not evident yesterday when the 10-year Gilt yield dropped 12 bp on the hopes of peace, or at least an open Strait of Hormuz. Starmer is in a bind. He is the to the right of his party but to the left of the Tories, and more importantly now, the Reform UK populists. Polls suggest the Greens are poised to do better, too. There is little fiscal space, and year-over-year growth may struggle to sustain 1%.

• Despite the strong IVEY PMI (57.7 vs. 49.7), the Canadian dollar was one of two G10 currencies unable to gain traction against the greenback yesterday. The other being the Norwegian krone. Hence, the idea that nearly 7% sell-off in June WTI was the culprit. The greenback posted a bullish outside up day by trading on both sides of Tuesday’s trading range and settling above its high. The US dollar reached about CAD1.3640 in the North American afternoon. A marginal new high was recorded today but the greenback has been sold to about CAD1.3620 in Europe today. Initial support is seen near CAD1.3600 and then yesterday’s low (~CAD1.3580).

• The Australian dollar reached almost $0.7280 in early North American turnover yesterday, its best level since June 2022. Its gains were pared. The low recorded in the NY afternoon was around $0.7225. It settled slightly below the upper Bollinger Band (~$0.7255 today). The Aussie is trading with a firmly today and approached $0.7265 in the European morning. Options for A$2.23 bln at $0.7250 expire today.

• We had feared that the Mexican peso was falling out of favor, but it has rallied nearly 1.5% in the past two sessions. The dollar traded below MXN17.20 for the first time since April 17. It is holding above it today. The low in mid-April was MXN17.1275. Yesterday, the greenback recovered to MXN17.30. Today is a big day for Mexico, with the April CPI in the morning and a likely rate cut by Banxico this afternoon.

• The Chinese yuan has extended its gains today. Against the offshore yuan, the dollar was sold below CNH6.80 for the first time since February 2023. The PBOC set the dollar’s reference rate at CNY6.8487 (CNY6.8562 yesterday), its lowest level since the end of March 2023.

• Helped by the drop in oil prices and reports that officials are looking at other ways to support the currency, the Indian rupee rose by about 0.4% today after yesterday’s 0.7% gain. It is the first back-to-back rise in nearly three weeks. The dollar reached a record high on Tuesday near INR95.4375, and today’s low was around INR94.0750, its lowest level since April 23. The dollar settled slightly above INR94.2510.

Other Markets

• Asia Pacific equities mostly rallied today. The return of Japan from its long holiday saw the Nikkei soar nearly 5.6%. Hong Kong, Taiwan, South Korea, and several small bourses gained more than 1%. India’s main indices were an exception and failed to sustain much traction. After rising 2.2% yesterday, Europe’s Stoxx 600 is off by about 0.2% in European morning. US index futures are hovering around little changed levels.

• Benchmark 10-year yields are softer. Antipodean and Japanese yields were 3-5 bp lower. European rates are fractionally softer, and the 10-year US Treasury yield is 1.5 bp lower near 4.33%.

• Gold is extending this week’s recovery off the $4500 area. It has risen a little through $4753 today, its best level since April 22. Last month’s high was near $4890. Silver forged a shelf around $72.50 earlier tis week and is pushing above $80 today for the first time April 21.

• June WTI is trading heavier but within yesterday’s range. The contract peaked at the end of April slightly shy of $111. It was sold to about $88.65 yesterday but settled a little above $95. Today, it has traded between about $91.90 and almost $96.50. It is hovering near $93 in late European morning turnover. July Brent peaked earlier this week ($115.30) and reached $96.75 yesterday. Today, it has traded between about $97.45 and $102.55. It settled slightly above $101.25 and is now around $99.

Data

• Today’s US data is of marginal significance for the markets ahead of tomorrow’s April employment report. Challenger’s April report and the weekly jobless claims pose headline risk. Recall that weekly jobless claims fell by 26k in the week through April 24 to 189k, since 1969. Continuing claims fell to 1.79 mln, a two-year low. Productivity and unit labor costs are not observed directly, but are interpolated from the GDP figures, and both are likely to have moderated from Q4 25. March construction spending likely stabilized after falling by 0.3% in February. Lastly, March consumer credit may have increased for the second consecutive month for the first time since last March-April.

• Mexico sees April CPI, which may have slipped a little lower, but both the headline and core likely remained above the top of the 2-4% target range. Still, driven by the weakness in the economy, the central bank will likely cut its overnight rate target by 25 bp today to 6.50%. The swaps market anticipates an extended pause.

• The eurozone reported a 0.1% decline in March retail sales. It follows a 0.3% decline in February and a flat showing in January. It is the first back-to-back decline since October-November 2024.

• German factory orders soared by 5.0% in March (five-times more than the median forecast in Bloomberg’s survey after the 0.9% gain in February was revised to 1.4%. The year-over-year pace jumped to 6.3% (from 3.5%). Separately, Germany’s construction PMI slumped to 42.1 in April from 48.0 in March.

• Sweden’s Riksbank decision to keep its policy rate steady at 1.75% was no surprise. The preliminary April CPI reported yesterday was considerable softer than expected. The headline and underlying rates fell. Norway’s Norges Bank surprised with a 25 bp hike to 4.25%. It is the first G10 central bank in Europe to hike. The swaps market has about a 45% chance of a follow-up move next month.

• Australia reported an unexpected A$1.84 bln goods deficit in March. The surplus in March 2025 was A$6.26 bln. Exports tumbled by 2.7% (+4.2% in February) and imports jumped 14.1% (after they fell 2.7% in February).

• China reported the dollar value of its reserves rose by 2% or $68.4 bln to $3.41 trillion. It is the largest increase since November 2023 and the highest level since November 2015.

Disclaimer

TACO Delivered a Day after Cinco De Mayo

noreply@blogger.com (Marc Chandler) — Wed, 6 May 2026 06:47:00 -0400

There is one overarching fundamental development today that is driving the risk-on in the capital markets and weighing on the dollar. President Trump announced the US was suspending its new escort service in the Strait of Hormuz. Ostensibly at the request of Pakistan and other countries, the decision was to give negotiators more time. Front-month oil futures contracts are off 8-10% today. It has arrested the rise in bond yields and is lifting equities.

The dollar is lower against the G10 currencies, but the Norwegian krone, which is particularly sensitive to large moves in crude oil prices. The yen jump dramatically in a few minutes in Asia Pacific turnover, and although Japanese markets were still closed for the extended holiday today, there is much speculation that Japan officials intervened again as the dollar had reached its best level (almost JPY158) since the apparent intervention on April 30.

Prices

G10

• The euro has been confined to about a $1.1675-$1.1720 range since the North American session on Monday but jumped to almost $1.1790 today as the market sees the suspension of the US naval escort as a sign of de-escalation, though to be sure the US blockade of Iranian ports remains, which is an act or war by nearly any definition but the one the administration is using to deter Congress from invoking the War Powers Act. Last Friday’s high was around $1.1785 and last month’s high was closer to $1.1850. The intraday momentum indicators are stretched. Options for 675 mln euros at $1.1775 expire today.

• After what appears to have been material intervention by the Bank of Japan on April 30, the market has lifted the dollar from the JPY155.50 low before the weekend to almost JPY157.90 yesterday. Although Tokyo markets re-open tomorrow from the extended holiday, it appears that officials may have intervened again; within minutes the dollar plummeted from about JPY157.80 to JPY155. Recall that last week’s low was about JPY155.50. Since the low was recorded today, the dollar has held below about JPY156.60.

• Sterling peaked before the weekend near $1.3660, its highest level since mid-February, before reversing low. It held Monday’s low yesterday (~$1.3510) and recovered to almost $1.3580. This nearly retraced half of what it had low in the previous two sessions. Today’s dollar losses lifted sterling to almost $1.3635. The upper Bollinger band is near $1.3620. Intraday momentum indicators are stretched and ahead of tomorrow’s local elections, sterling is one of the laggards today.

• Canada reported an unexpected March trade surplus yesterday and the services and composite April PMI suggest the economic headwinds eased a bit. And despite the news and the apparent risk-on mood, with strong gains in the US equity market, the Canadian dollar was uninspiring. The greenback held above CAD1.3600 and managed to marginally take out Monday’s high (~CAD1.3625) before chopping around in a 20-tick range of so for most of the North American session. The US dollar has been sold slightly through CAD1.3580 today and is hovering slightly below CAD1.36 ahead of the North American session. As is often the case, in the soft US dollar environment, the Canadian dollar tends to underperform among the G10 currencies. Only the oil-sensitive Norwegian krone has performed worse the Canadian dollar today.

• The Australian dollar set a multi-year high on May 1 a little shy of $0.7230 before profit-taking dragged it to almost $0.7135 after the central bank hiked yesterday. It recovered to knock on $0.7200 yesterday and jumped to almost $0.7270 today. That is its best level since June 2022 when it reached almost $0.7285. The intraday momentum indicators are stretched, and the upper Bollinger Band is around $0.7245. Options for nearly A$ 2bln at $0.7250 expire tomorrow.

• The Mexican peso had its best day since April 8 yesterday. It appreciated by about 0.80% against the dollar. It is up nearly as much today. The greenback was sold to about MXN17.2135 today, its lowest level since April 17, when it reached MXN17.1275. The lower Bollinger Band is near MXN17.1885 today.

• When mainland markets closed last Thursday for the long holiday, the dollar settled near CNH6.8320 against the offshore yuan. It settled near CNH6.8280 yesterday ahead of the re-opening of the mainland markets. The dollar was sold to about CNH6.8065 today. The three-year low was recorded in mid-April near CNH6.8060. Today, the PBOC set the dollar’s reference rate at CNY6.8562 (vs. CNY6.8628 on April 30), a new multiyear low.

• The Indian rupee jumped by about 0.70% today on the back of the retreat in oil prices and the broad pullback in the US dollar. It snapped a five-day drop that took it to a record low with its biggest gain since April 2. The dollar settled near INR94.6150 vs. INR95.2913 on Tuesday.

Other Markets

• Equities are stronger today. South Korea’s Kospi’s 6.45% surge led the Asia Pacific region. China’s CSI 300 and India’s Sensex rose more than 1%. Europe’s Stoxx 600 is up over 2%, which if sustained would be the largest advance since April 1. US index futures are up around 0.75%-1.35%. The S&P 500 and Nasdaq set record highs yesterday, as did the Russell 2000.

• Stocks have rallied and so have bonds. Benchmark 10-year yields are 7-12 bp lower in Europe, with UK Gilts, Swedish and Greek bonds rallying the most. The 10-year US Treasury yield is off nearly eight basis points to a little above 4.34%. The 30-year bond yield, which has been flirting with the 5% threshold, is now slightly below 4.93%.

• Lower rates and lower dollar have helped lift gold and silver today. Gold held support near $4500 in recent days and surged to almost $4709 today. The next technical hurdle is around $4740. Silver found support in front of $72 over the last few sessions and is now moving above $77. Resistance is seen around $80.

• June WTI has plummeted from about $102.25 at yesterday’s settlement to $92.50 today, a nearly two-week low.

Data

• The ADP’s private sector jobs estimate is today’s US data highlight. The ADP’s average estimate was 33.2k last year and 46.3k in Q1 26. The BLS 2025 estimate of private sector jobs growth in 20025 was 25k and in 79k in Q1 26, pending revisions at the end of the week. The Treasury will announce the details of its quarterly refunding. It is expected to keep issuance steady at $125 bln. The tariffs refunds and Treasury buybacks will likely be financed through more T-bill issuance.

• Canada’s April IVEY survey is due today. It typically runs hotter than the PMI. The April PMI advanced in April. The manufacturing PMI rose to 53.3 from 50.0. The services PMI rose to 49.6 from 47.2 in March. The composite PMI to 50.1 from 47.6. The IVEY survey slipped below 50 in March (49.7), a four-month low. It likely rebounded last month.

• The April manufacturing PMI (47.7) and IMEF surveys (below 50) showed that the Mexican economy continues to struggle after the 0.8% contraction in the first quarter. April domestic vehicle sales and February private consumption are overshadowed by tomorrow’s April CPI (a little moderation is expected) and the central bank meeting. The disappointing real sector data is seen spurring Banxico to cut rates tomorrow to extend the easing cycle that began in March 2024. The swaps market anticipates it to be the last cut in the cycle.

• The final April eurozone services and composite PMI were confirmed below the 50 boom/bust level, and the year-over-year PPI flipped to 2.1% in March from -3.0% in February. The swaps market has nearly an 80% chance of a quarter point hike when the ECB meets on June 11. Current pricing is consistent with two hikes and about a 45% chance of a third move.

• The UK reported the final April services and composite PMI and revised both up from the preliminary 52.0 reading to 52.7 and 52.6, respectively. The construction PMI is due tomorrow and likely remained below 50. The swaps market is not persuaded that the Bank of England will hike rates next month (~36%). Two hikes are fully discounted for this year.

• China’s RatingDog PMI (formerly Caixin) received passing attention. It tends to run stronger than the version by China’s Federation of Logistics and Purchasing. The latter’s composite averaged 50.0 in the first four months of the year and 50.5 last year. The RatingDog composite averaged 52.9 in January-April this year and 51.3 in 2025.

Disclaimer

US Dollar Mostly Softer, Gilts Play Catch-up, and the RBA Delivered Third Hike and Signals a Pause

noreply@blogger.com (Marc Chandler) — Tue, 5 May 2026 06:52:00 -0400

The US dollar is slightly lower against the G10 currencies but the Japanese yen as the North American session gets under way. Chinese and Japanese markets remain on holiday. Outside the Reserve Bank of Australia’s third rate hike of the year, the news stream is quiet. Contrary to claims otherwise, the Strait of Hormuz remains effectively closed. Still oil prices are consolidating in the in the upper end of yesterday’s range.

The US has busy session of economic data, but with Q1 GDP and the preliminary April PMI in hand, most of the reports are old news. New today is the April services ISM. Still, the recent string of data suggest the AI-related boom continues. The Fed funds futures, which have with an exception last Wednesday, have been discounting a chance of a Fed cut this year. It swung in favor of a hike yesterday and is now pricing in slightly less than a 1-in-4 chance of a rate increase. The rise in the long-end of the US curve can largely be explained by the rise in the expected year-end Fed funds rate over the last couple of weeks.

Prices

G10

• The euro recorded a bearish shooting star candlestick before the weekend and extended its losses to almost $1.1680 in the North American session yesterday. It edged slightly lower today but held above $1.1675. The next area of technical support is near $1.1655, the three-week low seen last Thursday. A push below $1.1630 could signal initial potential toward $1.1575.

• Arguably helped by the jump in US 10-year rates, the dollar set the session high yesterday in North America near JPY157.30, and with Japanese markets still closed today (and tomorrow) took the dollar through resistance is around JPY157.50 to reach JPY157.85. Initial resistance now is seen around JPY158. There still appears to be no comment from the US, which is a fry cry from reports of US Treasury-inspired rate check in January.

• Sterling looked like it hit a brick wall before the weekend after it reached nearly $1.3660, its highest level since mid-February. It settled poorly (slightly below $1.3585) and extended the losses to almost $1.3510 in North America yesterday. Yesterday’s low held and sterling recovered to about $1.3550. Nearby resistance is seen near $1.3565. Options for about GBP455 mln at $1.3575 expire today.

• After recording a bullish hammer candle stick before the weekend, follow-though US dollar buying extended to almost CAD1.3625 yesterday and CAD1.3630 today. It reached CAD1.3550 at the end of last week, the lowest the greenback has been since March 10. A move now above CAD1.3650 lends credence to ideas a low is in place.

• The Australian dollar recorded a new marginal four-year high before the weekend, but it did not signal a breakout. It seems to have simply frayed the upper end of a three-cent trading range (~$0.6900-$0.7200). Some position squaring ahead of today’s central bank decision was seen yesterday and the Aussie eased to around $0.7155. The losses were extended to about $0.7135 today. Yet, by early European turnover, it has recovered to almost $0.7165. The $0.7170-80 area offers the next hurdle.

• The risk-off mood weighed on emerging market currencies yesterday. The Colombian peso led the complex with a 2.3% drop, followed by the Chilean peso’s 1.5% loss. The Mexican peso fell by a more modest 0.40%. The greenback reached almost MXN17.55 yesterday from a pre-weekend low near MXN17.3830 before the weekend. It is consolidating quietly today between about MXN17.4715 and MXN17.5420.

• The dollar recovered from almost a two-week low yesterday against the offshore yuan (~CNH6.8155) to reach CNH6.8350, slightly shy of the pre-weekend high (~CNH6.8360). It tested last Friday’s high today before steadying. It is little changed now. Last week’s high was closer to CNH6.85. The market may be reluctant to push above it as the mainland re-opens tomorrow from its long holiday weekend.

• The Indian rupee seems to be broadly tracking oil prices and more. The rupee fell to a new record low today. The greenback reached INR95.4375. There were scattered reports of intervention, and the rupee initially rose yesterday, following news of BJP’s victory in West Bengal. The gains were not sustained, and it posted a record-low close yesterday before being sold today. There is speculation that the central bank is considering returning to its 2013 playbook when it opened two special swap windows to stem the taper-tantrum-related sell-off of the rupee. First, it offered to swap US dollars of non-resident foreign currency deposits of maturity three years and above into INR at a concessional rate of 3.5% per annum — about 3% cheaper than average market rates at the time. Second, it allowed banks to borrow additional foreign currency funds from overseas and swap them into INR at a concessional rate of 1% below market. The measures were regarded as successful at the time, but the pressure from oil prices and outflow from the equity market are substantial drags. Reports suggest officials may encourage state-owned banks to see foreign currency bonds to draw capital, while the central bank may offer a swap facility to hedge the fx risk.

Other Markets

• Equities are mostly firmer today. Without Japanese and Chinese markets, the other large bourses in the region were mixed. The surging Taiwan and South Korean markets continued to advance, and the latter rose by over 5% today. The former edged higher. Europe’s Stoxx 600 is up about 0.5%, recovering around half of yesterday’s losses. The S&P and Nasdaq futures are also paring yesterday’s declines.

• Benchmark 10-year yields are mostly softer, and the 10-year UK Gilt stands out as a notable exception. Most European yields are 1.5-3.0 bp lower. However, the UK Gilts are playing a little catch up after yesterday’s holiday and the yield is up almost eight basis points. Over the past week, the 10-year yield has risen by about four basis points, second in the G10 to the US 10-year yield increase of about eight basis points. The US Treasury yield is off almost 1.5 bp today to 4.425%. The 30-year yield is straddling the 5% threshold today.

• Gold held support near $4500 and enjoys a firmer tone today after slumping 2% yesterday. It recovered to $4560 so far. It had fallen in five of the past six sessions coming into today. Silver, on the other hand, fell for the first time in three sessions yesterday Its 3.45% loss was the largest in two weeks. It has returned better bid today but well within yesterday’s range.

• June WTI is a couple of dollars lower in consolidative action. It has traded between almost $103 today and $105.50. Yesterday’s high was around $107.45. Rather than attack the two US flagged ships that reportedly made it through the Strait of Hormuz yesterday, Tehran apparently responded by sending two drones to attack an empty UAE tanker, which seems to send a message. The Strait of Hormuz is not open.

Data

• Most of US high-frequency data that will be released today is old news, pertaining to Q1. That includes the March trade balance, new home sales, building permits and JOLTS. The final April services and composite PMI also are on tap, but the preliminary estimate is “good enough”. That leaves April ISM services as the only “new” data point today. Activity is expected to have slowed and prices paid risen. As we approach the halfway point of Q2, the Atlanta Fed’s GDP tracker is at 3.5%, while the median forecast in Bloomberg’s survey is for 1.8% after 2.0% in Q1. The December Fed funds futures, which last Monday were discounting about a 35% chance of a cut this year is now pricing in about a 5% of a hike. Fed governors, Bowman, and Barr speak today.

• Canada reports March merchandise trade figures, while the S&P releases April services and composite PMI. Canada recorded a C$9.92 bln goods trade deficit in the first two months of the year. In January-February 2025, Canada reported a nearly C$2.2 bln surplus. Canada’s manufacturing PMI jumped to 53.3 in April from 50.0 in March. The services and composite PMI like also rose from 47.2 and 47.6, respectively in March. The composite is recovering the 44.9 reading last November. It was above the 50 boom/bust level once last year (October). The highlight of the week is the April employment report on Friday. It lost nearly 95k jobs in Q1 26 after gaining nearly 30k positions in Q1 25.

• The Reserve Bank of Australia’s decision to hike rates for the third time this year renders today’s data moot. The final April services and composite PMI do not draw much attention in any event, though both were revised higher. March household spending surged 1.6%, matching the large increase since July 2022. It was flattered by higher energy prices. The central bank appears to signal it would pause. The future market has almost an 80% chance of a hike at the August meeting. The market the Q3 hike and about a 30% chance of a hike in Q4.

Disclaimer

US-Iran Ceasefire at Risk: Oil Pulls Rates Higher

noreply@blogger.com (Marc Chandler) — Mon, 4 May 2026 06:44:00 -0400

The US dollar recovered in late turnover ahead of the weekend and has extended its recovery today in holiday-thin trading. Japan, China, and UK markets are closed. The ceasefire in the US-Iran war looks fragile as Washington says it will begin escorting ships out of the Strait of Hormuz and Tehran threatens to attack the ships. June WTI is trading above the pre-weekend high and 10-year benchmark yields are jumping.

Washington announced two measures at the end of last week. It first announced tariffs on European vehicles would be raised to 25% from 15% and that at least 5k troops would be removed from Germany. The tariff increase was said to be in response to Europe’s failure to implement the trade agreement that requires it to purchase $750 bln of US energy. US troops in Germany were never sufficient to defend it against a Russian invasion but served as a tripwire that would trigger US military might. The removal of 5k troops unwinds the increase after Russia’s invasion of Ukraine in 2022. Yet, the context in which it was done gives the appearance of punishment for Chancellor Merz’s criticism of US war on Iran.

Prices

G10

• The euro posted an ostensibly bullish outside up day last Thursday and follow-through buying ahead of the weekend lifted it to $1.1785, and eight-day high. However, the upside momentum stalled as the resistance in the $1.1790-$1.1800 area was approached and the US announced an increase in tariffs on EU vehicles to 25% from 15% from its failure to fully implement the trade deal, according to President Trump. The US also announced intentions to withdraw at least 5k troops from Germany. The euro pulled back to new session lows near $1.1715 in late thin dealings before the weekend. In thin holiday trading, it slipped slightly through $1.1690. If sustained, a move back below $1.1700 would disappoint the bulls. Options for around 925 mln euros at $1700 expire today.

• The yen rose to its best level since the Middle East war began with the help of what appears to be material intervention. The dollar recorded a low of JPY155.50 before the weekend. The area corresponds with a technical retracement of the dollar’s rally from the January low. Tokyo markets do not re-open until Thursday. The dollar is consolidating today. It has held above JPY155.70 and below JPY157.25, as it has been confined to the pre-weekend range. Without signaling a change in policy, and without US support, Japanese officials did manage to arrest the yen’s slide and reinforce the importance of the JPY160 area. Previous support around JPY157.50-JPY158.25 may now serve as resistance.

• Sterling reached almost $1.3660 before the weekend, its best level since February 16. However, it reversed lower and settled below $1.3600 nemesis. In the waning hours of last week’s activity, it fell to almost $1.3570. This weakened the technical tone and follow-through selling took it slightly below $1.3525 today. A convincing break $1.3530 could signal a return to the $1.3450 area.

• The Canadian dollar reached its best level since March 10 before the weekend. The greenback settled near CAD1.3640 on the eve of the war on Iran and reached CAD1.3550 at the end of last week. The US dollar took out the trendline connecting the January and March lows (~CAD1.3580) but settled above it. The US dollar approached CAD1.3620 today. Options for $380 mln at CAD1.3615 expire today. The previous band of support that extends to CAD1.3620 may offer resistance.

• The Australian dollar reached almost $0.7230 before the weekend, its highest level since June 2022. The central bank meets tomorrow and is widely seen delivering its third hike of the year. It is consolidating between about $0.7165 and $0.7225 so far today. The Aussie seems vulnerable to “buy the rumor, sell the fact” activity.

• The Mexican peso rose at the end of last week. The practically flat performance was the best in Latam on Friday. Still, the peso finished last week with a modest loss (~0.45%) for the third consecutive week. It is trading softer today. The dollar has reached MXN17.5525 in Europe. Last week’s high was around MXN17.5840. Mexico is expected to announce today new measures to boost investment by cutting red-tape, after reporting last week its largest quarterly economic contraction in a year (-0.8% quarter-over-quarter). The Brazilian real gained about 0.5%. The Colombian peso was the weakest emerging market currencies last week, with about a 2.25% draw down. It was punished after the central bank left its policy rate at 11.25%. There was speculation of as much as a 75 bp increase. The national election at the end of May may keep pressure on the currency.

• China’s mainland markets will re-open Wednesday. The dollar is trading within its recent ranges against the offshore yuan. It found support today near CNH6.8155, while the April low was recorded near the middle of the month around CNH6.8060. The greenback has recovered to around CNH6.8250.

• The Indian rupee remains out of favor. It reached a record low last Thursday before Friday’s holiday. The pullback in oil prices may offer some support to the rupee. With the help of intervention, the rupee recovered last Thursday. The dollar reversed lower after reaching INR95.3335. It fell to INR94.82 today before rebounding back above INR95.0880 to near session highs in late turnover.

Other Markets

• Equities are mixed. China and Japanese markets were closed but most of the other markets rallied today, with Taiwan and South Korea’s main indices surged 4.6%-5.1%, respectively. The holiday has thinned European turnover and the Stoxx 600 is slightly softer. The US Nasdaq and S&P futures are trading with a firmer bias.

• Benchmark 10-year yields are jumping 4-6 bp in Europe. The 10-year US Treasury yield is up nearly four basis points to almost 4.41%. Last week’s high was a couple of basis points higher and high for the year was recorded in late March near 4.48%. The 30-year yield briefly poked above 5% last Thursday for the first time since last July. The market does not look finished.

• Gold reached a three-day high before the weekend, near $4660 and is approached last week’s low (~$4510) today, which was also April’s low. A break of $4495 could signal losses toward $4400. Silver has been sold through the pre-weekend low (~$73) before finding support ahead of last week’s low near $72.

• June WTI briefly traded below $100 on news that the US would escort some ships out of the Strait of Hormuz. However, Iran is not capitulating and the contract recovered to new session highs (~$107.45) late in the European morning.

Data

• The US reports March factory orders but the strong durable goods orders reported last week (and will be updated today) point to robust capex that may be fueled by AI and data centers. The replenishing of the US arsenal has yet to filter into the data. NY Fed President William is the first official to speak since last week’s meeting. Cleveland Fed President Hammack, who dissented last week, wanting to adopt a neutral statement speaks on Thursday and may be the most interesting this week.

• Mexico reports March worker remittances and IMEF surveys, while S&P’s manufacturing PMI is also due. The highlight this week is the April CPI figures on Thursday followed by the central bank’s rate decision several hours later.

• The eurozone saw April’s final manufacturing PMI. It was confirmed at 52.2, near a four-year high. Of note, Spain’s manufacturing March PMI was not above the 50 boom/bust level. Yet, its Q1 GDP of 0.6%, reported last week, was a little better than expected and better than Germany (0.3%), France (flat), and Italy (0.2%). Spain’s April manufacturing PMI jumped to 51.7 from 48.7. Italy’s April manufacturing PMI was the strongest among the “Big 4” standing at 52.1 vs.51.3 in March.

Disclaimer

Week Ahead: RBA Hike, UK Local Elections, and US Employment Report

noreply@blogger.com (Marc Chandler) — Sat, 2 May 2026 07:01:00 -0400

Three developments stand out from last week. First, all five G10 central banks that met delivered in some form of hawkish holds. The Bank of Japan was the least convincing and the swap market barely changed the extent of the anticipated tightening this year. The year-end projection rose by about 22 bp in Canada, 19 bp for the ECB, and 15 bp for the Bank of England. The projected year-end Fed funds rate rose by about 10 bp, but the Fed is the only major central bank where the market is still pricing in a chance of a cut (albeit small). Second, many pixels have been used to explain the implications of the three dissents, wanting the FOMC to adopt a more neutral stance. Yet rather than a substantive disagreement seems more procedural. While other members seemed sympathetic the question was over timing and given the significance of the uncertainties about the scale and duration of the war on Iran, a majority favored waiting. A change in the statement, arguably, would fit better with the updated Summary of Economic Projections in June. Third, the BOJ appears to have sold dollars to support the yen last week, even though it did not signal a policy shift, it seemed effective in halting the market's efforts to push the yen lower. The action will reinforce the significance of the JPY160 area, though unlike earlier this year, when the US participated in verbal intervention, the US Treasury did not appear to comment or support Japan's effort.

Aside from unpredictable Middle East developments, there are three highlights in the week ahead. First, the Reserve Bank of Australia meets Tuesday and is likely to hike rates for the third time this year. The Australian dollar reached new four-year highs before the weekend, in part, anticipating the hike. Second, the UK holds local elections on May 7. A poor showing for Labour will keep Prime Minister Starmer on the defensive, following the appointment and departure of Lord Mandelson. Third, at the end of the week, the US jobs report for April will be released. Job growth is seen at around a third of the 178k seen in March, which is subject to revisions.

Drivers: The dollar stood on two legs. First, is geopolitics. The US appears to be among the most able to deal with the supply shock spurred by the war in Iran. Second, economic data has borne this out. The US also appears to be experiencing a surge in capex and inventory rebuilding. S&P 500 earnings remain strong. The economy turned in a solid Q1 performance when it grew by 2% at an annualized rate. By comparison, the eurozone grew by less than 0.5% annualized, and the Japanese economy is expected to have grown by 1.2%. US government spending in Q1 rose 4.4%, the most since Q3 24. Government spending in the eurozone grew may less than half as much. The Federal Reserve delivered the hawkish hold as three regional presidents dissented, favoring a more neutral stance than one associated with an easing bias. Yet, the Federal Reserve is the only G10 central bank for which a hike is not discounted this year.

Data: It is a chock-filled data week for the US. The most market sensitive high-frequency report is April's jobs data. The median forecast in Bloomberg's survey calls for an increase of 100k jobs after 178k in March (which is subject to revision). The unemployment rate is seen ticking back up to 4.4% from 4.3%. Average weekly hours slipped to 34.2 from 34.3, which led to a 0.2% decline in aggregate hours worked. The March reports are a little more than passing interest after the 2.0% initial estimate of Q1 GDP was reported. Real final sales to private domestic parties, which excludes, trade, inventories, and the government, rose 2.5% after a 1.8% advance in Q4 25. In the middle of the week, the US Treasury will make its quarterly refunding announcement. Previously, Treasury anticipated borrowing $109 bln. The refunding of the tariff revenue may boost its borrowing need.

Prices: The Dollar Index was turned back at the start of the week after having entered the gap created by the sharply lower opening on April. The gap was entered but not closed and a bearish outside down day was recorded. There was no immediate follow-through selling, but DXY posted another downside reversal on April 30, and it recorded a two-week low before the weekend near 97.70. It stabilized and recovered to a around 98.25. The 98.35-98.55 area is the next important technical area.

EMU

Drivers: Over the past 30 sessions, the euro appears to be as sensitive to a change in US two-yields as it is to the change in oil prices. The inverse correlation is about -0.40-0.45, which is the most extreme for the oil correlation since last September. The correlation was near zero between the euro and the US two-year yield at the end of February and reached a three-month extreme in March near -0.47. The euro also seems particularly sensitive to the risk environment currently. The rolling 30-day correlation of changes in the euro and the VIX (S&P volatility) is the most inverse in a year (~-0.51). From mid-January through early March the correlation was positive. The euro strengthened after the ECB meeting as the swaps market shifted to pricing in 76 bp of tightening up from about 57 bp at the end of the previous week.

Data: The final PMI readings tend not to elicit much market reaction. Nor will March aggregate retail sales be of more than passing interest. Instead, Germany's March factory orders and industrial production figures will be looked upon for confirmation of the recover signaled by the PMI. Germany's March manufacturing PMI rose to 52.2 from 50.9 in February, the first above 50-reading since Russia's invasion of Ukraine.

Prices: The euro reached an eight-session high before the weekend, near $1.1785. It was pushed back to nearly $1.1715 after the US announced it would raise the tariff on light vehicles from the EU to 25% from 15%. The five-day moving average had looked poised to fall below the 20-day moving average, but the better price action prevented it. The other momentum indicators are not generating a strong signal. Although the US two-year premium over Germany edged higher for the past three sessions, on the week, it was essentially flat. A break below $1.1700 would weaken the technical tone.

PRC

Drivers: The PBOC strongly guides the exchange rate. As the dollar firmed broadly, Chinese officials appeared to be consolidating the efforts that had driven the yuan to a three-year high. The dollar was turned back last week near CNH6.85. The dollar fix was set at a marginal new low this past Monday (CNY6.8579) but net-net is little changed over the past two weeks. China's mainland markets were closed before the weekend and will re-open Wednesday.

Data: China's RatingDog (previously Caixin) service and composite April PMI will be reported on May 6. The RatingDog iteration tends to run hotter (stronger) than the "official" one generated by the China Federation of Logistics and Purchasing. During the week, April reserves, lending, and trade figures may be reported.

Prices: The dollar tested chart resistance near CNH6.85 in the middle of last week. While the broadly heavier dollar tone would suggest losses against the yuan, the mainland holiday will deny the market access to PBOC guidance, which may deter significant moves. Last week's dollar low was slightly below CNH6.82, while the month's low was closer to CNH6.8060. The dollar settled lower for the fourth week in the past five.

Japan

Drivers: In the face of the milquetoast press conference after the BOJ left rates on hold with 6-3 vote, the Fed's hawkish hold and firm US interest rates, the market pushed the dollar to around JPY160.70. It was met with a sharp escalation of Japanese official rhetoric. There were also reports of material intervention by the BOJ, citing an unidentified government official. Although we were initially skeptical and based on preliminary estimates, it looks as if the BOJ may have sold around $34.5 bln, which would be slightly more than its average operation in 2024. With Japanese markets closed in the first three sessions of the week ahead, consolidation is the most likely scenario. The pricing in the swap market for the next BOJ meeting in June was little changed last week around 65%.

Data: Japan reports March labor at the end of next week. Many, including BOJ officials, think that labor earnings are the key to consumption. It sounds reasonable but it is really much more complicated. Often, it seems American observers think that everyone would consume like Americans if they had funds. Yet, look at what happened in February. Inflation-adjusted (real) labor cash earnings rose 1.9% year-over-year. It was the first back-to-back positive reading since the end of 2024. Real household spending fell 1.8% year-over-year after a 1.0% decline in January. Consumption, we argue, is a complex cultural phenomenon that includes values, size of living space, and is more than simply resources, which are necessary but insufficient.

Prices: The dollar reached JPY160.70 on April 30 before what now appears to have been material intervention. It succeeded in spurring a powerful short squeeze of the yen and sent the dollar to about JPY155.50. This nearly met the (61.8%) retracement objective of the dollar's rally from the year's low, recorded in late January around JPY152.10. With Japanese markets on holiday until next Thursday, the market may content to consolidate. If the JPY155.50 area represents the lower end of range, the JPY157.50 area, which was the lower end of the previous range, may now offer resistance.

Drivers: Sterling rarely is this correlated with the Dollar Index. The rolling 30-day correlation is more than -0.90 and the rolling 60-day correlation is only slightly lower. This seems to primarily reflect the euro and sterling's strong correlation (slightly below 0.90 for both time frames). After everything was said and done and more said than done, the odds of a rate hike at the next BOE meeting dropped last week in the swaps market to about 56% from almost 69% at the end of the previous week. The base rate is at 3.75% now and the swaps market says it will be near 4.40% at the end of the year. At the end of the previous week, it was about 4.27%.

Data: The UK's economic diary include the final April service and composite PMIs and the April construction PMI. While the services, manufacturing and composite PMIs are over the 50 boom/bust level, the UK's construction PMI was last above that threshold at the end of 2024. Given Prime Minister Starmer's seeming political vulnerability, the local elections next Thursday, may help shape the political discourse more than impactful for the markets.

Prices: Sterling powered through the $1.36 cap last week that had stymied it earlier in April. It corresponded to the (61.8%) retracement of sterling's losses since the peak in late January near $1.3870, a five-year high. The $1.3670-$1.3700 is the next hurdle. It reached almost $1.3660 before the weekend and then reversed lower, leaving a potentially bearish shooting star candlestick in its wake. A break of the $1.3530-55 area could signal a return to last week's low near $1.3455.

Canada

Drivers: The Canadian dollar climbed on the back of the US dollar's weakness and the risk-on environment that lifted the S&P 500 and Nasdaq to record levels. The 30-day correlation between the USD-CAD exchange rate and the Dollar Index dipped below 0.50 in late April for the first time since early January. However, it quickly rebounded to around 0.70 before the weekend, the highest in around six weeks. The USD-CAD's inverse correlation with the S&P 500 has reached -0.52, the most extreme since last September but finished last week near -0.47. The correlation with the VIX is around 0.30. Interestingly, the 30-day correlation with changes in WTI and the USD-CAD exchange rate was inverse from early last November through the middle of March. However, since then the correlation has flipped and is now near 0.30. Higher oil prices are associated with a weaker Canadian dollar.

Data: Canada sees the April services and composite PMI. They stood at 47.2 and 47.6 respectively in March, warning of economic weakness. The IVEY PMI was also below 50 (49.7) in March and the April reading is due. Canada reports its March merchandise trade figures too. In the first two months of the year, Canada recorded a goods deficit of C$9.9 bln. In Jan-Feb 20025, Canada experienced a C$2.1 bn surplus. In February, Canada's imports surged to a record, fueled by an increase in gold purchases. Canada's trade surplus with the US narrowed to C$1.7 bln, the smallest since May 2020. Canada is making progress diversifying its trade away from the US. Trade with other countries reached a record in February. Exports to rest of the world ex-US rose by 10.5% while imports increased by 1.6%. Lastly, the week ends with the April jobs report. In the Q1 26, Canada lost 67.5k full-time positions. In Q1 25, it lost about 41.3k full-time posts. In March 2025, the unemployment rate was 6.8% in March 2026 it was 6.7%. The improvement appears to be a function of a decline in the participation rate (64.9% vs. 65.3%).

Prices: In the middle of last week, the US dollar tested the upper end of its recent range, near CAD1.3710-15. It held and the greenback was sold to CAD1.3550 before the weekend. It has not been lower since March 10. The swaps market is fully discounting two hikes by the Bank of Canada this year, up from one hike and almost a 30% chance of a second a week ago. The US dollar has been sold through the trendline connecting the January and March lows but the greenback finished the week above it. The trendline begins the new week near CAD1.3590. It posted potentially a bullish hammer candlestick. Near-term potential may extend back toward CAD1.3630-50.

Australia

Drivers: The Australian dollar is sensitive to the overall direction of the dollar. The rolling 30-day correlation of changes in the Aussie and changes in the Dollar Index is inverse by about 0.75. That is around the most extreme for two years. The exchange rate is more sensitive to changes in the US two-year yield (~-0.60) than changes in Australia's two-year yield, which is, counter-intuitively, also inversely correlated with changes in the exchange rate (~-0.10). There is also a risk component. The changes in the Aussie and the S&P 500 are about 0.60 correlated over the past 30 sessions, the upper end of a five-month range. The 30-day rolling correlation with gold is around 0.55 after peaking in early February near 0.80.

Data: A few hours before the Reserve Bank of Australia's meeting concludes on May 6, March household spending will be reported. It rose at 4.6% year-over-year pace in February, and the central bank has cited it as a consideration in their two rate hikes here in 2026. The base effect in March and April will likely cushion the impact of the disruption spurred by the war on Iran. Previously, we had leaned against the third consecutive rate hike. However, given hawkish rhetoric, the rise in inflation expectations, the jump in March and Q1 CPI reported last week, a rate hike looks likely. The futures market is pricing in almost an 80% chance of a hike. On Thursday, the March trade figures are due. The Jan-Feb merchandise trade surplus is around A$7.95 bln compared with A$7.62 bln in the first two months of last year. Exports are up about 3.3% through Feb (-1.9% in Jan-Feb 2025), while imports are off 2.1% (vs. -0.5% in the year ago period).

Prices: The Australian dollar held above the lower end of its recent range near $0.7100 in the middle of last week and launched a challenge on the upper end of the range near $0.7200. It was recorded a new four-year high ahead of the weekend near $0.7230. The momentum indicators are stretched, perhaps leaving the Aussie vulnerable to a "buy the rumor, sell the fact" activity the RBA meeting.

Mexico

Drivers: The changes in the dollar against the Mexican peso enjoys around the same 30-day rolling correlation with the S&P 500 and the JP Morgan Emerging Market Currency Index. With both, the inverse correlation with the exchange rate is inverse by about -0.70-0.75. The correlation with the exchange rate and the Dollar Index is around 0.70. It reached the highest since last September, earlier this month when it briefly was above 0.80.

Data: It is an important week for Mexico. Thursday is the most important day. April CPI is due in the morning, and the central bank meeting concludes in the afternoon. Headline and core CPI is running above the top of the 2-4% target but they were in March when the central bank cut its overnight rate target by 25 bp to 6.75%. The central bank held out the possibility of another rate cut and the swaps market and all ten economists surveyed by Bloomberg expected a the cut to be delivered now.

Prices: The dollar reached a three-week high against the Mexican peso at the end of April near MXN17.5840. It pulled back ahead of the weekend. A base appears to have been forged in the MXN17.32-MXN17.37 area. The dollar bottomed on April 17, near MXN17.1275. A convincing push below MXN17.30 could re-target the low.

Disclaimer

May Day: Market Looks for US Leadership

noreply@blogger.com (Marc Chandler) — Fri, 1 May 2026 06:50:00 -0400

In holiday-thinned markets, the dollar is mostly softer as North American leadership is awaited. In light of yesterday’s surge in the yen, and contrary to our expectation, it does appear that Japanese officials materially intervened yesterday. The intervention may have been for around $34.5 bln (~JPY5.4 trillion), which if accurate, would be larger than the average size of the intervention operations in 2024. Better confirmation will likely be available at the end of next week.

Five G10 central banks met this week. The derivatives market adjusted expectations for this year’s course by 22 bp for the Bank of Canada. Two hikes are now fully discounted. There was a 19 bp increase in the implied year-end target rate for the European Central Bank, where three hikes are now fully discounted. The Bank of England’s hawkish hold saw the expected year-end base rate rise 15 bp to 4.42%, implying two hikes and about 75% chance of a third. The Federal Reserve remains the only major central bank expected to cut rates, but the futures market has a little more than a basis point discounted, down from nearly a dozen basis points at the end of last week.

Prices

G10

• It appeared that the dramatic rally in the yen weighed on the dollar broadly yesterday. The euro bottomed before the yen did. It already recovering from around $1.1655, a marginally new three-week low, when Japanese officials triggered a dramatic short squeeze of the yen. The euro traded higher throughout the North American morning before stalling near $1.1735. It settled above Wednesday’s high (~$1.1720) to record an ostensibly bullish key reversal. In holiday-thinning markets, the euro’s gains were extended to almost $1.1750 today. The week’s high, recorded Monday, was $1.1755. Initial support may be in the $1.1710-20 area now.

• Yesterday’s yen price action will be remembered for a long time. The market had been pushing the dollar higher against the yen. It had already risen above JPY160 before the hawkish hold by the FOMC. The greenback traded slightly above JPY160.70 before Japanese officials threatened intervention in no uncertain terms. Preliminary estimates suggest the intervention may have been for around $34.5 bln, but confirmation is likely at the end of next week. The dollar fell to almost JPY155.55 in early North American activity. It recorded a marginal new low toward around JPY155.50. Since the low was recorded late in the Asia Pacific session, the dollar has not traded above about JPY156.75, though earlier in the session it reached almost JPY157.35. The dollar staged a key downside reversal against the yen. However, the move looks excessive. The greenback did not simply settle below its lower Bollinger Band (two standard deviations from the 20-day moving average) but settled more than three standard deviations lower. The lower Bollinger Band is around JPY157.20 now.

• Sterling recovered strongly after falling to a five-day low (~$1.3455). It reached two-month high above $1.3600 in the North American afternoon. That area had capped sterling earlier this month and corresponds to the (61.8%) retracement of the sell-off from the year’s high in late January near $1.3870. It extended the gains to almost $1.3625 today but is a little better offered in thin European turnover. The next interesting chart area is around $1.3635-50. Initial support is seen in the $1.3570-80 area.

• The Canadian dollar rose by about 0.70% yesterday, its single biggest advance since early March. The greenback settled below CAD1.3600 for the first time since March 11. Limited follow-through selling today took it to CAD1.3570. It is fraying the trendline connecting the January, February, and March lows. A convincing break of that area could signal a test on the March low (~CAD1.3525). The lower Bollinger Band is closer to CAD1.3535.

• After being frustrated at $0.7200, the Australian dollar poked above it yesterday in the risk-on and broadly heavier greenback environment. It made a marginal new high by a few hundredths of a cent today but has come back offered. Initial support is around $0.7170-80. The Aussie held (barely) above $0.7100 on Wednesday, a two-week low. It posted its highest settlement since June 2022. April’s intraday high was slightly above $0.7220.

• After reaching a three-week high against the Mexican peso yesterday (~MXN17.5840), the dollar was sold to about MXN17.46. It edged closer to MXN17.45 today. The dollar had appeared to forge a base earlier this week in the MXN17.34-37 area. The dollar held below BRL5.00 yesterday and fell to almost BRL4.9520. A two-year low was in late April around BRL4.9400. The Colombian central bank kept its key rate steady at 11.25%. The dollar peaked around COP3656 yesterday. It pulled back to settle below COP3640 but still finished higher for first back-to-back sessions since the end of March.

• The dollar was turned down against the offshore yuan after stalling on Wednesday near CNH6.85. It reached CNH6.8480 yesterday before falling to around CNH6.8280. The week’s low was recorded Monday, slightly below CNH6.82. The dollar is trading slightly firmer today. It is hovering near CNH6.8350 in Europe. The mainland market was closed for the national holiday today so there was not a dollar fix. The reference rate was set at CNY6.8628 yesterday and CNY6.8674 last Friday.

• Indian markets were closed today for the national holiday.

Other Markets

• The S&P and Nasdaq jumped to record highs yesterday. The positive equity tone carried over into the Asia Pacific session today, though the holiday means that few participated. Japan, Australia and New Zealand, among the large bourses were open and traded higher. After rising by nearly 1.4% yesterday, Europe’s Stoxx 600 is off fractionally today in light turnover. US index futures are narrowly mixed.

• Asia Pacific benchmark 10-year yields played catch up today after the yesterday’s drop Europe (5-10 bp) and the nearly five basis point decline in the US 10-year yield. Australia and New Zealand yields fell 4.5-5.5 bp. The yield of the 10-year Gilts is almost two basis points higher, and the yield of the 10-year Treasury is a basis point better at 4.38%.

• Through Wednesday’s low, gold has retraced nearly half of its gains from the late March low a little below $4100. It reached almost $4647 yesterday but is trading with a heavier bias today. It found support near $4560. A move above $4700 lifts the technical tone. Silver overshot the 50% retracement but recovered to post its highest close in three sessions. It reached almost $74.60 today before being pressed back slightly below $73. Re-establishing a foothold above $75.00 would be constructive.

• After setting a record high near $111, June WTI reversed lower yesterday and fell to about $103.35. It is consolidating quietly today between about $104 and $106.65.

Data

• After Wednesday’s hawkish hold by the FOMC and yesterday’s Q1 GDP, today and ahead of next Friday’s April employment data, today’s US data may not elicit a strong market reaction. On tap is the final manufacturing PMI, the manufacturing ISM, and April auto sales.

• Canada sees its April manufacturing PMI today. It was above the 50 boom/bust level in Q1 after spending the previous 11 months below it. Last April, it was at 45.3. Employment slipped to 49.8 from 51.0 in February and the forward-looking new orders fell back to December levels.

• The Bank of England stood pat yesterday as widely anticipated and today’s data have been of little consequence. UK mortgage lending and approvals were a little better than expected in March, and the final manufacturing PMI was revised to 53.7 from 53.6 initially and 51.0 in March. The April reading is the strongest since May 2022. The swaps market is discounting around a 60% chance of a hike at the next meeting in mid-June. The odds were near 69% at the end of last week.

• Australia’s Q1 PPI moderated to 0.4% after rising 0.8% in Q4 25. The year-over-year pace eased to 3.0% from 3.5%. Still, on the heels of the firm CPI, the futures market is expecting that the Reserve Bank of Australia will deliver its third hike of the year next week and raise the case rate target to 4.35%. There is about a 75% chance discounted, little changed on the week. The final April manufacturing PMI stands at 51.3 (51.0 preliminary estimate). It averaged 51.0 in Q4 25 and Q1 26. In April 2025, it was at 51.7.

• Japan’s April Tokyo CPI ticked up to 1.5% from 1.4%. It was held back by the subsidy for childcare. The core rate, which excludes fresh food, eased to 1.5% from 1.7%, its slowest pace since March 2022 and its five-month decline is the long decline since 2009. from 1.4%, and the measure that excludes fresh food and energy slipped to 1.9% from 2.3%. Separately, the April manufacturing PMI was revised to 55.1 from the initial estimate of 54.9 (51.6 in March and 48.7 in April 2025).

Disclaimer

The Yen Recovers on Verbal Intervention

noreply@blogger.com (Marc Chandler) — Thu, 30 Apr 2026 06:29:00 -0400

The North American market understood yesterday’s Fed statement and the three dissents in favor of a neutral bias as a hawkish hold and rallied the dollar in response. Follow-through selling today has been minimal and the greenback is sporting a softer profile. The strongest currency today is the Japanese yen, which had fallen to its lowest level since July 2024, before heightened Japanese verbal intervention. The threats of material intervention were successful, and the dollar reversed lower from the JPY160.70 area to fray JPY159.00 in the European morning.

Meanwhile, reports suggesting that the US is considering new military strikes on Iran amid the stalled talks after President Trump reject Iran’s proposal. However, after the initial flurry that lifted oil futures to new highs, both the June WTI and July Brent contracts have reversed lower and ahead of the North American open, both are off around half-of-a-dollar. The outcome of the BOE and ECB meetings are awaited. Both are expected to attempt a hawkish hold. Lastly, on the back of strong capex, the US reports its first look at Q1 GDP today. The median forecast in Bloomberg’s survey is for a 2.3% annualized pace, while the Atlanta Fed’s tracker is almost half of it (1.2%).

Prices

G10

• Strong US economic data and a hawkish hold by the Federal Reserve drove the euro lower. It was sold through last week’s low (~$1.1670). The euro was sold to $1.1655 in the Asia Pacific session today before recovering to almost $1.17. Options for almost 1.5 bln euro at $1.1725 expire today. On the downside, nearby support may be near $1.1645, and a break could signal another half-to-full-cent loss.

• The yen remained pressured by the broad dollar gains and the jump in the US rates. The dollar reached almost JPY160.50 as the US 30-year yield touched 5% for the first time since last July. It reached slightly above JPY160.70 today before stepped up verbal intervention by top Japanese officials. Finance Minister Katayama warned of “bold action”, while FX Chief Mimura cautioned that this was “the final advisory if you want to escape”. The dollar dumped to around JPY158.75. We suspect that the greenback can recover back toward JPY160 in the North American session. The dollar fell for the previous three weeks before last week, suggesting there has not been a one-way market. Implied volatility is low. The BOJ again held off raising rates, while two days later the Federal Reserve delivered a hawkish hold. These are not the conditions conducive for intervention.

• Sterling slipped to marginal new low for the week yesterday, slightly below $1.3460. Last week’s low was about a tenth of a penny lower, which is still holding today. A break of the $1.3440 area would suggest scope for another cent decline, in the context the falling momentum indicators. Yesterday’s high was near $1.3530, and overcoming it, would lift the technical tone.

• The Canadian dollar settled remarkable little changed on the day yesterday despite the neutral sounding Bank of Canada left rates on hold and the hawkish cast to the Federal Reserve standpat decision. The greenback tested the upper end of its recent range, CAD1.3710-5. It is holding so far today. It may take a move above CAD1.3730 to confirm a bottom is in place. Options for $505 mln at CAD1.3637 expire today and $300 mln at $1.3665 also expire.

• The greenback’s strength proved too much for the Australian dollar yesterday, despite the likelihood that the Reserve Bank of Australia. The Aussie, which kissed $0.7200 on Monday, approached $0.7100 yesterday. This is holding today and the Aussie recovered to almost $0.7150. A break of the $0.7075 could spur another half-cent loss.

• The dollar rose to a three-week high against Mexican peso yesterday. Most emerging market currencies fell. The greenback traded to almost MXN17.5720. The gains were extended to about MXN17.5840 today before pulling back to MXN17.5165. Provided the MXN17.50 area holds, there may be near-term potential toward MXN17.60-MXN17.65. Brazil’s central bank delivered a quarter-point cut for the second consecutive meeting, to 14.50%. The dollar closed slightly below BRL5.0. The next target is around BRL5.03 and a move above there could be worth another 1%. The dollar looks poised for additional gains against the Colombian peso. A push through COP3680 may spur a move into the COP3700-COP3715 area.

• The dollar rose to almost CNH6.85 yesterday, its best level in three weeks. It has held today and the greenback eased to almost CNH6.8320, just ahead of yesterday’s low. There may be scope for gains toward CNH6.8650-CNH6.8750 during this corrective phase. The PBOC raised the dollar’s fix for the third consecutive day (CNY6.8628 vs. CNY6.8608 yesterday). It was the sixth increase in the past seven sessions.

• Higher oil prices encouraged the pressure on the Indian rupee, which fell to a record low against the dollar. It has unwound the gains spurred by exchange rate controls. The dollar rose to about INR95.3337 today and the Reserve Bank of India reportedly intervened. It is finishing around INR94.92.

Other Markets

• Equities are mixed today. The large bourses fell in the Asia Pacific region. Singapore was a notable exception, with a 1% gain. China’s CSI 300 slipped fractionally even though the Shanghai and Shenzhen Composites rose. Europe’s Stoxx 600 is trying to snap a four-session downdraft. US index futures are narrowly mixed.

• Benchmark 10-year yields rose in 4-6 bp in the Asia Pacific region, leaving aside China. Yields are softer in Europe ahead of the Bank of England and ECB rate announcements. The US 10-year Treasury is a few basis points softer to straddle the 4.40% level.

• Gold was already trading heavily but the yesterday’s rise in the dollar and rates did not help. It approached $4510, a new low for the month. It has returned bid today and is near $4625. The 1.7% gain being posted, if sustained, would be the largest in almost three weeks. Silver traded below $71 yesterday, which it had not done since April 7. It is up about 3% today and is hovering around $73.50.

• June WTI settled at a new contract high of almost $108.20 a barrel, an 8.25% increase on the day. It was the third consecutive advance and the seventh in the past eight sessions. It approached $111 today before pulling back. It is little changed on the day ahead of the North American open, near $107.

Data

• The US economic diary is jammed today. However, widely expected stand pat decision by the FOMC yesterday steals some of the thunder. The March PCE deflator is seen rising by 0.7%, which would lift the headline pace to 3.5% from 2.8%. The core rate is expected to rise by 0.3% from a 3.2% year-over-year rate (from 3.0%). The personal income and expenditure data will be overwhelmed by the first estimate of Q1 GDP. The Atlanta Fed’s tracker puts it at 1.2%, while the median forecast in Bloomberg’s survey is for a 2.2% annualized pace. Weekly initial jobless claims will be overshadowed by the other reports, and next week’s non-farm payroll report where the early call is for around 60k after 178k increase in March (subject to revision).

• Canada reports February GDP. StatCan projects the economy grew by 0.2% after 0.1% in January. The economy contracted by 0.6% in Q4 25 at an annualized pace. The economy still looks vulnerable.

• Mexico is expected to report a 0.6% quarter-over-quarter contraction in Q1 26 today, after growing 0.9% in Q4 25. The Mexican economy is struggling, and although inflation is above target, the central bank has signaled that it could cut rates again after last month’s move. The economic weakness and high-profile crimes have seen President Sheinbaum’s support wane.

• The eurozone reported Q1 GDP expanded by 0.1%, after 0.2% in Q4 25, slightly disappointing. The preliminary April CPI rose 1% for a 3.0% year-over-year pace. The core rate was slipped to 2.2% from 2.3%. The outcome of the ECB meeting is awaited. A hawkish hold is the most likely scenario, with the market confident of a hike in June.

• The Bank of England decision is due momentarily. It is nearly universally recognized that it is on hold. The swaps market has about 70% chance of a hike at the next meeting in June. It is pricing in two hikes fully this year and about a 40% chance of a third.

• Australia reported private sector credit rose by another 0.7% in March, lifting the year-over-year pace above 8%. Australia is also experiencing a positive terms-of-trade shock. Its export price index rose 0.5% in Q1 after a 3.2% surge in Q4 25. The import price index rose 0.9% in Q4 25 and rose 0.1% in Q1 26. The futures market is discounting almost an 80% chance of a hike next week.

• Japan reported retail sales rose by 1.3% in March after a 2.0% drop in February. It was about twice the increase that economists projected in the Bloomberg survey. The year-over-year pace rose to 1.7% from -0.1%. March industrial production, on the other hand, disappointed. It fell by 0.5%, compared with projections of a 1.1% increase. It fell by 2.0% in February. Yet, the 2.3% year-over-year increase matches the best reading since the middle of last year. Still, earlier this week, the BOJ halved this year’s GDP forecast to 0.5%. The median forecast in Bloomberg’s survey is for 0.7% growth, the same as the IMF’s latest projection.

• China’s PMI softened. The manufacturing PMI eased to 50.3 from 50.4. The non-manufacturing PMI slipped to 49.4 from 50.1. The composite reading pulled back to 50.1 from 50.5. The RatingDog manufacturing PMI (previously Caixin) rose to 52.2 from 50.8.

Disclaimer

Euro and ECB

noreply@blogger.com (Marc Chandler) — Wed, 29 Apr 2026 10:54:00 -0400

The euro' fell nearly 1.65% in Q1, only to claw back about 1.25% in April. At one level, that looks like noise within a broader range. At another, it reflects a market that has been repeatedly and abruptly forced to reprice the policy outlook in response to shifting geopolitical and macroeconomic crosscurrents.

The ECB meets tomorrow, and a hawkish hold remains the most likely scenario. There is roughly a 10% chance of a hike priced in for this meeting. June is fully discounted for a quarter-point move. That asymmetry alone tells you something important: the bar to action tomorrow is high, but the bar to signaling is not.

The evolution of rate expectations over the past several weeks has been nothing short of dramatic. Before the escalation of the Middle East conflict, the market was still leaning toward another cut this year—about a 55% probability. Then came a sharp, violent reversal. At the peak of the repricing on April 7, three hikes were fully discounted and the market was flirting with a fourth. This seemed exaggerated but even now the swaps market has three hikes fully priced.

Energy prices have been the most direct transmission channel. July Brent pushed to a new contract high, $108-$109 today. Even when hostilities end, the supply risk premium is unlikely to vanish quickly. This matters for Europe more than most. The region remains acutely sensitive to imported energy costs, and the second-round effects—while not yet evident in the data—are a key risk the ECB cannot dismiss.

The ECB's own survey data bear this out. Inflation expectations are rising. That explains why the market has been willing to pivot so aggressively from pricing cuts to pricing hikes. It also explains why the ECB is unlikely to push back too forcefully against current market pricing. A central bank that spent the better part of two years trying to anchor expectations is not eager to see them drift again.

The incoming data ahead of tomorrow's decision is notable. Q1 GDP is expected around 0.2%, matching Q4's pace—not recessionary, but hardly reassuring. April's preliminary CPI is expected to rise to around 3.0% from 2.6%, with a monthly gain close to 1.0% following March's 1.3%. Much of the impulse traces to energy and food; core appears broadly stable. In other words, the inflation story is visible but has not yet broadened enough to force an immediate response.

The labor market remains a source of quiet support for the hawks. The unemployment rate is expected near 6.2%, effectively matching the lowest levels of the EMU era. That gives the ECB room to maintain a tightening bias even as growth stays subdued.

From a market perspective, the euro's trajectory remains tethered to rate differentials. The US two-year premium over Germany—a relationship that tracks the exchange rate closely—narrowed sharply this year, from just above 150 basis points in mid-January to just over 100 earlier this month, the tightest in three years. It widened back toward 130, but has since compressed again to around 118. For context, it sat near 200 basis points a year ago. That compression has been one of the euro's most reliable supports. That said, the end of the Middle East war would likely see a risk-on move by investors that would buoy the euro.

The technical picture, however, has turned more cautious. The euro peaked near $1.1850 on April 17 and has since reversed lower. The initial target in the $1.1675–$1.1700 area was met, but selling pressure did not look exhausted. Momentum indicators point to scope for additional losses. The next area of interest is around $1.1650.

Volatility, meanwhile, has been retreating. Three-month implied euro vol slipped to a three-month low earlier this week, just below 5.8%, against a 50-day moving average near 6.7% and a 100-day around 6.3%. The compression suggests the market is less concerned about large directional moves and more comfortable expressing views through carry and relative rates. Still, we suspect that implied vol is poised to move higher.

Finally, the consensus has quietly turned a shade less bullish. Bloomberg's latest survey puts the euro at $1.1750 at end-June and $1.19 by end-September and year-end—both a touch lower than a month ago. That shift may appear marginal, but it reflects a wider recognition that the path higher is unlikely to be linear.

The near-term hinges heavily on how the ECB handles tomorrow. A hawkish hold would validate much of the recent repricing without committing to immediate action. That may be enough—for now. But with energy prices elevated, inflation expectations on the move, and geopolitical risks unresolved, the balance of risks stays fluid. The euro's recovery is real. It is not yet secure.

Disclaimer

Oil Prices Advance Ahead of What Will likely be Powell's Last FOMC Meeting (as Chair)

noreply@blogger.com (Marc Chandler) — Wed, 29 Apr 2026 06:45:00 -0400

There are two dominant issues today. First, the ceasefire in the Middle East continues, but the blockade of Iran is an act of war, and the Strait of Hormuz remains blocked even if there are some reports that a few ships have managed to transit it. July Brent is at new contract highs and June WTI has approached last month’s record high. The higher energy prices and the broader disruption continue to underpin bond yields and have stalled the equity rally. Second, what looks like Powell’s last FOMC meeting (as chair) concludes later today. A hawkish hold is the most likely outcome, but as a consummate professional, Powell is unlikely to emphasize the forward guidance except to note its uncertainty due to the war. There is much interest whether he remains as governor. We would not be surprised if it remains unresolved at the end of the day. The Bank of Canada meets too, but with more economic slack, its hold may be less convincingly hawkish.

In a speech to Congress yesterday, King Charles III urged the US to reject isolationism. This is a common meme, but it rings hollow. After bombing seven countries since the start of the last year, threatening to attack two NATO member, kidnapping the head of Venezuela and the war on Iran, there is nothing about US foreign policy that is “isolationist”. “Unilateralism” is a better description, and it is what has spurred talk that “trust” that underpinned the dollar’s role in the world economy has deteriorated.

Prices

G10

• The euro is mostly trading in a little more than a quarter-of-a-cent range below $1.1720 today. In early North American trading yesterday, the euro found support slightly above the pre-weekend low, which was also near the 200-day moving average, slightly below $1.1680. It recovered a little above $1.1715 as European markets closed. A shelf appears forged around $1.1650 and $1.1670. Options for 1.6 bln euro struck at $1.1650 expire today and 1.25 bln euros at $1.1725 expire tomorrow. The question today is whether it can be sustained through what could be a hawkish hold by the Federal Reserve. The momentum indicators have turned lower from overbought.

• The dollar traded on both sides of Monday’s range against the Japanese yen. It settled firmly but within Monday’s range, which neutralizes the technical signal. Still, the firmness of US rates and the daily momentum indicators suggest the market may challenge the JPY160 area.

• Sterling recovered from a dip below $1.3465 in early North American turnover to reach about $1.3520, which was the low from the Asia Pacific session. It has remained below $1.3530 today, the lower end of a band of resistance extends toward $1.3530-40, with $1.36 a more solid cap. Options for GBP525 mln at $1.3525 expire today and another set for about GBP365 mln at $1.3490 also expires today. A break of the $1.3490 area could see a test on yesterday’s low.

• The US dollar bounced against the Canadian dollar yesterday. It had been sold to a one-month low on Monday, slightly below CAD1.36. It poked above CAD1.3690 yesterday and is probing that area in Europe. Nearby resistance is seen in the CAD1.3700-15 area. Overcoming it could spur a more toward CAD1.3770. With slack in the economy, the Bank of Canada is unlikely to deliver a hawkish of a hold as the Federal Reserve today.

• The Australia dollar consolidated yesterday after reaching $0.7200 on Monday. The firm CPI data keeps the market confident that the Reserve Bank of Australia will lift interest rates next week for the third time this year (~72% chance according to indicative pricing in the futures market). The Aussie appreciated by about 33% against the yen in the past year and near JPY114.70 yesterday is reached its highest level since July 1990. Still driven by energy and minerals, Australia recorded a $30.3 bln trade surplus with Japan last year, compared with $35.3 bln in 2024.

• The Mexican peso settled little changed yesterday. The greenback reached almost MXN17.47, nearly a three-week high. It surrendered its early gains and fell to around MXN17.38 near midday in NY and steadied. The peso looks vulnerable and we anticipate the dollar will rise toward MXN17.5250 in the near term.

• The yuan eased yesterday to a two-week low. The greenback rose to nearly CNH6.8430. It settled above the 20-day moving average (~CNH6.8385) for the first time since late March. The dollar is trading inside yesterday’s range today. There may be initial scope for the US dollar to rise toward CNH6.8500-CNH6.8550. The PBOC set the dollar’s fix higher for the second consecutive session (CNY6.8608 vs. CNY6.8589).

• The Indian rupee fell to its lowest level in a month today. The implications of the oil shock aggravate an already precarious position. Dollar demand by importers was noted, while exporters are holding on to their hard currency. The dollar rose to almost INR94.8540 today as it draws closer to the record high seen at the end of March near INMR95.1250.

Other Markets

• Asia Pacific equities were mixed, and Japan’s markets were closed for a national holiday. Aside from Taiwan and Australia, most of the large bourses rallied. Europe’s Stoxx 600 is off for the fourth consecutive session and seven of the past eight. US index futures are narrowly mixed.

• Benchmark 10-year yields are firm in 2-3 bp higher in Europe and the 10-year US Treasury yield is two basis points higher to approach 4.37%.

• Gold set the high this month on April 17, near $4890. Yesterday, it reached $4555. The turning of the momentum indicators and the five-day moving average has fallen below the 20-day moving average, the yellow metal looks heavy. It recorded a new marginal low for the month today, slightly below $4552. The story is similar with silver. It set the month’s high on April 17 slightly above $83. Yesterday, it fell to almost $72. It is holding above yesterday’s low, so far today. The momentum indicators have turned down, and the five-day moving average has fallen below the 20-day moving average.

• June WTI posted the contract high settlement yesterday, a whisker below $100, having reached $101.85 on an intraday basis. That was the highest since on an intraday basis since March 9, when it reached almost $104.35. It is bid today and has reached about $103.80. After rising 14% last week, June WTI is almost 9.5% this week. Over the past seven sessions, coming into today, June WTI rallied 24% and July Brent rose nearly 23%. One of the reasons UAE is leaving OPEC is so that it can boost output (maybe from around 3 mln bpd to 5 mln).

Data

• While the US reports the March goods trade balance, housing starts/permits and durable goods orders, there is one overall focus: the FOMC meeting, which looks likely to be the last one Powell chairs. Warsh will likely be confirmed today to succeed Powell. For almost the past 40 years there has been great continuity at the Federal Reserve. First, there was the 18 years of Greenspan, and almost 19 years of Bernanke, Yellen, and Powell era, which saw new challenges and policy/communication response-including a formal inflation target, Summary of Economic Projections, and the use of its balance sheet. Warsh is critical of these developments. Powell will likely be asked about his intentions, given his term as governor continues through January 2028. The press conference is not the forum I would expect Powell to share his decision for the first time. The press conference is not about him but FOMC’s decision.

• The outcome of the Bank of Canada’s meeting will be known several hours before the Fed’s decision. There is practically no chance of a move by the Bank of Canada. Before the Middle East War began, the swaps market had about 45% chance of a cut this year priced. At the peak on March 20, three hikes were fully discounted plus a little more. Now, the swaps market has one hike priced and about a 1-in-4 chance of a second. Canada’s two-year yield is near 2.84%, up about 45 bp since the war began. Although Canada may be experiencing a positive terms of trade shock, the economy still appears fragile after contracting in Q4 25 and risks to the USMCA loom on the horizon. This coupled with the slack in the economy warns the market may be too aggressive.

• The eurozone confidence surveys are not so interesting and the softness anticipated. Germany and Spain reported April CPI figures. German states’ reports point to a 0.8% month-over-month rise, which will lift the national figure to 3.1% from 2.8% on the EU harmonized methodology. Spain reported harmonized measure of April CPI ticked up to 3.5% from 3.4% year-over-year in April. Tomorrow pulls it all together; with the preliminary aggregate April CPI (~1% month-over-month and 3.0% year-over-year from 2.6%). The core may be flattish around 2.3%. Tomorrow also sees the first estimate of Q1 26 GDP (~0.2% quarter-over-quarter, the same as in Q4 25). And shortly thereafter is the conclusion of the ECB’s meeting and President Lagarde’s press conference. The swaps market is pricing in nearly three hikes this year.

• The BOE meets tomorrow. There is little prospect for a change in rates. Before the war, the swap market was discounting two rate cuts this year, and it its peak on March 20, three hikes and about a 40% chance of a third was priced. The pendulum swung back to less than one hike by April 17. However, a series of stronger than expected data beginning with the February GDP (0.5%), drop in unemployment (4.9% vs. 5.2%), and a rebound in the April preliminary PMI have fanned speculation of a more aggressive BOE trajectory. The swaps market is now discounting two hikes and about a 30% chance of a third this year.

• Australia’s CPI rose 1.4% in Q1 after a 0.6% increase in Q4 25. The trimmed mean measure rose by 0.8% for a 3.5% year-over-year pace. The monthly CPI surged 1.1% in March, lifting the year-over-year rate to 4.6%. The trimmed mean was steady at 3.4%.

Disclaimer

Three Dissents in Favor of a Rate Hike Fail to Support the Yen

noreply@blogger.com (Marc Chandler) — Tue, 28 Apr 2026 06:52:00 -0400

The markets seem nervous. The dollar is higher against all the G10 currencies and most emerging market currencies. June WTI, which was at $82.60 on April 17, is now pushing against $100. July Brent, which was at $86.50, is now approaching $105. Both are up for the sixth session of the past seven. Equities and bonds are mostly lower. Gold and silver are offering no haven today and are at 2–3-week lows.

The bevy of this week’s central bank meets began with the Bank of Japan. Initially the 6-3 vote to keep rates steady seemed a bit hawkish but Governor Ueda failed to deliver an unambiguously hawkish message and the yen reversed lower. The market has not given up on the JPY160 level. Tomorrow, the Bank of Canada, and the Federal Reserve meeting. And arguably more momentous, Kevin Warsh will likely be confirmed as the next Fed chair, ushering in a new era after the Bernanke-Yellen-Powell continuity.

Prices

G10

• The euro made a marginal new high in early North American turnover yesterday, near $1.1755. The $1.1760 area is the halfway mark for the decline from the April 17 high (~$1.1850) to last week’s low (~$1.1670). It found support in late dealings yesterday, near $1.1720. Follow-through selling saw it approach $1.1685 today. The 20-day moving average is near $1.1690, and the euro has not settled below it since April 3. A move above $1.1710-20 would be constructive, but there are ~2.9 bln euro options struck at $1.1700 that expire today.

• Some short yen positions were covered yesterday ahead of the outcome of the BOJ meeting today. The greenback fell to a four-session low near JPY159.10. It slipped below JPY159 on the 6-3 BOJ decision to stand pat. The JPY158.70 area corresponds to the (50%) retracement of the greenback's recovery from the April 17 low (~JPY157.60) to last week’s high (~JPY159.85). However, Governor Ueda did not stick the landing with an unambiguous bearish signal and the greenback recovered to new session highs near JPY159.70. Our reading of the momentum indicators suggests the market has not given up on the JPY160 area.

• Sterling reached a six-session high yesterday near $1.3575. We continue to note formidable resistance around $1.36, which capped sterling earlier this month. It also corresponds to the (61.8%) of sterling’s drop from the year’s high on January 27 (~$1.3870) to the March 31 low (~$1.3160). It returned to around $1.3530 in the North American afternoon. It has been driven below $1.35 where options for GBP756 mln expire today. The $1.3510-20 area offers initial resistance.

• The Canadian dollar saw its best level since March 12 yesterday early in the North American session. The US dollar briefly traded slightly below CAD1.3600. A recovery to around CAD1.3625 found new sellers. The March low was around CAD1.3525. The modest losses in US equities yesterday seemed to help put a floor under the greenback, which has recovered to almost CAD1.3660 today. A move above CAD1.3670-90 lifts the tone for the US dollar.

• The Australian dollar recorded its highest close in nearly four years yesterday (~$0.7185). It reached a new six-day high near $0.7200 in North American turnover. Options for almost A$1.4 bln expire there today. About two weeks ago, on an intraday basis, it poked slightly above $0.7220. It has come back better offered today. Initial support was found near $0.7160. A break of $0.7145 could spur a test on a stronger floor in the $0.7100-10 area.

• The Mexican peso traded quietly yesterday. For the past two sessions, the greenback has been confined to the range set last Thursday (~MXN17.33-MXN17.4660). The daily momentum indicators have turned up from oversold territory. It looks poised to move higher. The 20-day moving average is near MXN17.4560 and the US dollar has not traded above it since April 6.

• The dollar extended yesterday’s pullback slightly against the yuan in early North American turnover yesterday and briefly traded below CNH6.82. It recovered to CNH6.8280. Follow-through buying lifted the greenback to a new two-week high, slightly above CNH6.84 today. This tests the 20-day moving average, which the dollar has not traded above since April 2. After setting the dollar’s reference rate higher in seven of the past 10 sessions through the end of last week, the PBOC fixed the dollar at a new multiyear low yesterday (CNY6.8579). It was set at CNY6.8589 today.

• The dollar jumped higher against the Indian rupee today and reached its best level since the record high was set near INR95.1250 on March 30. The central bank continues to develop a new fx regime for local banks. They will now have to report fx derivative contracts involving rupee positions by their related parties.

Other Markets

• Equities are mixed. Most of the large bourses in the Asia Pacific region fell. Japan’s Nikkei 400 and Topix advanced, as did South Korea’s Kospi, but they were the exceptions. Europe’s Stoxx 600 is little changed but firmer after falling for the past two sessions. US index futures are softer. The Dow and S&P futures are off about 0.25% while Nasdaq futures are down about 0.65%.

• Benchmark 10-year yields continue to rise. European rates are mostly 2-4 bp higher. The 10-year Treasury yield is up a little more than one basis point to poke above 4.35%. Yesterday’s two coupon auctions by the Treasury produced small tails. Today, $44 bln seven-year notes will be sold as will $30 bln two-year floating rate notes.

• Gold and silver are weaker. Gold is trading a new three-week low but is holding above $4600. Silver steadied after falling to a two-week low slightly below $72.75.

• June WTI is knocking on $100. It is at its best level since April 7.

Data

• The US sees February house prices as the two-day FOMC meeting, and Powell’s last as chair, gets underway. April Richmond and Dallas Fed surveys and the Conference Board’s consumer confidence are also on tap. Tomorrow brings March goods trade; housing starts and durable goods orders ahead of the outcome of the FOMC meeting.

• To no one’s surprise, the ECB’s survey showed a rise in inflation expectations. The one-year projection jumped to 4.0% from 2.5%, matching the highest since September 2023. The three-year projection edged up to 3.0% from 2.5%. That matches the highest since October 2022.

• A firm inflation reading tomorrow will lend support to ideas that the Reserve Bank of Australia will hike rates next week for the third consecutive meeting. Officials typically put more weight on the quarterly than monthly estimate. The median forecast in Bloomberg’s survey is for a 1.4% quarter-over-quarter (Q1) increase after a 0.6% rise in Q4 25. The March reading is expected to have surged by around 1.4% as well, which would lift the year-over-year rate to around 4.8%. The trimmed mean versions will be more subdued. The futures market is discounting nearly 80% chance of a hike next week.

• The Bank of Japan was the first of five G10 central banks to meet this week. The target rate remained at 0.75%. The updated forecasts cut growth and lifted inflation projections. This year’s growth projection was reduced to 0.5% from 1.0%. Next year’s growth forecast was shaved to 0.7% from 0.8%. The CPI forecast was lifted to 2.8% this year from 1.9% and 2.3% next year from 2.0%.

Disclaimer

New Iranian Proposal Helps Bolster Risk Appetites

noreply@blogger.com (Marc Chandler) — Mon, 27 Apr 2026 06:45:00 -0400

The breakdown of talks between the US and Iran initially warned of a risk-off session, but a new Iranian proposal appears to have revived the hopes of a resolution. The US dollar is trading softer and equities in Asia Pacific and Europe rose while bond yields were under pressure. The front month crude oil contracts are trading around $2 a barrel higher.

There are two other developments to note. First, with the Justice Department suspending its probe into the Federal Reserve, Warsh is set to be confirmed as the next Fed chair on Wednesday. In response to the Justice Department's announcement, the implied chances of a Fed cut practically doubled to 45%. Second, the US has cracked down on Beijing’s shadow trade with Iran, sanctioning shipping vessels and a large Chinese refinery. President Trump and Xi meet in early May. Lastly, we note that there are five G10 central banks meet this week, starting the BOJ tomorrow. None are expected to adjust policy, but hawkish holds are anticipated.

Prices

G10

• The euro snapped a three-day slide ahead of the weekend, encouraged by reports that US-Iran talks would continue and that the Justice Department was ending the probe into the Federal Reserve’s renovations. The euro slipped slightly below our $1.1675 target on Thursday before recovering to almost $1.1725 on Friday. The talks were canceled but news late yesterday that Iran has made another proposal helped the euro extend the pre-weekend bounce, rising to $1.1750 in Europe. Options for 3.4 bln euros expire there tomorrow. The intraday momentum indicators are stretched. Support is seen in the $1.1720-30 area.

• Since mid-March, the dollar has been trading sideways against the yen, mostly between JPY157.50 and JPY160.40. This month, it traded above JPY160 once and that was only by a few pips. Continued range trading seems to be the most likely near-term scenario. The dollar rose last week for the first time in four weeks, and implied one-month volatility (~7.4%) is at the lower end of where it has been for the last couple of years. These conditions suggest that risk of official intervention is low. The dollar reached almost JPY159.85 at the end of last week and saw JPY159.10 today. It looks poised to recover back toward JPY159.40-50 area in say in late Asia-Pacific trading today.

• Sterling eased to an eight-session low near $1.3450 on April 23 before recovering ahead of the weekend to slightly above $1.3535 and almost matched last week’s high (a little above $1.3540). It reached almost $1.3560 today. The $1.36 area offers a more formidable cap. Initial support in North America may be around $1.3530.

• The Canadian dollar fell to five-session low on April 23 and rebounded ahead of the weekend. The greenback rose to about CAD1.3715 after bottoming earlier last week near CAD1.3630. It pulled back ahead of the weekend a little below CAD1.3665 but has taken another step lower today to about CAD1.3610, its lowest level since March 12. The intraday momentum indicators are stretched, cautioning against chasing it in early North American activity.

• The Australian dollar reached four-year highs on April 17 slightly above $0.7220. It pulled back last week and found support in the $0.7110-15 area. It recovered to $0.7155 before the weekend and to $0.7190 today. Expectations are running high that the central bank’s third consecutive rate hike will be delivered next week (May 5). Given positioning of the momentum indicators, the Aussie may stall again as the $0.7200-20 area is approached.

• The risk-on mood ahead of the weekend helped stem the Mexican peso’s losses after it reached a two-week low on April 23. The domestic news from Mexico was not favorable. President Sheinbaum has seen her support wane in the face of high-profile crimes and the weak economy. The IGAE report on economic activity is seen as a proxy for a monthly GDP report. The median forecast in Bloomberg’s survey looked for a 0.7% increase in February. Instead, ahead of the weekend, it was announced it fell by 0.26%. The dollar is trading with a slightly heavier bias today with support seen near the low recorded on April 23 near MXN17.33.

• The offshore yuan posted its lowest weekly close in three weeks as a consolidative phase unfolded. The US dollar reached a multi-year low on April 14 (~CNH6.8060) and poked above CNH6.84 ahead of the weekend. The greenback fell to almost CNH6.82 today. The PBOC seems to be signaling caution. Coming into today, it had set the dollar’s reference rate higher for the six of the past seven sessions. With the greenback, the PBOC lowered the fix today to CNY6.8579 (CNY6.8674 on Friday), its biggest adjustment in nearly three weeks.

• The rupee began today with a five-session losing streak in tow. On April 20, the central bank eased some of the foreign exchange restrictions that it announced earlier this month. The rupee lost almost 1.45% last week, its largest weekly decline since September 2022. It edged slightly higher today. The dollar slipped from INR94.2550, the pre-weekend close, to about INR94.1060 today before settling near INR94.1950.

Other Markets

• Equities in Asia and Europe are mostly firmer. There were a few notable exceptions in the Asia Pacific region, including Hong Kong, Australia, and Singapore, but the Taiwan’s Taiex rose nearly 1.9% and South Korea’s Kospi surged by 2.15%. Europe’s Stoxx 600 is up about 0.25% in late morning turnover. If sustained, it would be the largest gain in a little more than a week. US index futures are narrowly mixed.

• Benchmark 10-year yields are higher. The 10-year JGB yield rose almost four basis points to 2.45%. European yields are up mostly 2-3 bp. The US 10-year yield is up a little more than one basis point to approach 4.32.%. It was below 3.95% before the war began.

• Gold is trading quietly even if a little softer within the pre-weekend range. It is about a $30 range on both sides of $4700. Silver is also a little softer and is also within last Friday’s range.

• June WTI is firm near $96.40. It settled about $2 lower before the weekend. Last week’s high was close to $98.40. Last week’s low was slightly below $85.50.

Data

• Ahead of the outcome of the FOMC meeting on Wednesday and the press conference, the US economic agenda is light. The Dallas Fed April manufacturing survey is on tap for today, and more surveys tomorrow (Richmond Fed and Conference Board) and February house prices.

• Mexico reports March goods trade figures. In the first two months of the year, its trade deficit has nearly doubled to about $6.95 bln from $3.55 bln in Jan-Feb 2025 period. The driver is the 15.2% increase imports, while exports have been solid, rising 12.2%. These are nominal value and could suggest the possibility a term of trade adjustment.

• The German GfK March consumer confidence survey was in line with the deterioration reported last week by the ZEW and IFO survey (-33.3 vs -28.1). Pundits talk about China Shock 2.0, and while it is serious, the shock emanating from the US, first its threat to use force to take Greenland, and now the disruptive war in the Middle East is also powerful. There is little doubt that the ECB, which meets later this week, is on hold. Warnings by Lagarde that significant efforts by governments to cushion energy shock will boost the need for the central bank to hike rates, could be cast as a hawkish hold.

• Japan’s leading economic indicator bottomed last April (104.2) and has been trending higher. It reached 113.3 in February, its best level since August 2022. Last week, Japan reported that core inflation fell for the fourth consecutive month in March and was below the 2% target for the second consecutive month. A rate hike tomorrow would be a surprise and that is a powerful argument against a move. There is around a 72% chance of a hike for the next meeting in the middle of June discounted in the swaps market.

• China reported that Q1 industrial profits rose 15.5 from year ago, the most in five years. In Q1 25, they were up less than 1%. To be sure, there is an aggregate estimate, which conceals divergence between sectors. The low return on investment is a symptom of China’s excessive investment. Moreover, it often seems like the competition between regional governments underpins the “ruinous” competition between companies.

Disclaimer

May 2026 Monthly

noreply@blogger.com (Marc Chandler) — Sat, 25 Apr 2026 07:05:00 -0400

The global capital markets will enter May with a sense of transition rather than resolution. Neither the Federal Reserve, nor the European Central Bank or the Bank of Japan meet in the month ahead. The market is inclined to see the third consecutive hike by the Reserve Bank of Australia but the other G10 central banks that meet in May, Norway's Norges Bank and Sweden's Riksbank are mostly likely to stand pat.

The aggressive tightening cycle that investors had penciled in during the first part of the Middle East war has been unwound, though not completely. Markets have been forced to recognize that the inflation threat is not over. The March readings were firm, and the April reports are unlikely to offer relief. The spill over into core prices is becoming more visible, which complicates the narrative.

The geopolitical backdrop has shifted but not settled. The war in the Middle East is unresolved, and the disruptions are multifaceted and will linger. Shipping routes, insurance costs, and regional supply chains will not snap back quickly. The regional geopolitics will not return to status quo ante. Pakistan is a nuclear power, and its regional role has increased. US bases were once seen as protection and may be re-evaluated.

Federal Reserve in Flux

In Washington, the Federal Reserve faces its own uncertainty. Chair Powell’s term ends mid-May. The Justice Department ended its probe in the Federal Reserve's renovations on April 24 and this removes the main obstacle to the confirmation of Kevin Warsh to succeed Jay Powell as chair. There is no FOMC meeting in May, and we expect Warsh will lead the next meeting in mid-June, when the Summary of Economic Projections is updated. We continue to suspect that there is a reasonably good chance that Powell stays on to complete his term as governor (January 2028).

In his confirmation hearings, Warsh made it clear that his tenure was going to be a break from the period of great continuity from Bernanke through Yellen, and Powell. The targeted measure of inflation may change, and Powell's average inflation rate target may be jettisoned. The Summary of Economic Projections will be re-thought. Maybe wide latitude that the regional Federal Reserve presidents enjoy in terms of publicly expressed views, will be restrained.

There are two initiatives that are possible with Bessent at Treasury and Warsh at the Fed. First, there could be a new accord between the Federal Reserve and Treasury. The markets will be sensitive to any formal erosion of the central bank’s operational independence.

Second, gold is being carried on the US government books at a little more than $42 an ounce or around $11 bln. Some administration officials have argued that it should be re-valued. Given gold’s volatility, pricing at the market seems imprudent. But some rule, like its lowest price in ten years, would allow the yellow metal to be valued at $1000 an ounce and boost the asset on the federal government’s books to $262 bln. At $2000 an ounce, more than a 50% haircut from market prices, it would boost the federal government's assets by more than $500 bln.

Chinese Restraint

One of the highlights of the month will be the meeting between President Trump and President Xi. The United States has acknowledged Beijing’s role in persuading Tehran to accept the ceasefire. This recognition may help create a more constructive atmosphere for the summit. China has shown more restraint than the conventional narrative in the United States tends to allow.

Despite the volatility in global markets, the People’s Bank of China has permitted a modest appreciation of the yuan. It has steadily lowered the dollar’s reference rate, around which the greenback is allowed to move two percent, although the band is rarely used even halfway. This is not the behavior of a country looking to weaponize its currency. The yuan reached its best level in three years, and the official campaign does not look over.

Beijing’s posture in the Asia Pacific region also runs counter to some of the louder commentary. With the United States drawing down parts of its arsenal and diverting assets from the region to support operations in the Middle East, some analysts expected China to test the boundaries around Taiwan. That has not happened. In fact, April saw the first visit in decades by the head of Taiwan’s opposition Kuomintang party to Beijing. Cross-strait flights will reportedly resume. These may be symbolic gestures, but symbols matter. They can signal a willingness to explore political space that had been closed off for years.

China has also cut tariffs on imports from roughly fifty African countries. The move is consistent with its long standing strategy of cultivating influence through trade and investment rather than military presence. It also comes at a moment when the United States and China have maintained a tariff truce that extends into November. There is room for a broader deal. Taiwan and critical minerals remain sensitive issues, but both sides have incentives to avoid escalation.

The Way Forward

For investors, the challenge is to separate noise from signals. The macro narrative is not as clean as it appeared in January. Inflation is proving sticky and supply disruptions are evident across a broad range of activity. The Fed’s leadership is uncertain. The geopolitical landscape is shifting in ways that do not fit neatly into the familiar frameworks. Yet the underlying story is one of continued pressures that could presage a more acute crisis. Markets are recalibrating to a world where policy is less predictable, supply chains are more fragile, and diplomacy is more transactional.

The month ahead may not deliver clarity. What it offers instead is a chance to observe how policymakers and markets respond to a set of pressures that are unlikely to fade soon. The task for investors is to stay alert to the subtle shifts that sometimes matter more than the headline events.

Bannockburn World Currency Index

Bannockburn's World Currency Index, a GDP-weighted basket of the currencies of the dozen largest economies, recovered from its nearly 1.5% loss in March. That was its first monthly decline since last October and its largest drop since the end of 2024. It rebounded by about 1.35% through April 24. The recovery reflected the fact that all of the components of the index, but the yen appreciated against the dollar. BWCI reached its best level since September 2024.

The Australian dollar fared the best with the G10 members of the index and rose by about 3.3%. It has been supported by the rate expectations and commodity exposure. Sterling was second best with around a 2% gain, followed by the Canadian dollar's 1.7% rise. The yen slipped by about 0.5%.

Among the emerging market currencies in Bannockburn's World Currency Index, the Russian ruble's almost 8% surge stands out. It fell 5.3% in March. The US has allowed more Russian oil to be bought, for which it is securing higher prices. The central bank delivered its fifth consecutive rate cut on April 24 (benchmark rate now stands at 14.5%, and additional cuts are likely). The ruble's weight in the BWCI is modest at about 2.4%. The Brazilian real, Mexican peso and South Korean won rose 2.8%-3.2%, and together account for about 6.5% of BWCI. The Indian rupee rose by 0.6% and the Chinese yuan rose by 0.9%. Together they account for around a quarter of the index.

We are not persuaded that the new high in BWCI signals a breakout. The fog of war continues to cast a heavy pall over the investment climate and risk appetites. The US continues to bring more people and equipment into the region. The US with its energy supplies, record exports of petroleum products, and more flexible institutional arrangements facilitates a relatively resilient economy. The April retreat in the greenback after the March rally leaves somewhat oversold as the month winds down. Consolidation or a dollar recovery looks likely before the medium-term downtrend resumes.

U.S. Dollar: The dollar appreciated in March, the first month of the war, but has trended lower in recent weeks. The Dollar Index matched its longest losing streak in fifteen years (eight consecutive sessions). It had rallied about 5.3% from the lows in late January that began as the US seemed to drop its threat of taking Greenland by force. By the time the war began, the Dollar Index had already appreciated 2.5%. The combination of technical factors and a fragile optimism that the Middle East war would not last long saw the dollar trend lower in April. Among the G10 countries, the US is the only one that the derivative markets are discounting the possibility of a cut. Before the war began, the futures market was discounting two cuts and around a 40% chance of a third. The war-induced swing in expectations was dramatic and a month later, there was almost 60% chance of priced in the futures market. US Treasury Secretary Bessent's remarks about it being understandable for the Federal Reserve to monitor the supply shock, he seemed to be creating political space for Powell's successor to maintain steady policy without incurring the wrath of the administration. Here in late April, almost a 30% chance of a cut is discounted before the end of the year. Yet the greenback's slide has stretched the momentum indicators and the optimism about an end to the war by the end of April is fading. This can set the stage for counter-trend dollar bounce before what we see as its long-term decline continues.

Euro: The euro recovered what it had lost in March. It reached almost $1.1850, its best level since February 18. On an intraday basis, it met a key technical retracement of its losses since the year's high was recorded amid the furor over Greenland in late January, near $1.2080. The roughly 4.25-cent rally from the mid-March lows has stretched the momentum indicators and the US two-year premium over Germany has stabilized after falling to its narrowest since late 2021. Before the Middle East war began, indicative pricing in the swaps market implied better than 50% chance the ECB was going to cut rates this year. The supply shock has dashed those ideas, and at the extreme on March 24, the swaps market had a little more than three hikes fully discounted. The pendulum has swung back a bit, but the market is pricing in two hikes this year and almost a 50% chance of a third. The first hike is not completely priced in until July, but, of course, the situation and expectations are fluid. The supply shock poses growth risks. In addition, the shortage of jet fuel and rationing in some countries will disrupt trade, businesses, and tourism. Meanwhile, the seemingly eternal struggle is once again expressing itself. Some see the crisis as an opportunity to broaden and deepen the EU bond market. Yet the opposition by some creditor countries has not relented. The lack of a joint effort risks further deepening the divergence that makes governing difficult.

(As of April 24, indicative closing prices, previous in parentheses)

Spot: $1.1722 ($1.1509) Median Bloomberg One-month forecast: $1.1712 ($1.1607) One-month forward: $1.1738 ($1.1525) One-month implied vol: 5.8% (7.8%)

Japanese Yen: The dollar reached almost JPY160.50 in March, its best level since July 2024. It traded above JPY160 in April once and barely. Instead, the greenback tested the lower end of its recent range near JPY157.50, which was also seen in March. Unlike many other pairs, the dollar-yen remained well above the level that was prevailing before the Middle East war, which was around JPY156. The war boosted uncertainty for investors and policymakers. Bank of Japan Governor Ueda had opportunity to prepare the market for a rate hike but failed to do so. This encouraged the swaps market to unwind the expectations for a hike on April 28. The odds of a hike fell from almost 75% on April 1 to less than 7%. The probability of a hike in June is near 65%, and it is nearly fully priced in for the late July meeting. Core inflation (excludes fresh food) fell below the 2% target in February for the first time since March 2022 and remained below it in March. The economy contracted in Q3 25, and it appears to have taken two quarters to recoup the lost output. The financial crisis many economists anticipated has not materialized. The very long-end of the Japanese bond market peaked on January 20, and the 30-year yield is around 20 bp lower and the 40-year yield is off a little more than 35 bp. The Nikkei reached a record high. Foreign investors have bought JPY7.28 trillion (~$46.5 bln) of Japan equities in the first 16 weeks of the year compared with net sales of JPY2.07 trillion in the same year ago period.

Spot: JPY159.38 (JPY160.31) Median Bloomberg One-month forecast: JPY158.24 (JPY158.52) One-month forward: JPY158.98 (JPY159.90). One-month implied vol: 7.3% (9.9%)

British Pound: Sterling fell about 1.9% in March and recouped it fully in recent weeks. A four-month low was set at the end of March near $1.3160, and sterling rebounded to almost $1.3600 in mid-April. It had settled slightly above $1.3480 before the Middle East war began. The UK economy entered the war a bit firmer than it initially appeared. January GDP grew by 0.1%, after the initial estimate was flat, and February GDP was stronger than expected, with output rising by 0.5%. That matches the strongest monthly performance since June 2023. The March PMI, which saw the flash readings marked down in the final report, while the preliminary April readings underscore the resilience of the economy. Before the war began, the swaps market was discounting two Bank of England rate cuts fully and about a 10% chance of a third. At its peak on March 20, it was pricing in three rate hikes and almost a 40% chance of a fourth. Now, it is discounting two hikes and an almost 20% chance of a third. The UK holds local and mayoral elections on May 7. A poor showing by Labour would likely increase the political pressure on Prime Minister Starmer, who is still reeling from the criticism over the appointment of Peter Mandelson as the UK ambassador to the US, who had failed the security vetting process.

Spot: $1.3532 ($1.3259) Median Bloomberg One-month forecast: $1.3469 ($1.3306) One-month forward: $1.3535 ($1.3260) One-month implied vol: 6.7% (8.4%)

Canadian Dollar: After it reached a new high for the year at the end of March near CAD1.3965, the US dollar pulled back in the first half of April. Support was found around CAD1.3630 and the greenback recovered to CAD1.3715 area. The economy remains vulnerable, but prices pressures remain too elevated to give the central bank much room to respond. Despite cutting rates 100 bp last year and 125 bp in 2024, the economy lost full-time positions in February and March, which is the most for a two-month period in nearly five years. The composite PMI has been below the 50 boom/bust level since November 2024, with one exception (October 2025). Headline inflation jumped to 2.4% in March (from 1.8%), approaching last year's high, which was the strongest pace since mid-2024. Core inflation slowed to 1.9% from 2.0%, but it is likely to rise in the coming months amid the secondary impact of higher energy costs filter through the economy. Before the war, the swaps market had around a 40% chance of a cut discounted and its peak on March 20 was a little more than then three hikes were fully priced. Now, one hike and about 50% of a second is discounted. Meanwhile, as part of the review of the USMCA, the US is discussing boosting the domestic content requirement of US production, especially in the auto sector.

Spot: CAD1.3668 (CAD 1.3893) Median Bloomberg One-month forecast: CAD1.3683 (CAD1.3795) One-month forward: CAD1.3651 (CAD1.3875) One-month implied vol: 4.2% (5.2%)

Australian Dollar: The Australian dollar remains one of the strongest G10 currencies. It has risen in two of the three months in each of the past three quarters. In mid-April, the Australian dollar reached almost $0.7225, its best level since mid-2022. The government has cut fuel taxes and launched an interest-free loan facility for small businesses. The 26/27 budget will be unveiled on May 12. The Reserve Bank of Australia has been the most aggressive G10 central bank this year. It has hiked its cash rate twice, and hawkish rhetoric has fanned speculation of a third that the conclusion of the central bank meeting on May 5. The futures market is discounting around 75% probability. Inflation remains elevated and household spending is robust. Still, there are some preliminary signs that economic activity is cooling. The March composite PMI plummeted to 46.6, its weakest level since November 2023. The preliminary April PMI was better, but the disruption from the Middle East war will likely take a toll. While we look for additional Australian dollar gains in the medium term, we see risk of a downside correction after likely rate hike in early May.

Spot: $0.7152 ($0.6874) Median Bloomberg One-month forecast: $0.7126 ($0.6950) One-month forward: $0.7149 ($0.6875) One-month implied vol: 9.0% (11.8%).

Mexican Peso: The peso rose by about 0.4% in Q1 26 and around 3.1% month-to-date in April. The peso is the fifth strongest emerging market currency this year, and Latam currencies account for three of the top five emerging market currencies. In late March, despite both headline and core inflation above the upper end of the 2%-4% target range, the central bank cut its overnight rate target to 6.75% from 7.0%. The dollar rose to its best level of the year against the peso (almost MXN18.1650) at the end of March. The gains were unwound and the dollar fell to MXN17.1275, its lowest level since before the Middle East War began. The low since June 2024 was recorded on February 18, near MXN17.0865. The central bank meets on May 7. While a cut is unlikely, Banxico has signaled that its concerns about economic growth could warrant another rate cut. The renegotiation of the USMCA pact poses risk for the peso. Mexico has moved to ease tensions over access to the country's electricity generation sector. We suspect there is scope for the dollar to recover into the MXN17.50-MXN17.65 area in the coming weeks.

Spot: MXN17.3787 (MXN18.1188) Median Bloomberg One-month forecast: MXN17.5322 (MXN17.9743) One-month forward: MXN17.4237 (MXN18.1655) One-month implied vol: 8.9 (13.9%)

Chinese Yuan: By nearly any metric one uses, the yuan is undervalued. For reasons that have been articulated by Beijing, since around the middle of last year, it has sanctioned a steady and modest appreciation of the yuan. Since around the end of Q1 25, officials have allowed the yuan to rise. Its gain against the dollar is almost 6.5%. It has appreciated against all the regional currencies but the Malaysia ringgit. The yuan has risen by more than 12% against the yen, more than 6.7% against the South Korean won and around 1% against the Taiwanese dollar. It has also appreciated against several G10 currencies. Its trade surplus continues to cause consternation. The terms of trade (exports prices to import prices) appear to be shifting. China exports manufactured good and imports raw materials and commodities. The prices of commodities have risen relative to manufactured goods. Still, we suspect the official tolerance of yuan appreciation has not been exhausted. The easing of deflationary forces, including the first year-over-year rise in China's PPI since September 2022, and the firm 5% year-over-year Q1 GDP may encourage officials to accept more yuan gains. It may boost the chances that exchange rates are not the focus of the Xi-Trump meeting. Our next target is around CNY6.70.

Spot: CNY6.8321 (CNY6.9112) Median Bloomberg One-month forecast: CNY6.8407 (CNY6.9067) One-month forward: CNY6.8440 (CNY6.9145) One-month implied vol: 2.8% (3.7%)

Disclaimer

Week Ahead: Dollar and Stocks Due for Corrections?

noreply@blogger.com (Marc Chandler) — Sat, 18 Apr 2026 07:15:00 -0400

(No daily note this week while I am on a business trip but the May monthly will drop April 24. Thanks for your patience.)

Progress in US-Iran negotiations and a ceasefire between Israel and Lebanon fed investor optimism. The US S&P 500 and Nasdaq reached new record highs, with multi-week rallies in tow. June WTI tumbled 7.6% last week, after the 8.6% drop the previous week. It briefly traded below $79 a barrel, down from the peak on March 9 (~$104.35). Interest expectations also shifted. In Europe, the two-year yields fell by 20-25 bp last week. The US two-year yield fell a more modest 7-8 bp. Although Japan's two-year yield slipped almost three basis points there was a more dramatic move in the swaps market, which dramatically adjusted the odds of a rate hike by the Bank of Japan later this month to less than 20% from around 55% a week ago.

Developments in the Middle East may be more important than the high-frequency economic data. The risk is that the market is getting ahead of itself and the situation is likely to be clarified over the weekend. US earnings seasons features tech and airlines next week. The dollar fell against all the G10 currencies last week but recovered from its worst levels in the waning hours of last week's activity. After rallying last month, the dollar has unwound a good part of those gains. Like the 13-day rally in the Nasdaq is an extreme, the Dollar Index has fallen for nine of the past 10 sessions. The rolling 30-day inverse correlation of changes in the Dollar Index and NASDAQ is a little more than -0.60 which is the most since the end of 2023.

Drivers: The prospects that the Middle East war can end boosted risk appetites and weighted on the US dollar. The Dollar Index fell for the third consecutive week, matching its longest losing streak in a year. The Fed funds futures market is discounting almost 65% chance of a cut before the end of the year, the highest probability in a month.

Data: Stronger auto sales and a dramatic rise in gasoline prices likely lifted March retail sales. Excluding autos and gasoline, retail sales may have edged up by 0.1-0.2%. Outside of retail sales, the other US high-frequency data are surveys. April Fed surveys (Philadelphia non-manufacturing survey and KC Fed's manufacturing and non-manufacturing) and the preliminary April PMI will likely pick up some of the disruption from the Middle East war. Q4 25 GDP was reported initially reported at 1.4% (annualized). It was halved in the first revision and to 0.5% in the second revision. The Atlanta Fed nowcast is for Q1 26 1.3%. It will be updated after the retail sales and business inventories on Tuesday. Also, Kevin Warsh's confirmation hearing is scheduled for next week, but could be postponed. As long as the investigations into the Fed continue, and the president indicated they would, there appears to be a blocking majority on the Senate Banking Committee. Our understanding is that if a successor has not been confirmed by the end of Powell's term as chair (May 15), he would likely be picked by the board to continue in that post. His term as governor does not end until 2028, and we suspect the odds favor him continuing to serve to protect what appears to be a strong conviction of the importance of the Federal Reserve's independence.

Prices: The Dollar Index fell for eight consecutive sessions through April 15. That matched its longest losing streak in 15 years. It fell through 97.65, its lowest level since the war began and met the (50%) retracement of the rally from the year's low recorded in late January around 95.55. The Dollar Index recovered through most of the North American session before the weekend and reached almost 98.25. The momentum indicators are over-extended but do not prevent additional near-term losses. Still, a move above 98.40-50 would suggest a near-term bottom is in place.

EMU

Drivers: The euro benefitted from the market's stronger appetite for risk and the broad dollar pullback more than a particular European development. At its peak on March 24, the swaps market discounted three rate hikes fully by the ECB this year and about 25% chance of a fourth. It now has two hikes discounted and less than a 10% chance of a third. This still seems excessive. At its most extreme last month, the swaps market had 85% chance of an April hike. It has been scaled back to about 12%.

Data: The preliminary April PMI is the highlight. Recall that the composite (output) had begun faltering. It rose from last June through November. It has now slowed three of the four months through March. The general pattern holds for both services and manufacturing. The Middle East war is disruptive on many channels, and it would be surprising if the March data fully reflected the impact. The same is true of Germany's ZEW and IFO April surveys also due.

Prices: The euro has risen in nine of the past 10 sessions. Ahead of the weekend, it took out the high set before the war began (slightly below $1.1830) and proceeded to sell off around to $1.1760. The potential key reversal warns that despite the momentum indicators are still rising, the euro's four-cent rally over the past month may be over. If so, the first corrective target may be in the $1.1675-$1.1700 area.

PRC

Drivers: The PBOC has continued its campaign that began last May or June to appreciate the yuan. It has consistently been lowering the dollar's reference rate and now is at a three-year low. The campaign does not appear over even though the end point is not clear. Judging by several bank recommendations, portfolio flows appear supportive.

Data: Chinese banks will set their loan prime rates on April 20. The one-year rate is at 3.0% and the five-year rate is at 3.50%. Before the Middle East war, expecting more monetary easing seemed reasonable, but now it looks less certain. In any event, a clearer signal from the PBOC may be necessary for the loan prime rates to be changed. The increased use of China's International Payments System (CIPS) to settle and clear international transactions would seem to make less relevant when taken in isolation the use of the yuan on the SWIFT global payment system. On SWIFT, the yuan's share of payments peaked in July 2024 near 4.75%. In February, its share was about 2.75%.

Prices: The PBOC has continued to allow gradual appreciation of the yuan. In the offshore market, it rose to its best level since February 2023. The market has been encouraged by central bank's guidance through the setting of the daily reference rate. It was set at its highest level against the dollar since April 2023 last week. The greenback found support near CNH6.80. The CNH6.85-CNH6.86 area may offer a nearby cap.

Japan

Drivers: There are three significant influences on the dollar-yen. The first is the general direction of the dollar. The rolling 30-day correlation between changes in the dollar-yen exchange rate and the Dollar Index is at 0.75. The second is the change in the 10-year US yield. The correlation with the exchange rate is near 0.65, the highest since last October. Third, there is a risk element to the yen, as well. The rolling 30-day correlation of change in the exchange rate and the S&P 500 is around -0.55, the most extreme since late 2022.

Data: While Japan has a busy calendar of high-frequency reports, they will likely have minimal impact on expectations for the BOJ meeting. The national March CPI, for example has been anticipated by the Tokyo figures out a few weeks ago. Tokyo's year-over-year headline and core CPI measures edged 0.1% lower. The BOJ targets the core CPI rate and in February, it stood at 1.6%. It was the first time since March 2022 that it was below the 2% target. One of the few things that most international economists might be able to agree on is that the Japanese yen is undervalued. And yet, it has not recorded an annual trade surplus since 2020. The deficit is shrinking. In the first two months of the year, Japan's trade deficit was around half the size of the shortfall in the Jan-Feb 2025. Yet it seems like the terms of trade (export/import price indices) are going against it. The preliminary March PMI is due, but the market does not typically respond to it. The February tertiary industry index will help economists forecast GDP, but growth this quarter seems on par with Q4 25's 1.3% annualized. Meanwhile BOJ Governor Ueda's comments were not strong enough to arrest the decline in expectation of a rate cut at the end oof the month. In the past two weeks, the odds of a hike in the swaps market went from around 67% to less than 17%. We had thought it was more likely but recognize that the Bank of Japan will most likely not surprise the market.

Prices: After the dollar was turned back from its approach of JPY160 at the start of last week, it reached JPY157.60 at the end of the week. Ahead of the weekend, the greenback posted outside down day by trading on both sides of the previous day's range, but it did not settle settling below its low (~JPY158.25), neutralizing the technical signal. The momentum indicators are falling and the dollar looks soft. The fact that the dollar fell for the third consecutive week against the yen underscores our argument that despite the finance minister’s comments about willing to take "bold action," the conditions for material intervention are not present.

Drivers: Sterling benefits from a weaker dollar. The rolling 30-day inverse correlation between changes in sterling and the Dollar Index is almost -0.90, the most in six months. Sterling's correlation with changes in the US two-year yield is -0.33. The inversion is intuitively understandable, higher US rates, weaker sterling. What may be surprising is that the correlation between sterling and changes in the two-year UK yield is also inverse, though slightly (-0.12). Over the last two years the rolling 30-day correlation has spent more time in inverted than positive.

Data: It is an important week for UK data. While data feeds into the central bank's assessment, the bar for a change in policy next week seems high. Updates on the labor market, retail sales, and inflation are due. The UK is experiencing among the strongest CPI increase and one of the weakest major economies. The preliminary April PMI is due, as well. In March, the composite dropped to its lowest level, 50.3, since last April when it dipped below the 50 boom/bust level in a bit of a statistical quirk. It jumped back the following month. The data are unlikely to change anyone's mind that the BOE will standpat even though there may be a dissent in favor of a hike. Recall that the March decision to leave policy unchanged was the first unanimous decision in 4.5 years.

Prices: Sterling stalled around $1.36 last week. Some frustrated late longs look to have bailed and sent sterling back to slightly below $1.3515 in late dealings before the weekend. By settling by 1/100 of a cent below the previous day's range, sterling posted a potentially key reversal. It recorded a four-month low at the end of March near $1.3160, and with last week's advance, met the (61.8%) retracement of the losses from nearly $1.3670, the high since September 2021 in late January. The momentum indicators are over-extended, and although they have not turned lower, the month's advance long in the tooth. A break of $1.3500 could signal scope for another cent decline.

Canada

Drivers: The rolling 30-day correlation between the changes of US dollar-Canadian dollar exchange rate and the Dollar Index is more than twice as high as the correlation between the exchange rate and oil prices. The correlation with the Dollar Index is around 0.65, gradually rising from the late March low near 0.56. In Q1, the correlation reached nearly 0.85, the highest since May 2024. As counter intuitive as it may seem, since around the middle of last month, the US dollar has tended to appreciate against the Canadian dollar when oil prices are rising. The 30-day rolling correlation jumped to 0.47 last week, the highest since last August. There is also an element of risk. The rolling 30-day correlation is inverse with changes in the S&P 500. Around -0.36, it is the most in four months.

Data: Canada reports March CPI and February retail sales. Canada's headline CPI before the war was 1.8% and the core stood at 2.0%. Prices are expected to have risen in March. The median forecast in Bloomberg's survey is for the headline rate to jump to 2.6% and for the core rates to edge up. The March jobs report was uninspiring. The market recognizes that the central bank may sit on the sidelines for the next few months. Before the war began, the swaps market was discounting about a 40% chance of another cut (after cutting the target rate by 275 bp over the past two years). At the peak on March 20, the pricing in the swaps market was consistent with a little more than three hikes. Now it discounts one hike fully and almost 10% chance of a second.

Prices: The Canadian dollar has been on a run. It has risen in nine of the past ten sessions for almost a 2% gain. One way to appreciate the magnitude of the move, consider that the one-month implied volatility is about 4.5%, annualized. The US dollar reached CAD1.3650 before the weekend, a one-month low. It stalled and recovered to almost CAD1.3690. The greenback is coming down from around CAD1.3965 at the end of March and the move seems advanced. The risk-reward may be shifting against chasing the Canadian dollar higher. The risks of a greenback bounce appear to be increasing.

Australia

Drivers: The broad movement in the US dollar seems to be the more important driver of the Australian dollar's exchange rate. The rolling 30-day inverse correlation of changes in the Aussie and the Dollar Index is around -0.75, near the most extreme since last September. It is positively correlated with the S&P 500, about 0.65, for the past 30 sessions. It has spent little time above 0.70 since last November. Changes in the Aussie and oil are around -0.40, the most since last September. Counter-intuitively the Aussie is inversely correlated with changes in Australia's two-year yield. It is near this year's low, near -0.22.

Data: The only data of note in the coming days is the preliminary PMI. Recall that in March, the manufacturing, services, and composite reading were all below the 50 boom/bust period. The disruption of the Middle East war likely had more impact than the two rate hikes, with the second taking place after the war began. The composite PMI plummeted to 46.6, the lowest since late 2023, from 52.5 in February. It is the first sub-50 reading since September 2024. Ironically, the manufacturing sector held up better than services. The manufacturing PMI fell for the second consecutive month, and March's 49.8 was the weakest since last October. The services PMI peaked in January at 56.3. It fell sharply in February to 52.8 and then fell nearly twice as much in March to 46.3, signaling the deepest contraction since November 2023. The central bank meets on May 5. The futures market is discounted almost 80% of another hike. We had leaned against the third consecutive rate hike, but the prospects of an end to the war in the Middle East and hawkish official comments forced a re-evaluation.

Prices: The Australian dollar reached its best level since mid-2022 at the end of last week. It poked above $0.7220 to culminate the three-week rally of a little more than 4.5%. It frayed the upper Bollinger Band (~$0.7215) but pulled back to settled around $0.7175. Initial support may be in the $0.7130 area, and a break could signal a corrective phase that could extend toward $0.7000.

Mexico

Drivers: The Mexican peso appears most sensitive to the risk environment. Changes in the dollar-peso exchange rate and the S&P 500 is around -0.80. This is the most extreme since 2020. Ironically, the changes in the USD against the peso and changes in the Australian dollar is almost -0.80. The correlation of the exchange rate and the Dollar Index is about 0.75, the most since last September. Rising oil prices is not helpful for the peso. The rolling 30-day correlation of changes in WTI and the dollar-peso exchange rate is a little below 0.50, a four-year high.

Data: Mexico's February retail sales are too dated to have much impact on the central bank's decision early next month. It is difficult to see it sustaining momentum after the 1% surge in January. The February IGAE economic activity report may not be particularly helpful either given the disruption from the war. Mexico will also report March unemployment which stood at 2.59% in February. It recorded last year's low at 2.22% in March, a record under the current times series that began in 1994. Remember, though, that over half of Mexican workers are in the informal economy.

Prices: The dollar initially was sold to a new low since the Middle East war began ahead of the weekend, reaching almost MXN17.1275. However, it reversed higher and closed above Thursday's high (~MXN17.2960). This is the kind of price action one looks for at the end of a sustained moved. The MXN17.45-50 area may offer initial resistance.

Disclaimer

Greenback Recovers Despite New Threats on the Fed and Stronger UK and Chinese GDP

noreply@blogger.com (Marc Chandler) — Thu, 16 Apr 2026 06:49:00 -0400

(A business trip will disrupt the daily commentary tomorrow and next week, but the weekly analysis will be posted here on April 18 and the May monthly note will drop on April 25. Thank you for your patience, and good luck).

The Dollar Index did not snap its losing streak yesterday but extended it for its eighth consecutive session to match the longest downdraft since April 2011. The streak may end today if the dollar’s gains are sustained. Despite stronger than expected UK (and China) GDP figures and a solid Australian jobs report, the greenback is trading firmer against most of the G10 and emerging market currencies. Risk appetites seem intact, with the Nikkei following the US S&P 500 and Nasdaq to record highs.

A possible two-week extension in the US-Iran ceasefire may have helped sentiment. However, with the blockade of Iranian ports in place, some projections show storage capacity would be exhausted in two weeks. The two-week extension would add pressure on Tehran. Meanwhile, President Trump indicated that the investigation into the Federal Reserve will continue and he accepted that this could delay the confirmation of Kevin Warsh to succeed Powell. What happens if the confirmation is not complete by the time Powell’s term as chair is over is not immediately clear but the president’s threat to fire Powell has been noted but apparently ignore.

Prices

G10

• The euro did not trade below $1.1770 yesterday and spent much of the North American afternoon straddling the $1.1800 area. It reached almost $1.1825, which corresponds to the (61.8%) retracement target of the euro’s decline since the last January high (~$1.2080). It was greeted by sellers who pushed it back to almost $1.1770. Initial support is near yesterday’s low and then $1.1755.

• The dollar held above Monday’s low (~JPY158.60) against the yen yesterday but stalled in front of the 20-day moving average that was found slightly below JPY159.20. It was sold to a six-day low near JPY158.25 initially, seemingly encouraged by implied threat by Japan’s Finance Minister Katayama, who after meeting with US Treasury Secretary Bessent, said officials were prepared to take “bold action” to support the yen. However, the dollar has recovered to push slightly above JPY159 in European turnover. Through the middle of the month, there has been one minor violation of the JPY158-JPY160 range.

• Sterling was confined to about a third of a cent below $1.3580 yesterday. It settled little changed on the day in uneventful turnover. Monday’s high was about $1.3590, slightly below the (61.8%) retracement of sterling’s decline since the late January high (~$1.3870). It reached a new two-month high today before the stronger than expected February GDP (0.5%) and has reversed lower. It has been sold through yesterday’s low (~$1.3545). Initial support is seen in the $1.3500-25 area. Options for about GBP307 mln at $1.3520 expire today.

• The Canadian dollar remained firm yesterday and finished strongly. The US dollar held slightly below Monday’s high (~CAD1.3795) in early North American dealings. It trended lower most of the session and took out Monday’s low (~CAD1.3730) in the NY afternoon. It slipped below CAD1.3715, the lowest level since March 23. It has steadied in the European morning and moved back into yesterday’s range. The CAD1.3740-60 area offers the initial hurdle.

• The Australian dollar reached almost $0.7180 yesterday and extended the gains to almost $0.7200 today to reach its best level since mid-2022. The upward momentum was not sustained, and the Aussie has slipped through its closing levels and is slightly lower on the day. Nearby support may be around $0.7150 and then $0.7125.

• The Mexican peso traded quietly yesterday, and the stretched momentum indicators warn of the likelihood of some near-term consolidation. The peso is the fourth strongest emerging market currency this month, with a nearly 4% gain. In January and February, the dollar forged a base around MXN17.10. The greenback settled near MXN17.2270 before the war began and slipped below MXN17.20 briefly on Monday. The dollar held above MXN17.24 yesterday. It initially fell a little below MXN17.22 today but has rebounded above MXN17.28. The MXN17.30-MXN17.32 may offer initial resistance.

• The offshore yuan fell against the dollar yesterday to snap an eight-session advance. It matched the longest rally since February 2020. It is trading with a slightly softer bias today and the dollar has pushed back above CNH6.82. Nearby resistance may be around CNH6.84. The PBOC lifted the dollar’s reference rate today for the first time this week. It has been set at three-year lows for the past two sessions. The dollar’s fix was set at CNY6.8616 (CNY6.8582 yesterday).

• The Indian rupee is traded quietly and a little firmer today. The US dollar is trading inside yesterday’s range (~INR93.1335-INR93.3575).

Other Markets

• The US S&P 500 and Nasdaq equity indices reached record highs yesterday and the positive sentiment spilled over into the Asia Pacific region. Most of the large bourses gained at least 1% and the Nikkei’s nearly 2.4% was sufficient to lift it to a record high. Europe’s Stoxx 600 has been alternating daily between gains and losses for nearly two weeks. Yesterday was a down day, so today it is up. US index futures are trading firmly.

• Benchmark 10-year yields are mostly lower. The 10-year JGB yield eased a basis point to 2.39%, while European yields are mostly 2-3 bp lower. The 10-year Treasury yield is around a basis point softer near 4.27%.

• Gold is trading firmly but within yesterday’s range. It reached $4871 yesterday, its best level in nearly a month. Silver is firm, straddling the $80 level.

• May WTI dropped slightly below $87 yesterday but settled above $90, which it is holding above today. Yesterday’s high was near $93.30. Today’s high has been $93.00. A push above there could target $95.

Data

• The US reports March industrial production figures today. Both industrial output and manufacturing production are expected to have eked out a small 0.1% gain. If accurate, it would cap the strongest quarterly rise in industrial output in three years. Still, the Atlanta Fed’s GDP tracker anticipates the second consecutive quarter below what the median Fed view sees as trend growth (2%, up from 1.8% in December 2025). Also, on tap today is the NY Fed’s April services survey and the Philadelphia Fed’s business outlook. The US has seen a decline in consumer sentiment and small business optimism. Weekly initial jobless claims are due, as well. The four-week moving average has risen once since early February and that was the week ending April 3.

• Canada reports March existing home sales. They fell in the previous four months and five of the last six.

• The UK economy expanded by 0.5% in February after it unexpectedly stagnated in January. Industrial output and services activity improved sequentially, both rose by 0.5%, and construction surged by 1%. The trade deficit widened. In fact, excluding precious metals trading, the trade balance returned to deficit (`GBP2.3 bln) after January saw the first surplus since the end of 2024.

• Australia grew ~18k jobs in March and the unemployment rate was steady at 4.3%. Full-time posts grew by 52.5k, after having lost a revised 27.7k in February (initially -30.5k). Earlier this week, the deputy governor of the central bank warned that inflation was too high and acknowledged that officials were not “highly” confident that the current rate setting is sufficient, especially given the new shock emanating from the Middle East war. The futures market is discounting about 72% chance of a hike at the early May meeting.

• China reported 5.0% growth in Q1 26, which was a little better than expected. Industrial output rose 5.7% year-over-year but retail sales disappointed rising only 1.7%. Fixed asset investment ticked lower and the surveyed unemployment rate edged up to 5.4% from 5.3%. New and used house prices continued to decline, and the property market is still distressed.

• India’s trade March trade deficit narrowed. Exports fell 7.4% year-over-year in March (0.8% in February) while imports tumbled 6.5% (+24.1% in February). India also reported its March unemployment rate rose to 5.1% from 4.9%.

Disclaimer

The Greenback is Poised to Snap Losing Streak

noreply@blogger.com (Marc Chandler) — Wed, 15 Apr 2026 06:47:00 -0400

The US dollar is enjoying a firmer bias today. The Dollar Index is threatening to snap a seven-day decline. President Trump has held out the possibility that the “war is close to over”. Yet the improved risk appetites in recent days reflects the market anticipating this. A new round of US-Iran negotiations could begin as early as tomorrow. Seeming unfazed by the US blockade preventing Iranian oil shipments that mostly go to China, the PBOC set the dollar’s reference rate at a new three-year low today.

Yesterday, the same day that the Senate Banking Committee indicated confirmation hearing for Fed chair nominee Kevin Warsh for April 21, leaving 25 days before Powell’s term expires, US prosecutors made an unannounced visit to the Federal Reserve’s offices in Washington. They lacked clearance protocols to enter the construction site. US Senator Tillis has reaffirmed his commitment to block the confirmation until the investigation is resolved.

Prices

G10

• The euro reached its best level since the Middle East war began. It poked slightly above $1.1810 as European session drew to a close yesterday. The euro spent the North American afternoon consolidating and found support ahead of $1.1785. The euro is trading quietly with a heavier bias. It has approached $1.1770 in Europe. It seems like it is between two large option strikes: 2 bln euros at $1.1750 and 1.6 bln euros at $1.18, and both stacks expire today.

• The dollar has recorded two lower higher since it peaked against the yen in late March near JPY160.45. It peaked last week a smidgeon above JPY160 and this week’s high was about JPY159.85. Yesterday’s retreat brought the greenback to JPY158.60, and in the consolidation in the North American afternoon, it could not reclaim the JPY159 handle. It barely traded above there today and held above JPY158.65. Still, a near-term low may be in place, and the US dollar can return to the JPY159.20-40 area. Nearly $1.5 bln in options at JPY158.85 expire today.

• Sterling reached $1.3590 yesterday, its best level since February 17. It stalled a few hundredths of a cent below the (61.8%) technical retracement objective of the losses since the year’s high was recorded in late January (~$1.3870). It settled above the upper Bollinger Band (found near $1.3585 today). Sterling is trading with a slightly heavier bias in a narrow range (~$1.3545-$1.3580). Support may be the $1.3480-$1.3500 area.

• The Canadian dollar reached a three-week high yesterday amid the risk-on environment spurred by reports that US-Iran negotiations may continue later this week. The US dollar was sold the CAD1.3750 area, the halfway mark of the greenback’s rally from the March 9 low (~CAD1.3525). The US dollar bottomed in early North American activity and made its way back to around CAD1.3775. It is hovering around there today (~CAD1.3660-CAD1.3780). Initial resistance is CAD1.3800-25 area.

• The Australian dollar settled a little below $0.7120 before the war began and reached nearly $0.7150 yesterday to kiss the upper Bollinger Band (found near $0.7165 today). It is trading firmly in the upper end of yesterday’s range. It has not been below $0.7115 nor above $0.7150 so far today. The Aussie’s recent high was recorded near $0.7190 last month, its best level since June 2022 after the central bank delivered its second rate hike of the year. Central bank officials have purposely left open the possibility of hike at the conclusion of its next meeting (May 4-5).

• Yesterday, the Mexican peso reached its best level since the Middle East war began. The US dollar slipped briefly below MXN17.20. The greenback quickly recovered and spent most of the North American afternoon chopping between MXN17.25 and MXN17.28. It has been mostly in that range today. Initial potential may extend toward MXN17.30-MXN17.32.

• The yuan rose to a three-year high yesterday. The US dollar traded to about CNH6.8060 yesterday. It was the eighth consecutive session the dollar fell against the offshore yuan. The greenback is trading firmer today and reached slightly above CNH6.82. In the past two weeks, the PBOC lowered the dollar’s reference rate by about 0.75%, the largest two-week adjustment since September 2024. It set the dollar’s fix slightly lower today at CNY6.8583 (CNY6.8593 yesterday).

• Initially the Indian rupee rose as the local markets re-opened from yesterday’s holiday but as the session progressed its gains were pared and the greenback settled near session highs. The dollar opened below Monday’s low (~INR93.2590) and recovered through Monday’s high (~INR93.4075) before settling near INR93.3765. The rupee still looks soft despite equity market gains.

Other Markets

• Asia Pacific equities rallied today, though among the large bourses, China’s CSI 300 is an exception, and it slipped around 0.35%. South Korea’s Kospi led the regional advance with a little more than a 2% gain, followed by India’s 1.6% rise and Taiwan’s nearly 1.2% advance. Europe’s Stoxx 600 is struggling to make much headway after rallying nearly 1% yesterday. US index futures are slightly lower.

• Benchmark 10-year yields are narrowly mixed in Europe. Most yields are +/- half of a basis point. The 10-year Treasury yield is up a basis point to nearly 4.26%. The 10-year JGB yield was practically flat at 2.40%.

• Gold and silver are trading with a heavier bias. The yellow metal initially extended its gains slightly through $4870 to reach its best level since March 19 but was greeted by sellers that drove it back below $4790. It is straddling the $4800 area in late European morning turnover. Silver, too, initially extended its gains to $81 and has reversed lower and is below $79 in European dealings.

• May WTI extended yesterday’s loss and fell slightly below $87 but has since recovered to new session highs (~$92.70) and is consolidating ahead of the North American session.

Data

• The US reports March import and export prices and February TIC data. Import and export prices likely surged last month. The median forecast in Bloomberg’s survey is for import prices to jump to a 3.9% year-over-year increase from 1.3%. That would be the largest increase since October 2022. Export prices had risen 3.5% year-over-year in February and may have accelerated toward 5% in March. The Treasury International Capital report attracts interest from economists and reporters than market participants. Last year, the net inflow of portfolio investment into the US (averaged $118.36 bln a month) was about $1.42 trillion, while the current account deficit was a little below $1.12 trillion. Portfolio capital inflows were about $1.22 trillion in 2024 and around $840 bln in 2023. The Empire State manufacturing survey for April is on tap. It fell to -0.2 in March from 7.1 in February. The risk seems to be on the downside. The Beige Book, the anecdotal summary of the activity in the different Fed regions, prepared for the FOMC meeting on April 28-29 make for interesting headlines but the impact on market expectations will likely be minimal. Fed officials Barr, Hammack and Bowman speak today.

• Eurozone industrial product rose for the first time in four months with a 0.4% gain in February and January’s decline was nearly halved to -0.8% from -1.5%. The national reports were disappointing. Of the eurozone’s four largest members, only Italy eked out a small increase (0.1%), and they were all weaker than the median projections in Bloomberg’s survey. That said, recall that the February manufacturing PMI rose to 50.8 from 49.5, its best reading since June 2022.

• China reports Q1 26 GDP first thing tomorrow. The median forecast in Bloomberg’s survey is a 1.4% quarter-over-quarter expansion after 1.2% in Q4 25. Retail sales and industrial output are expected to have slowed in March. The property market remains problematic, and house prices are expected to continue to drip lower.

Disclaimer

Optimism Weighs on the Greenback

noreply@blogger.com (Marc Chandler) — Tue, 14 Apr 2026 06:45:00 -0400

North American participants shrugged off the pessimism seen in Asia Pacific and Europe yesterday after the US-Iran negotiations broke down over the weekend. The optimism was contagious and reports that another round of negotiations are being contemplated during the ceasefire that expires next week. The dollar is broadly weaker. Global equities and bonds have rallied today and crude oil is softer.

Today’s highlights include a much smaller than expected March Chinese trade surplus and tightening by the Monetary Authority of Singapore. The US earnings reporting season continues, and the World Bank-IMF meetings get underway. At least five Federal Reserve officials speak today and the US reports March PPI. In byelections yesterday, the Liberal Party in Canada picked up two seats, giving Prime Minister Carney a parliamentary majority.

Prices

G10

• The knee-jerk risk-off expressed in Asia Pacific trading took the euro slightly below $1.1660 early yesterday, about a fifth of a cent below the pre-weekend low. After consolidating in Europe, the North American session bid the euro to new session highs near $1.1765. It recorded an ostensibly bullish outside up day and posted its highest close since the war began. Follow-through buying today carried the single currency to almost $1.18. The $1.1800-25 area offers the next important hurdle. The day before the war began, the euro settled slightly above $1.1810. Options for about 1.3 bln euros at $1.18 expire tomorrow.

• The dollar gapped higher against the yen yesterday and reached JPY159.85 before the buying dried up. The dollar reversed lower in North American dealing, closed the cap, and left a potentially bearish shoot star candlestick in its wake. New session lows were made in late North American activity, near JPY159.30. The greenback has been sold to JPY158.85 today, where options for $1.24 bln expire today. Still, additional losses look likely. The next area of support may be around JPY158.60.

• Sterling posted a big outside up day yesterday. Like the euro, it traded on both sides of last Friday’s range and settled above its high. On the day before the war began, sterling settled slightly above $1.3480. It settled above there yesterday. Sterling has advanced to $1.3550 today. The $1.3515 area corresponds to the halfway point of decline from the late January high (~$1.3870) to the end of March low (~$1.3160). The next retracement target is near $1.3600.

• Risk-off initially lifted the greenback to a new three-day high against the Canadian dollar (~CAD1.3880), but the North American participants seemed to put more weight on reports that a US-Iran deal was close encouraged a move into risk assets. US stocks recovered from initial losses and the greenback weakened. It fell through and settled below CAD1.3800 and confirmed the outside down day. It has approached the next technical target around CAD1.3750. A break could spur another leg lower toward CAD1.3700.

• The Australian dollar also posted a bullish outside up day. It initially was sold to a three-day low near $0.6985 and recovered to poke slightly above $0.7100 for the first time since March 19. It has risen slightly above $0.7120 today, which leaves little on the charts to deter a retest of the high since June 2022 seen a month ago (~$0.7185). Options for A$1.35 bln at $0.7125 expire tomorrow.

• The Mexican peso gained as risk appetites returned in North America. Initially, the dollar rose to MXN17.4435 but turned lower to trade below MXN17.30. Last Friday’s low was near MXN17.25. It has edged closer today. The roughly two-year low was recorded in mid-February near MXN17.0865. We suspect the low for H1 26 is not yet in place.

• The dollar posted an outside down day against the offshore yuan. The dollar reversed lower after reaching about CNH6.8435. It fell to nearly CNH6.8165 and extended to almost CNH6.81 today, a new three-year low. A break of CNH6.80 could target the CNH6.70 area. The PBOC had set the dollar’s reference rate a little high in the past two sessions, but broadly heavier greenback saw it cut the rate today. It was set at CNY6.8593, a new three-year low (CNY6.8657 yesterday and CNY6.8854 last Tuesday).

• Indian markets were closed for a national holiday today.

Other Markets

• Equities are higher today. Japan’s Nikkei, Taiwan’s Taiex, and South Korea’s Kospi rallied more than 2% today. Even Singapore’s Strait Times advanced despite the Monetary Authority of Singapore tightening policy. New Zealand and the Philippines were notable exceptions, unable to make headway. Europe’s Stoxx 600 is about 0.60% higher after slipping about 0.15% yesterday. US index futures are firm, with Nasdaq futures up about 0.35%.

• Benchmark 10-year yields are lower. The 10-year JGB yield fell nearly four basis points, encouraged in part by the strongest reception to the 20-year bond auction since 2019. European yields are mostly 3-6 bp lower. The 10-year US Treasury yield is off a little more than one basis point to 4.28%.

• Gold has extended yesterday’s recovery. It approached $4800 today. It has not settled above there since March 19. Silver is trading near its best level since March 18.

• May WTI peaked yesterday near $105.65 and settled near $99. It has fallen to almost $95 today, near last Thursday and Friday’s lows.

Data

• US March producer prices are expected to have jumped 1.1% in March after a 0.7% increase in February. That would lift the headline pace to 4.6% from 3.4%. As we saw in with last week’s CPI, the core rate is expected to be more subdued. The median forecast in Bloomberg’s survey is for a 0.4% month-over-month increase (0.5% in February) for a 4.1% rise year-over-year (3.9% in February). Several Fed officials speak throughout the day (Goolsbee, Barr, Paulson, Collins, and Barkin).

• Japan confirmed that after industrial output surged 4.3% in January, the most since June 2022, it pulled back 2.0% in February. The year-over-year rate is at 0.4%. It has not been above 1% since last September. Japan’s economy grew by 1.3% at an annualized pace in Q4 25 and looks to have expanded by around the same pace in Q1 26. It will not be reported until May 19. The swaps market is discounting about 35% chance of a rate hike later this month. It was closer to 55% before the weekend. BOJ Governor Ueda is in Washington this week. His comments, read by a deputy yesterday, seemed to emphasize the uncertainty injected by the Middle East war. It was far shy of clear signal, which the market expects before a hike.

• China reported a trade surplus half of what was expected in Bloomberg’s survey. The $51.1 bln March trade surplus compares with $91 bln in February and almost $102 bln in March 2025. That means that that Q1 surplus was almost $265 bln. The surplus in Q1 25 was about $271 bln. In dollar terms, exports rose 2.5% year-over-year, while imports rose by 27.8%. Beijing reports Q1 GDP at the end of the week. The median forecast in Bloomberg’s survey is for a 1.4% quarter-over-quarter increase in output, up from 1.2% in Q4 25. The much smaller than expected trade surplus could signal weaker growth.

Disclaimer

Restrained Risk-Off

noreply@blogger.com (Marc Chandler) — Mon, 13 Apr 2026 06:43:00 -0400

The collapse of US-Iran negotiations and the US threat to blockage Iranian ports presents an escalation in the conflict that the market’s did not anticipate. Equities and bonds are lower, and the dollar is mostly firmer. However, so far, the moves appear restrained. Iranian oil has largely been shipped to China and with the Trump-Xi meeting in a month, the blockade could jeopardize it. Moreover, the risk of escalation is palpable as Iran and its allies could try to close the Bab-el-Mandeb strait, which would be an additional disruption and neutralize the Saudi east-west pipeline that bypasses the Strait of Hormuz.

Hungary’s Orban saw a stunning defeat in the weekend election and the Hungarian forint is the strongest currency in the world today. It is up nearly 2% against the US dollar and around 2.3% against the euro amid speculation that Budapest’s pariah status in Europe will end and it will take steps to free up EU funds.

Prices

G10

• The euro rose to almost $1.1740 before the weekend, its best level since March 2, when the market first responded to the start of the Middle East War. It was the culmination of a five-day rally, and the euro settled slightly below $1.1725. The failed negotiation and the US blockade of Iranian ports caught the short-term market leaning the wrong way. The euro slipped slightly below $1.1660 almost immediately when the markets opened earlier today. It gradually recovered to $1.1700 as European markets opened, where it has consolidated above $1.1680.

• The greenback finished firmly against the yen ahead of the weekend. It has spent much of the previous two sessions below the 20-day moving average but settle above it before the weekend (~JPY159.20). Still, the dollar’s second consecutive weekly fall, the first back-to-back weekly decline since the end of January, would seem to reduce the risk of near-term intervention. The dollar extended its gains to JPY159.85 in early dealings today. It has been confined to a narrow range so far and has held above JPY159.55. Options for about $650 mln at JPY159.50 expire today.

• Sterling settled near $1.3460 last week, its highest close since the Middle East war began. The nearly 2% gain was its second-best week of the year. The disappointing weekend developments pushed sterling to almost $1.3380 in early trading today but recovered to almost $1.3435 but may struggle to extend gains much further. Options for GBP450 mln that expire today at $1.3545 may help cap it.

• The US dollar initially extended its losses for a fifth consecutive session against the Canadian dollar. It nicked the CAD1.3800 and traded below the 20- and 200-day moving averages in North America ahead of the weekend before recovering. The recovery stalled near CAD1.3840 before the weekend. The gains were quickly extended in early Asia Pacific activity today, to almost CAD1.3880. Options for $900 mln at CAD1.39 expire today. This month’s high was near CAD1.3950.

• The Australian dollar consolidated ahead of the weekend. It held below Thursday’s high ($0.7095) by 1/100 of a cent according to Bloomberg. The session low, near $0.7055, was recorded in the European morning. The Aussie’s ~2.5% gain last week was its largest since late January. Yet the Aussie gapped lower today in thin early turnover. It fell to nearly $0.6985 before finding bids. It recovered and filled the opening gap that extended to pre-weekend low. Options for A$711 mln at $0.7050 expire today. The intraday momentum indicators warn of the risk of a setback toward $0.7020.

• The Mexican peso has a five-day advance coming into today’s session. It appreciated by about 3.3% last week and reached its best level since March 2. The dollar knocked on MXN17.25 before the weekend. It settled near MXN17.2270 before the war. It was the strongest in the region last week. The Brazilian real gained 2.7% and it rose to the best level since early 2024 (US dollar fell a little below BRL5.01). The Colombian peso eked out less than 0.5% gain but it was sufficient to reach its best level since early February (US dollar fell slightly through COP3625). However, the risk-off mood will likely snap the Mexican peso’s five-day run. Because the peso is among the nearest emerging market to 24-hour a day activity, it is used as a proxy sometime for less accessible emerging market currencies. The dollar reached almost MXN17.4450 initially today but has ground down to nearly MXN17.3650 in European turnover. The intraday momentum indicators are getting stretched. Nearby support is seen ahead of MXN17.35.

• The yuan finished last week on a firm note. The greenback approached but held above the multiyear low recorded in the middle of last week (CNH6.82). The greenback was bid initially today and traded slightly above CNH6.8435. However, it has trended lower and is knocking on CNH6.83 in the European morning. The PBOC has been guiding the yuan higher through the daily fix. The broad dollar gains made it unlikely that it would do so today. The dollar’s reference rate was set today at CNY6.8657 (CNY6.8654 before the weekend).

• The jump in crude oil prices weighed on the Indian rupee and offset some of the gains that had been spurred by the recent currency controls. The dollar settled near INR92.73 at the end of last week and gapped higher today to reach almost INR93.41, its highest level since April 2. India reported March CPI rose to 3.40% from 3.21% in February. It is the highest since last March. A national holiday closes Indian markets tomorrow.

Other Markets

• Equities are mostly lower today, though there were some notable exceptions in the Asia Pacific region, where China, Taiwan, and some smaller bourses gained. The MSCI Asia Pacific Index rose 6% last week and snapped a five-week drop. Europe’s Stoxx 600 is off about 0.75% today. It rose by 3% last week, its third week advance. US index futures are trading 0.5%-0.6% lower. Last week, the S&P 500 rose by 3.5% and the Nasdaq gained nearly 4.7%.

• Benchmark 10-year yields are firmer today. They rose five basis points in the Australia and New Zealand, and two basis points in Japan. European yields are mostly 1-2 bp higher, and the 10-year US Treasury yield is almost two basis points higher to poke above 4.33%.

• Gold gapped lower and fell to $4644.50 before recovering and filled the gap that extended to the pre-weekend low near $4731. It stalled slightly shy of $4740. Silver also gapped lower and filled the opening gap before being capped in front of $75.

• May WTI gapped higher. The pre-weekend high was near $100.40 and today’s low has been about $101.90. It reached nearly $105.65 and is around $104.40 in late European morning turnover.

Data

• Ahead of tomorrow’s March PPI and Wednesday’s Beige Book, the US sees March existing home sales today. They tend not to move the markets. Existing home sales have been flattish for the last couple of years in the trough after pandemic-related surge in 2020. The three, six, and 12-month moving averages have converged between 4.07 and 4.13 mln sales (seasonally adjusted annual rate).

• Canada reports building permits today, but more importantly, Canada holds three byelections that will likely secure a parliamentary majority for Prime Minister Carney’s Liberals. With the latest defection, the Liberals are one seat shy of a majority and are favored to win at least two of the byelection contests.

• China’s March lending figures were weaker than expected. Aggregate financial rose by CNY5.2 trillion and the median forecast in Bloomberg’s survey looked for a CNY5.6 trillion increase. Corporate bond issuance increased and helped offset the decline in government bond sales. Tomorrow, China is expected to report the March trade figures, and the surplus is expected to have risen to around $107.5 bln from nearly $91 bln in February.

• India reported a small increase in March CPI to 3.40% from 3.21%. The World Bank expects inflation to rise to 4.9% in the fiscal year that began on April 1. Before the Middle East war, the World Bank’s forecast was 4.0%. It sees growth slowing to 6.5% from around 7.2% in the fiscal year that just ended. The Reserve Bank of India projects 6.9% growth this year and 4.6% CPI.

Disclaimer

Week Ahead: Hope Springs Eternal

noreply@blogger.com (Marc Chandler) — Sat, 11 Apr 2026 07:15:00 -0400

Hope that the ceasefire will lead to the end of the Middle East war fanned risk appetites in recent days. Equities rallied broadly. May WTI and June Brent fell by nearly 11.5%. The dollar fell against all the G10 currencies, the Antipodeans and Scandis, which seem the most sensitive to growth prospects and the risk environment. The JP Morgan Emerging Market Currency Index rose by a little more than 2%, to post its best week since March 2018.

Negotiations will take place over the weekend, and market participants are hopeful that this can lead to a more sustained end to hostilities. Of course, it is complicated by the lack of trust and the Israel-Lebanon conflict. Ceasefires are hardly immaculate. Meanwhile, we may be on the cusp of two other watersheds. First, there have been encouraging reports about a potential agreement between Russia and Ukraine. Second, Hungary’s Viktor Orban is the long-serving prime minister in the EU. He has served for the past 16 years and had previous term between 1998 and 2002. Polls suggest he could lose the popular vote on April 12.

Drivers: The two-week ceasefire in Middle East war reset the dollar and interest rate expectations. The dollar rallied during the war and was sold on the ceasefire. The derivatives market sees the Federal Reserve as the most dovish of the major central banks and the odds of a cut this year have risen to around 33% from briefly discounting a small chance of a hike.

Data: The US has a full slate of high frequency reports in the coming days. We suspect most will have limited impact on the markets. Yet given the desire for real time insight into the impact of the war, the Empire State survey and the Philadelphia Fed's survey may be the most important. The Fed's Beige Book and its anecdotal reports may also serve this purpose, though practically no one doubts that the FOMC will stand pat when it meets later this month.

Prices: The Dollar Index gapped lower in the middle of last week. That gap, found between about 99.18 and 99.51 is important from a technical perspective. It found support around the 200-day moving average, found near 98.50. The momentum indicators have turned down, and the five-day moving average has fallen below the 20-day moving average for the first time since February 18. We look for the 97.50 area in the coming days.

EMU

Drivers: The euro bottomed in the middle of March, but the upside seemed stalled until the ceasefire was announced. Expectations for ECB rate hikes this year were pared from at least three hikes to two with about 40% chance of a third. The US two-year premium over Germany was around 138 bp before the war and it collapsed to about 108 bp as President Trump threatened to destroy Iran. The ceasefire announcement saw it recover to almost 130 bp and it finished last week near 123 bp.

Data: With several large members already reporting national figures for February industrial output (Germany 0.5%, France -0.7%, Spain 0.2%) the aggregate figure will likely not draw much attention. The same could said about the aggregate trade and current account figures. The median forecast in Bloomberg's survey of 0.3% growth in Q1 and Q2 this year seems a little exaggerated. Last month ECB projections saw growth at 0.9% this year and the current account surplus 1.7% of GDP (1.9% in 2025), with a larger budget deficit (3.4% of GDP vs. 3.0% in 2025).

Prices: The euro appears to have forged a solid base in the second half of March. The consolidation of the past couple of sessions looks constructive. The five-day moving average is above the 20-day moving average and the momentum indicators give the single currency scope for additional near-term gains. Nearby resistance is seen around $1.1745-50, but we suspect there may be initial potential toward $1.1825, the high from the last day in February, before the war began. Potential for a breakthrough in negotiations between Russia and Ukraine and a defeat of Hungary's Orban would seem supportive of the euro.

PRC

Drivers: Beijing continues to endorse the appreciation of the yuan. Last week, the PBOC set the dollar's reference rate at its lowest level in three years. The fix was lowered last week by about 0.30%, the largest weekly decline in two months.

Data: By the end of the week ahead, we will have been told Beijing's estimate of Q1 GDP and the macro details for March, including trade, retail sales, industrial production, investment, and house prices. The median forecast in Bloomberg's survey is that the economy grew at a slightly faster pace in Q1 than it did in Q4 25 (1.2%).

Prices: Ahead of the weekend, the dollar posted its lowest close against the offshore yuan since March 2023. A break of CNH6.8200 could signal a move toward CNH6.80 but there is potential toward the 20203 low, which was slightly below CNH6.70. It is difficult to know the intent of Chinese officials, but they have embraced the gradual appreciation of the yuan. We suspect a move to CNY6.60-CNY6.70 may be acceptable.

Japan

Drivers: The 30-day correlation between changes in the dollar-yen exchange rate and the 10-year US yield continues to hover above 0.60, the highest since last September. It bottomed in early February a little below 0.15, which was the lowest since last May. The 30-day correlation of changes in the dollar-yen exchange rate and the Dollar Index is a little above 0.75. At the end of February was near 0.73 but fell below 60 in mid-March. It has not been above 0.80 since last October.

Data: After a 4.3% month-over-month surge in Japan's industrial production in January, a monster of a gain, the largest since June 2022, it slowed by almost half in February. It is subject to revision in the week ahead. While the Japanese economy seems sufficiently strong and price pressures sufficiently persistent for the Bank of Japan to hike later this month, one more worrisome development has been the weakness in private sector machinery orders (capex). They fell by 5.5% in January. The February report is due on April 15.

Prices: The market tested the JPY160 level early last week and the news of the ceasefire saw the dollar come off to support near JPY158.00. The market does not appear to have given up on probing for the pain threshold of Japanese officials, though the daily momentum indicators are falling and the five-day moving average in threatening to fall through the 20-day moving average for the first time since February 20. That said, a convincing break of JPY157.50 would suggest a high is in place.

Drivers: Sterling continues to trade inversely to the Dollar Index. The 30-day rolling correlation of the changes of the two instruments is almost -0.87. It has not been much more extreme than this since early Q4 25. The correlation between the exchange rate and changes in two-year US and UK yields stands around -0.35 and -0.10, respectively. Meanwhile, the correlation between changes in sterling and the US S&P 500 (risk proxy) is a little below 0.57. This is the upper end of the range since late 2022.

Data: At the end of the week, the UK reports February GDP and details. Even though the monthly figures do not translate into quarterly reports as one might intuitively expect, the market is often sensitive to them. January GDP unexpectedly stagnated (median forecast in Bloomberg's survey was 0.2%). Another disappointment would likely spark sterling sales and a reconsideration of the likely trajectory of BOE. The central bank projects 0.9% growth this year and the Office for Budget Responsibility forecasts 1.1%. This may also prove to be optimistic.

Prices: Ahead of the weekend, sterling settled at its best level since the war began. Yet it did not make it above the intraday March highs (~$1.3480-85). The momentum indicators are constructive, and the five-day moving average pushed above the 20-day moving average. Above the March highs is the $1.3515 area, which is the halfway mark of the losses since the January 27 four-year high was reached (~$1.3670). A note of caution is that the upper Bollinger Band is slightly below $1.3500.

Canada

Drivers: Around mid-March, the 30-day correlation of changes in the US dollar-Canadian dollar exchange rate and the Dollar Index rose above 0.85, its highest since mid-2024. It is now near 0.65, which is still at the upper end of last year's range. The correlation between changes in the exchange rate and the S&P 500 is around -0.28, while the correlation with changes in the US two-year yield is slightly lower, though near the highs since last October.

Data: Canada housing data does not capture the market's attention, but the international transactions may a somewhat different matter. After a weak H1 25, foreign demand for Canada's stocks and bonds picked up in H2 25 and continued into January. In fact, January's portfolio capital inflows were more than twice the Q4 25 average. On the other hand, the trade balance may be deteriorating. The Jan-Feb deficit of almost C$10 bln is among the largest Canada has ever recorded and the rolling 12-month averaged shortfall of C$3.675 bln is a record.

Prices: Before the weekend, and despite milquetoast jobs report that saw full time jobs were lost for the second consecutive month, the Canadian dollar rose to its best level in nearly two and a half weeks. The greenback was pushed below CAD1.38 and settled below the 20- and 200-day moving averages, which converged around CAD1.3820. The momentum indicators have turned down. The next target is around CAD1.3750, and then possibly CAD1.37.

Australia

Drivers: Changes in the Australian dollar and the Dollar Index are the most inversely correlated (30-days) since last October (~-0.78). The correlation between the exchange rate and the S&P 600 is around 0.64, which is off the peak seen last month near 0.73. Last year's high was closer to 0.87. The Aussie's correlation with gold peaked in February a little above 0.80. It fell to almost 0.30 in March before recovering to almost 0.50 now.

Data: At the end of the week, Australia reports March jobs data. In February, the almost 49k increase in employment was fueled exclusively by part-time positions. There were 30.5k fewer full-time jobs. However, that came after two solid months in which full-time posts rose by nearly 110k. The unemployment rate is 4.3%. It has spent only one month higher since the end of 2021 and that was the anomalous jump to 4.5% last September and a return to 4.3% in October. The Reserve Bank of Australia meets next on May 5. The futures market has about a 65% chance of a hike. We wonder if three hikes in a row are a bit aggressive given the hornet's nest that has been opened by the Middle East war.

Prices: The Australian dollar is knocking on the $0.7100 area, which it last traded above on March 19. Following the second rate hike of the year, the Aussie reached slightly beyond $0.7185 on March 13, its best level since mid-2022. The momentum indicators have turned higher from oversold, and the five-day moving average crossed back above the 20-day moving average last week, Initial resistance above $0.7100 is seen near $0.7125.

Mexico

Drivers: The Mexican peso is sensitive to the US dollar's broad direction. The rolling 30-day correlation of changes in the USD-peso exchange rate and the Dollar Index is above 0.75 for the first time since last October, which also marked the high in 2025. Yet the peso is also sensitive to the risk environment. Using the S&P 500 as the proxy, the USD-peso exchange rate is inversely correlated to changes in the S&P 500 by almost 0.80, the most extreme since July 2020. The correlation between changes in the exchange rate and US two-year yields is near 0.45, the highest since last September.

Data: While keeping in mind the large informal economy in Mexico, which accounts for a little over half of the workforce according to some estimates, nominal wage increases have been trending lower. The March figures are due this week. The rolling six-month moving average was slightly above 6.35% in February, the smallest since Q1 22.

Prices: The Mexican peso appreciated by about 3.3% against the US dollar last week. That is its best weekly showing since September 2024.The dollar settled near MXN17.2270 on the eve of the Middle East war and peaked in late March around MXN18.1645, slightly shy of the 200-day moving average. At the end of last week, it tested the MXN17.25 area, the lowest since March 2.The momentum indicators are falling and the five-day moving average fell below the 20-day moving average last week for the first time since early March. However, the move has taken place so quickly that the greenback has settled for the past three sessions below the lower Bollinger Band (~MXN17.36 before the weekend).

Disclaimer

G10 Currency Consolidation Looks Constructive, but the Weekend Poses Risks

noreply@blogger.com (Marc Chandler) — Fri, 10 Apr 2026 06:49:00 -0400

The dollar is mixed against the G10 currencies today, ahead of the March US CPI report. The dollar bloc and the Japanese yen are struggling. However, the tone is mostly consolidative. Equities were higher in the Asia Pacific region, with a few exceptions, and in Europe. Bond yields are firmer. Both WTI and Brent crude oil are trading with a slightly firmer bias but well within this week’s ranges.

US and Iranian officials will meet in Pakistan tomorrow. The ceasefire apparently seen some violations and the Strait of Hormuz is not fully open as it was before the war. Yet market participants seem hopeful. At the same time, reports suggest Ukraine and Russia may be near a tentative agreement to stop hostilities. Meanwhile, reports suggest the Federal Reserve Powell and Treasury Secretary Bessent met with the large banks to discuss new risks generated by AI. Hungary goes to the polls this weekend and Prime Minister Orban is lagging in the polls. He is liked by the Trump administration (though its support may have cost him) and Russia and China. Still, the Hungarian forint is second strongest emerging market currency this week (~3.6%), lagging behind the Russian ruble’s 3.7% appreciation.

Prices

G10

• The euro traded in the upper end of Wednesday’s trading range yesterday and again stalled in front of $1.1725. It is consolidating mostly between $1.1680 and slightly above $1.1715 so far today. The price action looks constructive. The next technical target is $1.1745-50. It has a four-day advancing streak coming into today, which matches the longest of the year.

• The dollar traded firmly against the yen yesterday but could not resurface above JPY159.30. It has edged slightly higher today but is holding below JPY159.40. $780 mln of options at JPY159.50 expire today. The greenback settled slightly above JPY159.65 last week. If the dollar does not recover and settle above it today, it will be the first back-to-back losing weeks for the dollar since the end of January.

• Sterling consolidated in the upper end of Wednesday’s range yesterday. It hardly spent any time below Wednesday’s $1.3395 settlement. Sterling has held above $1.3400 today, where options for GBP355 mln expire today. On the other hand, it is holding below yesterday’s high (~$1.3460). Wednesday’s high was almost $1.3485, its best level since the war began.

• The Canadian dollar strengthened to its best level in a little more than two weeks yesterday. The greenback was sold to almost CAD1.3800. It frayed the 20- and 200-day moving averages (~CAD1.3815-20) on an intraday basis but settled above them. The US dollar is trading firmly and reached almost CAD1.3845 today. Options for nearly $600 mln at CAD!.3850 expire today.

• The Australian dollar reached a three-week high yesterday, a little shy of $.7100. At the end of March, it fell below $0.6840. The five-day moving average crossed above the 20-day moving average yesterday for the first time since mid-March. It is trading with a slightly softer bias today and is consolidating between about $0.7055 and $0.7085. A band of nearby resistance extends toward $0.7125.

• The Mexican peso extended its recovery and has recovered the lion’s share of last month’s losses. The US dollar finished February near MXN17.2270. Yesterday’s losses took the greenback a little through MXN17.3250. It is in roughly a MXN17.3450-MXN17.4045 range today. The dollar peaked on March 31 near MXN18.1650. It posted a key downside reversal that day and has not looked back.

• The dollar drew closer to the next important support area against the offshore yuan near CNH6.80 yesterday. It reached CNH6.8200 on Wednesday, a three-year low and consolidated above it yesterday. Since Wednesday’s low, the greenback has not been above CNH6.8420. Today, it has not been above CNH6.8345. The PBOC set the dollar’s reference rate at CNY6.8654 (CNY6.8649 yesterday, a three-year low). The low fix in 2023 was around CNY6.7130.

• It appears that the Indian currency controls introduced recently have run their course. The US dollar briefly traded to a marginal new low since March 18 today (~INR92.4115) but recovered to almost INR92.7665. Still, the rupee managed to hold on to a 0.40% increase for the week.

Other Markets

• Asia Pacific and European equities have traded firmer today. Most of the large bourses in the Asia Pacific region rose by at least 1% today, though Hong Kong’s Hang Seng was an exception (+0.55%) as was Australia (-0.15%) and New Zealand (-0.70%). Europe’s Stoxx 600 is up around 0.60% in late morning turnover. If the gains are maintained, it would be the second consecutive week that it rose more than 3%. US index futures are hovering around little changed levels. The S&P 500 is up about 3.6% this week and the Nasdaq is up about 4.3%.

• Benchmark 10-year yields have jumped today. Australia and Japan’s rates rose a little more than five basis points. European yields are 4-8 bp higher. The 10-year US Treasury yield is up almost two basis points to approach 4.30%. It is off a little more than three basis points on the week.

• Gold is trading slightly heavier today but within yesterday’s range (~$4699-$4801). Silver is consolidating between about $74.85 and $76.20. Both metals are up for the third consecutive week.

• May WTI is firm but quiet. It is near $99 in late European morning activity. It reached $102.70 yesterday and is holding below $100.50 today. The month’s low was recorded on Wednesday, near $91. Today’s low is near $97.60.

Data

• The reaction to the expected surge in the March US CPI will be tempered by the ceasefire. The median forecast in Bloomberg’s survey is for a 1% rise in CPI last month, which would lift the year-over-year pace to 3.4% from 2.4%. The core is seen rising by 0.3% for a 2.7% year-over-year increase. If the ceasefire holds and leads to an end to the conflict, there still may be some residual upward pressure on CPI in April. The ceasefire comes too late to lower inflation expectations in the preliminary April University of Michigan survey. The preliminary durable goods orders (-1.4% headline and +0.6% excluding defense and aircraft orders removes so interest from today’s factory goods orders and revision to the durable goods report. Lastly, the March federal budget deficit is due and the median forecast in Bloomberg’s survey is for a shortfall of about $152.5 bln. This compares to $160.5 bln deficit in March 2025 and $236.6 bln deficit in March 2024.

• After losing almost 84k jobs in February (-108.4k full-time positions were lost and part-time jobs rose by 24.5k), Canada is expected to report muted recovery with a gain of about 15k jobs overall. The participation rate may have ticked up to 65.0% from 64.9%, and this will likely be translated into a rise in the unemployment rate to 6.8% from 6.7%.

• Mexico reports February industrial production figures today. After falling 1.1% in January, it is expected to have recovered by about 0.6%. Still, the year-over-year pace of both industrial output and manufacturing production are still falling on a year-over-year basis (-1.0% and -1.8% respectively), which appears to be a greater concern to the central bank than inflation, which we learned yesterday, remained above the 2-4% target range last month.

• Japan reported a 0.8% jump in March producer prices. The February series was revised to 0.1% from -0.1%. Given the base effect, this increased the year-over-year rate more modestly to 2.6% from a revised 2.1% (initially 2.0%), which is the highest since last November. Separately, Japan reported a 28.1% year-over-year jump in machine tool orders (24.2% in February). Foreign orders surged 40.4%, while domestic orders rose 2.5%. The market has wavered a bit, but we continue to suspect that there is a better chance that the Bank of Japan lifts rates later this month than it standing pat.

• China reported PPI rose 0.5% in March, its first year-over-year increase since September 2022. Deflationary forces have been slackening since the middle of last year when PPI fell 3.6% year-over-year. Since then, with one exception, deflation in producer prices has moderated. The CPI is 1.0% higher than a year ago (1.3% in February). Previously, many observers had attributed the weakness in CPI to weak demand. We have been more skeptical. Consumption has risen in China, but investment has increased quicker, and food prices, for which demand is more inelastic, seemed to be a key factor. Consider that the slippage in March seemed to reflect the moderation in food price increases (0.3%) after 1.7% in February. Also, housing prices fell for the fourth consecutive month. Core CPI finished 2025 at 1.2% and rose to 1.8% in February. It moderated to 1.1% in March.

Disclaimer

Rough Start to Ceasefire Curbs Yesterday's Enthusiasm

noreply@blogger.com (Marc Chandler) — Thu, 9 Apr 2026 06:46:00 -0400

It seemed clear that yesterday’s euphoric reaction to the two-week ceasefire was exaggerated. Ceasefires often have been plagued with disputes and violations at the start. This one is no different. At the same time, Israel’s action in Lebanon complicates the situation and there is some dispute whether it was covered by the ceasefire. President Trump has suggested that perhaps the US participates in the toll collection for the Strait of Hormuz.

Equities have seen yesterday’s surge pared. Benchmark 10-year bond yields are mostly firmer. The greenback has been largely confined to narrow ranges against the G10 currencies. Most are a little firmer, but not the Australian and Canadian dollars and Japanese yen. The JP Morgan Emerging Market Currency Index is practically flat. Drawing very little attention, the PBOC set the dollar’s fix at a new three-year low for the third consecutive session.

Prices

G10

• The euro poked a little above $1.1720 in North America yesterday, a modest extension of the rally seen in the Asia Pacific session in response to the ceasefire. After the high was recorded, the euro slipped back to around $1.1645, which was below the low seen in Europe. It recovered and settled near $1.1665. It has been confined to about a 15-tick band around yesterday’s settlement.

• The dollar fell by about 0.55% against the yen yesterday. It traded below JPY158 for the first time in two weeks but recovered to settle about JPY158.55, which was a little above the high seen during the European session. It has hardly traded below there today and is straddling the JPY159 area in late European morning turnover. Options for about $670 mln at JPY159 expire today.

• Sterling dipped below $1.3180 at the start of the week, and at yesterday’s peak, it had risen by slightly more than three cents to its best level in a month. It briefly pushed above the upper Bollinger Band (~$1.3465 today) for the first time since late January. Sterling pulled back to a around $1.3380 in the North American afternoon and settled around $1. 3395. It is in a $1.3380-$1.3415 range today.

• The US dollar recorded the session low yesterday against the Canadian dollar in the Asia Pacific session near CAD1.3825. It recovered to CAD1.3875 late in the European morning and consolidated in quiet though choppy activity in North America. The greenback is trading quietly today between about CAD!.3840 and CAD1.3860. Options for about $360 mln at CAD1.3890 expire today. A break of the CAD1.3800 area could see CAD1.3750 next.

• The Australian dollar reached $0.7085 in the initial reaction to the ceasefire news and spent the rest of yesterday consolidating above $0.7030. It hovered around the $0.7050 area for most of the North American session. It has held above $0.7020 but below $0.7050, where options for a little more than A$1.35 bln expire today. It entered today’s with a three-day 2.3% advance in today.

• The Mexican peso rallied 1.5% yesterday. The greenback was sold to MXN17.36, its lowest level since March 3 and settled around MXN17.44. It had settled around MXN17.2270 before the war began. The dollar is trading quietly today and is little changed around MXN17.44-45 in late European morning turnover and has held below MXN17.50. The Mexican peso was stronger than the Colombian peso yesterday. But the greenback is weaker against the Colombian peso now than it was before the war started. The same is true of the Brazilian real. On February 27, the dollar settled near BRL5.1160, its lowest level since May 2024. Yesterday, the greenback gapped sharply lower and saw BRL5.0655. It closed near BRL5.0970 yesterday.

• The offshore yuan reached its best level since February 2023 yesterday. The dollar tested CNH6.82. It is consolidating in a narrow range today (~CNH6.8310-CNH6.8415). The low in 2023 was a little below CNH6.70. The PBOC set the dollar’s reference rate lower for the third consecutive session, and each one is a new low since April 2023. Today’s fix was set at CNY6.8649. Last Thursday, it was set at CNY6.8880.

• The dollar rose to INR92.9375 today, which filled the gap created by yesterday’s sharply lower opening. For the first time since the Middle East war began, the five-day moving average has crossed below the 20-day moving average. However, rather than signal a new downtrend, the crossing moving averages reflect the short squeeze that was triggered by the central bank’s currency restrictions on Indian banks.

Other Markets

• Equities are seeing yesterday’s sharp gains pared. Most of the equity markets in the Asia Pacific region fell, with the notable exceptions of the Antipodean and Taiwan’s markets. Europe’s Stoxx 600 rose almost 3.9% yesterday and has given back around 0.65% today. US indices rose 2.5%-2.8% yesterday and are off around 0.25%-0.35%

• Benchmark 10-year yields have recouped some of yesterday’s decline. The JGB yields edged up 1.5% bp, while Australia and New Zealand yields rose 5-7 bp. European benchmark yields are mostly 4-7 bp higher. The 10-year US Treasury yield is softer, slightly below 4.29%.

• Gold is firm near $4730 in Europe, and well off yesterday’s high (almost $4857). Silver is little changed as it hovers around $74.

• May WTI hit almost $91 yesterday and settled near $94.40. It is making session highs in late European morning turnover near $98.60. The 20-day moving average is around $99.25.

Data

• Usually, the US personal income, consumption data and the deflators would be the focus today. However, the February deflator readings are old as they cover the period before the Middle East war and the March CPI will be reported tomorrow. The optics of the consumption data will be better than the substance. Adjusting for inflation will keep real consumption expenditures hovering around the three-month average of 0.1%. The Atlanta Fed’s GDP tracker sese Q1 GDP at 1.3%. The median forecast in Bloomberg’s survey is more optimistic at 2.3%.

• Mexico reports March CPI today. It is likely to have accelerated further above the upper end of the 2-4% target range. The headline rate is seen rising to4.65% (from 4.02%) and the core rate may continue to hover near 4.50%. With inflation above target last month, the central bank not only cut rates but signaled it may do so again. Officials are clearly concerned about growth, and the record of last month’s meeting may offer insight into official thinking. Mexico will also report March vehicle production and exports. The data tends not to have much market impact, but it is noteworthy, that Mexico exports almost 80% of its output. Proportionately, that is around four times China vehicle exports.

• Germany reported February trade and industrial output figures earlier today. The trade surplus narrowed to 19.8 bln euros from 20.3 bln in January, but it stood at 17.7 bln in February 2025. Exports rose 3.6% on the month (-1.5% in January), while imports rose 4.7% (-5.1% in January). Industrial production fell by 0.3% in February, before the new energy shock. The median forecast in Bloomberg’s survey anticipated a 0.7% increase. Part of the sting was lessened by the upward revision in January’s reading from -0.5% to flat.

• China reports March PPI and CPI first thing tomorrow. The median forecast in Bloomberg’s survey is for PPI to have risen by 0.4% year-over-year. If so, that would be the first increase since September 2022. Consumer prices rose 1.3% year-over-year in February, the strongest since January 2023. It may have slowed slightly in March. Note that the core CPI, excluding food and energy, rose 1.8% in February, the strongest since early 2019.

Disclaimer

Ceasefire Lifts Animal Spirits

noreply@blogger.com (Marc Chandler) — Wed, 8 Apr 2026 06:49:00 -0400

Risk appetites have been excited by the two-week cease fire in the Middle East. Stocks and bonds have rallied strongly. The precious metals are higher. May WTI is off more than 15%. June Brent is about 13% lower. The US dollar is weaker against all the G10 and emerging market currencies that are trading. The ceasefire is overwhelming other developments including the central banks in New Zealand and India standing pat.

Global investors have responded to the news, and that may leave North American participants in an awkward position. They will be greeted with large moves and may be reluctant to substantially extend the moves without seeing further developments.

Prices

G10

• Hope of a last-minute deal helped lift the euro to $1.1605 in North America yesterday, a three-day high. When the two-week ceasefire was announced, the euro soared a little through $1.1690 in thin trading and then made a new high in late Asia Pacific turnover near $1.1710. It pushed above the 200-day moving average (~$1.1675) for the first time since March 2. It also met the (38.2%) retracement of the losses since the high was reached in late January (~$1.2080 near $1.1665. The next retracement is near $1.1745.

• The dollar edged higher against the Japanese yen yesterday and traded briefly and barely above JPY160 for the first time in six sessions. Options for $1.1 bln expire there today. When the ceasefire was announced, the dollar was sold to JPY158.55 and then made a secondary low below last week’s low (~JPY58.30) to approach JPY158, where options for $600 mln expire today. A convincing break could see JPY157.35.

• Sterling rose to a three-day high to poke above $1.3300. The ceasefire announcement saw it surge to almost $1.3410. The gains were extended to $1.3445 to rise above the 200-day moving average (~$1.3415). The $1.3430 area represents the (38.2%) retracement target of the slide since the multiyear high was recovered in late January (~$1.3870). The next retracement is near $1.3515.

• The US dollar was sold to three-day lows against the Canadian dollar late in North America yesterday. It reached CAD1.3885. Then it was sold to around CAD1.3835 in immediate reaction to the ceasefire. It ultimately bottomed near CAD1.3825 and recovered to CAD1.3870 in Europe. The CAD1.3800 area is more important. It houses the 20- and 200-day moving average and the (38.2%) retracement of the rally since the March 9 low (~CAD1.3525).

• The Australian dollar rose to almost $0.6975 yesterday, its highest level since March 24. The ceasefire announcement sent to sharply higher. It reached $0.7085 and surpassed the (61.8%) retracement of the losses since the high on March 11 (~$0.7185). The $0.7100-25 area may be the next technical hurdle. It pulled back to around $0.7035 in the European morning but looks poised to recover in North America.

• The dollar bled lower against the Mexican peso yesterday. It fell to about MXN17.6835, its lowest level since March 19. It settled on its lows and tumbled to about MXN17.4930 in the initial response to the risk-on mood spurred by the ceasefire announcement. It continued to grind lower and recorded the low near MXN17.4420 in European turnover. The next technical area of note is around MXN17.40.

• The offshore yuan rose to its best level since the Middle East war began yesterday. The dollar peaked last week around CNH6.9270 and yesterday fell to about CNH6.8535. The ceasefire announcement saw the greenback fall to the low recorded in late February around CNH6.8265. The greenback was then sold to about CNH6.8215, a new three-year low. The PBOC set the dollar’s reference rate at CNY6.8680, a new low since April 2023 (CNY6.8854 yesterday and CNY6.9025 last Wednesday).

• The Indian rupee strengthened for the fourth consecutive session today, matching the longest streak since last June. The dollar gapped lower. Today’s high was about INR92.6915. Yesterday’s low was ~INR92.8650. The dollar settled below the 20-day moving average (~INR92.9270) for the first time since the Middle East war began.

Other Markets

• Equities applauded the ceasefire. The large bourses in the Asia Pacific region jumped 3-6%. Europe’s Stoxx 600 is up 3.7% in late morning turnover. US index futures are trading 2.5%-3.5% better.

• Benchmark 10-year yields are sharply lower. European rates are mostly 13-25 bp lower and premiums over German Bunds have narrowed. The 10-year JGB yield eased four basis points to 2.35%. The 10-year US Treasury yield is off five basis points to about 4.24%.

• Gold rallied with risk assets and reached nearly $4857, its best level in around two and a half weeks. It is trading near $4785 late in the European morning. Silver rose to $77.65, which is also a two and a half week high. It is near $76.80.

• May WTI settled near $112.95 yesterday and dropped to almost $91. Although it has steadied, it remains well below the 20-day moving average (~$99) for the first time since the Middle East war began.

Data

• The Federal Reserve met last month, a couple of weeks into the Middle East war, and policy was left steady, as widely expected. A record of that meeting will be published today. The updated Summary of Economic Forecasts saw the median dot remain with one rate cut this year. There was only one dissent, Governor Miran, though many had thought there could be two other dissents. The market heard a hawkish spin by Chair Powell. The Fed funds futures strip currently reflects expectations that the central bank will most likely spend the year on the sidelines.

• The eurozone’s February producer prices fell by 0.7% in the month before the new supply shock hit. The year-over-year fell to -3.0% from -2.0%, the most deflation since October 2024. The year-over-year rate was last positive in July 2025. However, the consumer was already pulling back before the war began. Retail sales slipped by 0.2% in February, after easing by 0.1% in January. It is the first back-to-back decline since Oct-Nov 2024.

• After collapsing 11.1% in January, German factory orders rose a modest 0.9% in February. The median forecast in Bloomberg’s survey was for a 3.0% gain. The construction PMI rose to 48 in March from 43.7 in February. It averaged 46.1 in Q4 25 and 44.6 for all of 2025 (38.8 average in 2024).

• The UK’s construction sector’s downturn slow in March. The construction PMI rose to 45.6 from 44.5 in February. It has not been above 50 since the end of 2024. It averaged 41.2 in Q4 25 and 43.3 in all of 2025 (54.8 average in 2024).

• Higher wages do not automatically translate into stronger Japanese household consumption. Labor earnings adjusted for inflation rose 1.9% year-over-year in February, marred slightly by the downward to 0.7% in January from 1.3% initially. The Bank of Japan has emphasized wage increases, but it is still one step removed from consumption. Yet yesterday, Japan reported that February household spending fell 1.8% year-over-year and after falling 0.5% in February 2025 and February 2024. The Bank of Japan meets toward the end of the month, and the swaps market downgraded the chances of a hike to about 55% from almost 75% a week ago. Separately, and true to the strong seasonal pattern, Japan reported an improvement in its February current account (~JPY3.93 trillion vs. JPY31 bln in January). The trade balance swung back into surplus (~JPY268 bln vs. -JPY600 bln in January). The trade surplus in February 2025 was JPY730 bln. The undervalued yen does not automatically translate into a trade surplus. Indeed, on a balance-of-payments basis, Japan has recorded an annual trade deficit for the last four years.

• The Reserve Bank of New Zealand stood pat with its official cash rate at 2.25%. It was only the second meeting since July 2024 that the central bank has not cut rates. The easing cycle appears over, and the swaps market is discounting the first hike by the middle of the third quarter.

• As widely anticipated, the Reserve Bank of India kept its repo rate at 5.25%. It reduced its policy rate by 125 bp last year. Governor Malhotra said the recently announced currency market curbs are temporary. The swaps market is pricing in 50 bp hikes over the next six months, which seems exaggerated.

Disclaimer

On the Edge of the Abyss

noreply@blogger.com (Marc Chandler) — Tue, 7 Apr 2026 06:52:00 -0400

The dollar is mostly narrowly mixed against the G10 currencies. Leaving aside the Swedish krona, which has fallen nearly 0.75% on the back of an unexpected soft March CPI, the other G10 currencies are +/- less than 0.2%. Investors remain on edge ahead the US ultimatum deadline, which is in the Asia Pacific session today. There are mixed reports on how close the two sides are to a deal. It still seems binary, with a ceasefire being good for risk assets and an escalation, of course, not so much.

News has been light. Most of the final March PMIs were revised lower from the initial readings, though counter-intuitively the eurozone was an exception. China’s restraint remains notable. The PBOC set the dollar’s reference rate today at its lowest level since April 2023. Investors remain focused on the Middle East developments.

Prices

G10

• The euro reached slightly above $1.1570 in North America yesterday as hope of a ceasefire in the Middle East war seemed to peak. It made a marginal new high in European turnover today but stalled shy of $1.1580. It had been sold to about $1.1525 initially in the Asia Pacific session.

• The dollar closed little changed against the Japanese yen yesterday. The technical implication of the outside day was muted by settlement that was within the pre-weekend range. After initially falling to JPY159.30 late in the Asia Pacific session, the greenback returned to the session high, slightly above JPY159.80, but it met sellers as if they content to take profits in front of JPY160. In local trading today, the greenback edged a little closer to JPY160 before it was turned back to around JPY159.50. The JPY160 area remains of psychological importance and options for about $775 mln at JPY160 expire today and another $750 mln of options at JPY160.25 also expire.

• Sterling traded on both sides of last Friday’s range (~$1.3190-$1.3245) yesterday, but the close was within that range and that neutralized the technical signal. It was initially sold to about $1.3210 before it rebounded to almost $1.3285 in Europe. It appears stretched in front of $1.3300 where GBP330 mln of options expire today.

• The US dollar found support against the Canadian dollar yesterday and again today near CAD1.3900. Options for about $380 mln expire there today. It would take a break of the CAD1.3870 area to suggest a top is in place. Meanwhile, initial resistance is around CAD1.3950.

• The Australian dollar posted an outside up day. It traded on both sides of last Friday’s narrow range and settled slightly above its high. Follow-through buying today has been limited to the $0.6950 area ahead of the $0.6960-70 area that may offer a more formidable technical hurdle.

• The dollar recorded an outside down day against the Mexican peso. It traded on both sides of the narrow pre-weekend range and settled below its low. In fact, it settled below the 20-day moving average (~MXN17.8360) for the first time since the Middle East war began. Selling today push the greenback slightly below MXN17.71. That may mark the session low. Options for $770 mln at MXN17.75 expire today.

• The offshore yuan enjoyed a firmer tone yesterday, even though the mainland markets were closed. Still the greenback found support ahead of last week’s low (~CNH6.8710). But it cut through there today, and fell to CNH6.8570, its lowest level since the Middle East war began. It may have been encouraged by the PBOC which set the dollar’s reference rate at CNY6.8854, a new low since April 2023. The re-valuation campaign, which arguably began in April 2025, does not appear over.

• The Indian rupee traded quietly today. The dollar was confined to a narrow INR92.8650-INR93.07 range. The rupee remained firm as banks reduced short dollar positions, while oil importers were dollar buyers. The 20-day moving average is around INR92.9055, and the greenback has not settled below it since the war began.

Other Markets

• Equities are mostly higher today. The large bourses in the Asia Pacific region advanced led by a 2% rally in Taiwan and 1.75% advance in Australia. Europe, returning from a long holiday-weekend is bidding the Stoxx 600, which is up about 0.65% in late morning turnover. US index futures are hovering around little changed levels.

• Benchmark 10-year yields are 1-2 bp higher in Europe. The 10-year US Treasury yield is little changed around 4.33%.

• Gold is chopping inside yesterday’s range and appears to have stalled near $4700. Silver is little changed near $72.55.

• May WTI initially extended its gains to a new high near $116.55 but pulled back to around $112.50 and is near flat on the session.

Data

• The US February durable goods orders are too dated to be impactful. The war is likely to boost defense orders. Still, a decline in Boeing orders may drag headline orders lower after a flat January report. Orders excluding defense and aircraft may have ticked up (~0.5%) after being unchanged in January. Late in the session, February consumer credit will be reported. The market looks for a modest $11 bln increase. It rose by $8 bln in January and averaged a monthly increase of $9.5 bln last year and $8.2 bln a month in 2024.

• Canada’s March Ivey survey is on tap. It runs a bit hotter than the PMI. The March composite PMI rose to 48.5 from 47.1 in February. It was above 50 once last year (October). The Ivey survey was at 56.6 in February, a five-month high.

• The eurozone’s final March services and composite PMI edged up from the preliminary estimate of 50.1 and 50.5, to 50.2 and 50.7, respectively. They were both at 51.9 in February. The eurozone is understood to be more vulnerable than the US to the disruption caused by the Middle East war.

• The UK’s final March services and composite PMI were revised lower the flash estimate of 51.2 and 51.0, respectively. The services reading eased to 50.5 and the composite stands at 50.3. In February, the services PMI was at 53.9, a six-month high and the composite was at 53.7, matching the January high, which was the best since August 2024.

• Australia’s final March services and composite PMI softened a little from the preliminary estimates of 46.6 and 47.0, respectively. In the final reading, the services PMI stands at 46.3 and the composite is at 46.6. Separately, household spending slowed slightly to 0.3%, matching the January increase. Lastly, the Melbourne Institute’s inflation survey found expectations jumped by 1.3% in March, lifting the year-over-year rate to owing the year-over-year rate 4.6% (from 3.6%).

• China’s reserves fell to $3.342 trillion in March from $3.428 trillion in February. The 2.5% decline appears to have been driven by valuation, with the dollar stronger and bonds lower. Still, the PBOC continued to accumulate gold.

• The Reserve Bank of India meets first thing tomorrow. Capital controls have spurred a short squeeze of the rupee, which takes pressure off the central bank to hike rates. Its key repo rate is 5.25%. The rate was last cut in December by 25 bp.

Disclaimer

Cease-Fire Hopes Blunt US Ultimatum

noreply@blogger.com (Marc Chandler) — Mon, 6 Apr 2026 06:45:00 -0400

The US deadline on Tehran for re-opening the Strait of Hormuz has subtly shifted until tomorrow. The holiday-thinned market initially bought dollars and oil and took risk off in response to the continued attacks and the escalation of US rhetoric. However, negotiations, apparently led by Pakistan, Egypt, and Türkiye for a 45-day cease fire, have captured the imagination of market participants, even though the negotiators themselves do not appear optimistic.

In quiet turnover, the dollar has given up its early gains, and as the North American session is about to begin, the greenback is lower against all the G10 currencies and emerging market currencies. US index futures are trading firmer and May WTI is off around 1% but is still near $110. It still seems binary. If the hopes are dashed, risk will come off as the conflict could dramatically escalate.

Prices

G10

• The euro finished the holiday-thinned session before the weekend on a soft note near session lows (~$1.1515). It slipped to $1.1505 before recovering on the back of hope of cease fire that will be negotiated. It has taken out the pre-weekend high (~$1.1550) to rise to almost $1.1570. The next important technical area is $1.1600 and then $1.1630-40.

• The conditions for material intervention to support the yen by Japanese officials do not appear present and the market does not appear to have given up on fishing for the official pain threshold. The dollar edged up to almost JPY159.85, a five-day high before falling to almost JPY159.30. Last Friday’s low was around JPY159.45. A break of JPY159.00, where options for about $672 mln expire late today, could spur a move to last week’s low near JPY158.30.

• Sterling traded heavily ahead of the weekend and slipped back below $1.32 in North American dealings. Earlier today, it held above the low set near $1.3160 last week, which it had not seen since last November. It recovered though last Friday’s high (~$1.3245) to reach nearly $1.3260. Above there, the next hurdle is around $1.3285, and there are options for GBP475 mln struck at $1.3300 that expire today.

• The US dollar reached a four-month high against the Canadian dollar last week slightly above CAD1.3965. It held below the pre-weekend high, near CAD1.3950, and had returned to last Friday’s low (~CAD1.3915). A break of CAD1.3900 could signal a move toward CAD1.3870.

• The Australian dollar settled about 0.25% higher last week. Still, after a 2.1% sell off the previous week, it was a faint-hearted bounce. And the Aussie closed below $0.6900. It was initially sold to almost $0.6875 today before it recovered to around $0.6935. Options for A$330 mln at $0.6900 expire today. To confirm the bullish outside up day, the Aussie must close above $0.6915.

• The dollar has found support in the past three sessions near the 20-day moving average which comes in around MXN17.8350 today. It has been sold a little through MXN17.77 today, its lowest level since March 26. The greenback is posting an outside down day against the peso and must close below MXN17.8250 to confirm it. A convincing break could see MXN17.70 initially.

• The offshore yuan looks like it is going no place quickly. With mainland markets on holiday today, the greenback remains within last Thursday’s range (~CNH6.8725-CNH6.9040). At the same time, its relative stability makes it attractive for some market participants. Some are making the same case about Chinese government bonds. Since the war began, the yield on the 10-year Chinese bond is virtually flat. The 10-year Treasury yield is up 40 bp coming into today and the 10-year Gilt yield was up almost 60 bp. Japan’s 10-year benchmark yield has risen almost 30 bp, while Germany’s is up by 35 bp.

• The short squeeze engineered by the Reserve Bank of India last week by limiting positions of banks and denying them access to the non-deliverable forward market extended into today’s activity after last Friday’s holiday. The dollar peaked near INR95.1250 on March 30 and today traded down to INR92.78, the lowest level since March 18. It frayed the 20-day moving average (~INR92.83) and settled a little above INR93.06.

Other Markets

• The extended holiday means many equity markets are closed today. Japanese markets themselves were mixed. The Kospi and Indian equities gained more than 1%. The S&P 500 and Nasdaq futures are trading 0.25%-0.50% better.

• The 10-year JGB yield rose 3.5 bp to a new high near 2.43%. It was around 2.11% before the war. The 10-year Treasury yield is firm near 4.35%. It was near 3.94% before the war.

• Gold is trading firmly but is within the pre-weekend range (~$4554-$4800). Silver is a little better than flat, slightly above $73.

• Initially, May WTI rose to almost $115.50, a new high but hope that there would be a ceasefire ahead of the expiration of the US ultimatum, pushed the contract a little through $109. It is straddling the $110 area ahead of the North American open.

Data

• US March ISM services survey will be released today. Activity is likely to have slowed, and prices are expected to have risen. Mostly pre-war data is on tap this week. The mid-week release of last month’s FOMC minutes may offer insight into how officials are balancing the risk to both mandates. Still, the futures market is fairly convinced now there will be no change in policy in the coming months.

• Canada sees the March services and composite PMI. Canada’s economy was weak before the war. The composite PMI was above the 50 boom/bust level once last year (October) and was at 47.1 in February. It averaged 47.3 in Q4 25 and 46.8 in the first two months of 2026.

• Mexican markets re-open after the four-day weekend, and the high-frequency data, including gross fixed investment and private consumption are from January, making them too old to have much market significance. March domestic vehicle sales are also due. There is a strong seasonal tendency for March sales to improve (18 of the past 20 years). They stood near 118.3k in February.

• India’s final March composite PMI stands at 57.0 (up from 56.5 preliminary estimate). While for most other countries, this would be a constructive result, for India, it is the weakest since October 2022. The central bank meets at the end of the week. None of the 13 economists who participated in Bloomberg’s survey anticipate a change in the 5.25% repo rate, but the swaps market recognizes the risk of a hike after the central bank has taken measures to curtail bank’s ability to short or foster short rupee positions.

Disclaimer

Week Ahead: It's Still Mostly about the War

noreply@blogger.com (Marc Chandler) — Sat, 4 Apr 2026 07:07:00 -0400

The Middle East war remains the dominant fundamental condition. There continues to be some indication that market participants are hopeful of a resolution soon. The May WTI contract settled near $111.55 last week, which appears to build in the risk of near-term escalation, but the June contract settled close to $98. The September contract is below $78. The US S&P 500 rose for the first time in six weeks. Benchmark 10-year yields in the US and Europe eased. Still, the firing of three US army generals and new attacks on Middle East infrastructure warn that further escalation seems likely before de-escalation.

The week ahead begins slowly with many centers shut for Easter Monday. The highlights include the US and China's CPI and Canada's employment report. The Reserve Bank of New Zealand is only G10 central bank that meets and is most likely to stand pat. All two dozen economists in Bloomberg's survey expect Poland's central bank to maintain its reference rate at 3.75%. There is also an agreement among economists that the Bank of India will leave its repo rate at 5.25%. India's central bank announced capital controls last week, which limit the size of banks' foreign exchange positions and barred their activity in the non-deliverable forward market to defend the rupee. It may complicate hedging of Indian bonds by international asset managers.

Drivers: Optimism that the Middle East war will end shortly saw the dollar's gains pared. The futures market is again pricing in around 30% chance of a cut this year. At the extreme, on March 26, the market was discounting almost 58% chance of a hike. Before the war began, the two-year yield settled below 3.40% for the first time in several years. It was around 4.03% a month later. After the March jobs report, it finished last week near 3.82%.

Data: The new week begins with the March ISM services, which are likely to start picking up the disruption caused by the war, with activity slower and prices higher. February durable goods orders and another look at Q4 GDP will be less consequential. February personal income, consumption and deflators will provide a base for comparison and to see the impact of the war. March CPI at the end of the week will draw attention even though questions have been raised over the increased use of “imputation" by the Bureau of Labor Statistics. The base effect does not auger well. Last March, headline CPI was flat and the core rose by 0.1%. The FOMC minutes from the meeting earlier this month may offer insight into official thinking two weeks into the war.

Prices: The Dollar Index settled last week above 100.00 for the second consecutive week. The high since the war began was recorded last Tuesday near 100.65, its best level since last May. The momentum indicators did not confirm the high but the risk that the war escalates seems to limit selling interest. A convincing break of 99.00 is needed to boost the odds that a high is in place.

EMU

Drivers: The euro lost nearly four cents amid the position adjustment to war and anticipated economic shock. It reached a low near $1.14 around the ides of March. However, as optimism of relatively short war took hold, the euro recovered. The US two-year premium over Germany had collapsed to a five-year low near 118 bp (from the year's peak in January of almost 153 bp). The swaps market has about 50% chance of a hike at the end of this month, down from around 85% chance at its peak.

Data: The eurozone data is unlikely to have much market impact. The final March services and composite PMI may soften further from the preliminary estimates. February retail sales and PPI are unlikely to be important factors considerations when the ECB meets later this month. Nor will they have much impact on risk appetites, which are being driven by the disruption of the war.

Prices: The euro has spent most of the last several weeks trading between $1.1400 and a little above $1.1600. The momentum indicators bottomed around the middle of March when the euro was approaching the lower end of the range. Still, they are not generating strong signals and the five- and 20-day moving averages have converged around $1.535-45. If/when the markets see an off-ramp to the war, this broadly sideways price action could mark a base.

PRC

Drivers: Beijing did not take advantage of the US dollar's strength to depreciate the yuan. It has shown restraint and actually set the yuan's fix against the dollar at its highest level in several years last week (CNY6.8880). China is the world's largest importer of oil and the higher price and disruption in a range of other industries is a challenge for China, but the higher energy prices also will likely boost the demand for EV and solar panels. Beijing likely gathered a great deal of intelligence on US military operations and tactics, and depth of supply chains.

Data: China may report lending figures in the coming days, but it can be counted on to publish March consumer and producer prices at the end of the week. Even though oil from Iran is still making its way to China, US-Israel war on Iran is likely disruptive. Even before the war began, China was emerging for the consumer deflation. The CPI rose 1.3% year-over-year in February, the most in three years. The deflation in producer prices had lessened in six of the seven months through February, and at -0.9% was the least since January 2023. The median forecasts in Bloomberg's survey see the PPI emerging from deflation (0.5%) and the CPI little changed at 1.2%.

Prices: While the PBOC has pushed the dollar fix lower, the offshore yuan remains range bound. The greenback has traded between about CNH6.86 and CNH6.9435 since the Middle East war began. Last week's high, near CNH6.9270, was the highest since March 9. A development worth monitoring is that the onshore yuan is trading stronger than the offshore yuan, with some notable exception, since the war began. It had been trading mostly weaker since late November, which had bolstered our conviction of the underlying trend.

Japan

Drivers: The yen is sensitive to the broad direction of the dollar. The 30-day rolling correlation of changes in the dollar against the yen and Dollar Index is around 0.72, not far from where it was on the eve of the Middle East war. It bottomed in mid-March below 0.60 and the low for the year was in the third week of January around 0.52. The dollar-yen 30-day correlation with changes in the US 10-year yield is near 0.60, the upper end of where it has been since last October. In January, it had fallen to almost 0.10, the lowest since May 2025. Counter-intuitively, over the past 30 sessions, changes in dollar-yen and Japan's two-year yield are positively correlated by the most in two months. This means the rising Japanese short-term yields is associated with a stronger dollar, not yen. Of note, the changes in the dollar-yen and the S&P 500 over the past 30 sessions are the most inverse (~-0.35) since last October. It means that dollar tends to move higher against the yen when US equities decline (risk-off).

Data: Most of Japan's data is for February, before the US/Israel war on Iran began. These include household spending, labor income, and the current account (which has improved sequentially for the past 20 years in February without fail). March producer prices are due ahead of the weekend. Still, the market is discounting about a 70% chance of BOJ hike when it meets next on April 28, and about a 60% chance of another one in Q4.

Prices: The dollar is trading choppily but mostly in a JPY158-JPY160 trading range. Both sides of the range have been violated by 0.4-0.5 yen a couple of times since the Ides of March. While Japanese officials have continued to warn about one-way markets and speculation, the conditions have not met their threshold for actual material intervention. The dollar settled lower in three of last week's five sessions. The yen finished stronger last week and has been alternating for the past three weeks between advances and declines. One-month implied volatility eased every day last week and is now (~8.9%) the lowest since the war began.

Drivers: The single most important driver of sterling continues to be the broad direction of the US dollar. The rolling 30-day correlation between changes in sterling and the Dollar Index is inverse, -0.85. It has not been much more extreme this year. Last October, it reached a little beyond -0.90 which was the most since April 2024. Perhaps, it is even simpler. The 30-day correlation of changes in sterling and changes in the euro is about 0.88, the highest since mid-2025.

Data: The final services and composite PMI and the March construction PMI seem of secondary importance, especially for the Bank of England, which meets on April 30. The swaps market is discounting a little more than a 50% chance of a hike, and at least one more before the end of year (~80% chance of another).

Prices: Sterling looks heavy. At the end of March, it recorded a new low since last November, near $1.3160. It recovered a couple of cents on optimism about the war, but when it faded, sterling was pressed below $1.3200. The momentum indicators are stretched but show no sign that they are poised to turn higher. Perhaps, escalation of the war could see sterling approach the $1.3000-40 technical target. Another weight on sterling is coming from the cross against the euro. In the first two weeks of the war, the euro fell around 2% against sterling but since the middle of March the euro has recouped about 1.5% and looks poised to continue to outperform sterling.

Canada

Drivers: The US dollar-Canadian dollar exchange rate is not as sensitive to changes in oil prices as the conventional narrative suggests. Over the past 30 sessions, the correlation has been slightly positive, meaning the Canadian dollar is more likely to weaken in the face of a rise in oil prices than to strengthen. Statistically, it is not significant (less than 0.15), though it is the most since last September, but the sign is notable. The correlation of the greenback against the Canadian dollar and the Dollar Index is a little above 0.60. The peak near 0.85 last month was the highest since May 2024.

Data: The jobs data at the end of the week is more important for investors and policymakers than the survey results (service and composite PMI and IVEY). Canada lost a whopping 108.4k full time jobs in February and the unemployment rate rose from 6.5% to 6.7%. Another poor report would likely weigh on the Canadian dollar. The swaps market has less than 10% chance of rate hike this month (April 29) and does not have a hike fully discounted until Q4. In recent days the swaps market has pulled back from discounting two or more rate hikes this year as it had mulled in late March.

Prices: The US dollar reached just beyond CAD1.3965 last week to record a new marginal high since last December. The pullback toward CAD1.3870 may give it a running start to the next technical target in the CAD1.4000-15 area. To be sure, the momentum indicators are stretched after the greenback has run-up about 3.25% since the March 9 low. That means that what we expect to be the next leg up, will complete the move. We will be especially attentive to reversal price patterns.

Australia

Drivers: The Australian dollar tends to be sensitive to the overall US dollar environment, and over the past 30 sessions, its correlation with changes in the Dollar Index is near -0.75. It has not been much more extreme since Q2 24. There also seems a sensitivity to the risk environment. The 30-session correlation with the S&P 500 reached above 0.70 last month, rising from around 0.20 in early February. It is now near 0.62. The correlation with gold peaked around 0.80 last month, the highest since last 2022. It fell to the low for the year near 0.30 in late March and now around 0.45.

Data: The final March services and composite PMI will be of passing interest. February household spending may attract more attention as the central bank seemed to have responded to the surge in Q4 25 (average of slightly more than 0.6% a month, matching its strongest quarterly performance since Q3 23), with the two rate hikes before the war began. The futures market is pricing in almost 80% chance of a third consecutive hike.

Prices: The Australian dollar fell to two-month lows last week near $0.6835. The daily momentum indicators are oversold and look poised to turn higher. Yet the price action has not been persuasive that an important low is indeed in place. There may be potential for one more leg down to around $0.6800.

Mexico

Drivers: The peso appears to have two dominant drivers presently. The first is the general direction of the dollar. Changes in the US dollar against the Mexican peso and the Dollar Index are 0.70 correlated over the past 30 sessions, the most since last October. The other driver is the risk appetite. Changes in the US dollar against the Mexican peso and the S&P 500 is inversely correlated (~-0.80), the most since 2020.

Data: The central bank's rate cut in late March, and signal that it may cut rates again, seems to take some of the thunder away from the March CPI, due Thursday. The headline and core are above the upper end of the 2%-4% target range. Instead, most central bank officials are more concerned about growth. The economy was limping before the war began. At the end of the week, Mexico reports February industrial output. It slumped 1.1% in January, which more than offset the increase in November and December 2025. It was the largest decline in a little more than a year.

Prices: The peso rose by about 1.4% last week, the largest weekly gain since late January. It was the second strongest currency in the region after the Brazilian real (~1.6%). The dollar has been trapped in narrow range, hugging the 20-day moving average for the past three sessions (~MXN17.8250). The daily momentum indicators are turning lower after the greenback rallied a little more than 5.5% since the war began. It reached almost MXN18.1645 last week, a new high for the year and stalled in front of the 200-day moving average.

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