Marc to Market

Week Ahead: US Economic Resilience Supports the Dollar

noreply@blogger.com (Marc Chandler) — Sat, 23 May 2026 07:11:49 -0400

The resilience of the US economy is remarkable. The economy bounced back from near stagnation in Q4 25 (0.5% annualized pace) to 2% in Q1 26 and, and perhaps to 4.3% this quarter, if the Atlanta Fed's GDP tracker is accurate. Wall Street economists are less sanguine and the median forecast in Bloomberg's survey from last week is at a more modest 2.1%. The Bloomberg US economic data surprise model reached its highest level last week since mid-2022 . Since April 17, the implied yield of the December 2026 Fed funds futures has risen from about 3.47% to 3.86%. The flash composite May PMI remained below the 50 boom/bust level in the eurozone for the second consecutive month. It fell below 50 in the UK for the first time since last April. Japan's composite PMI fell for the third consecutive month, at 51.1, matches the weakest reading since last May. Of the major countries, only the US composite PMI did not fall.

The dollar traded with a firmer bias last week, and as we discuss below, while there is scope for additional near-term gains, we suspect this dollar advance may be nearly over. Interest rate expectations have adjusted and a hike by the Fed now seems base case rather than a tail risk. The momentum indicators are getting extended and retracement levels and technical targets have been approached. Still, the dollar's price action remains strong, and participants may be best served by waiting for a technical reversal pattern before picking a top to the greenback. That said, the dollar may be most vulnerable to signs that the war on Ukraine and/or in the Middle East is moving toward a resolution. There have been many false positives, which have seen the greenback recover from an initial negative reaction.

Drivers: Leaving aside theory, empirically, the dollar is positively correlated to US interest rates unlike several of the other major currencies. The re-acceleration of the US economy, with the Atlanta Fed's tracker at 4%. The Fed funds futures are discounting about an 85% chance of a hike this year, according to the Bloomberg model and a little more than 60% by the CME's calculation. At the start of the month, a small chance of a cut was still being discounted. The 10-year yield has risen by about 65 bp since the Middle East war began, with the 30-year yield up almost 50 bp. This can be explained by the roughly 80 bp increase in the anticipated year-end effective Fed funds rate. Market-based measures of inflation expectations have risen. The 10-year breakeven is a little less than 20 bp (~2.43%) and the five-year, five-year inflation swap rate has risen by about five basis points (~2.43%)

Data: The April personal consumption print, and durable goods orders are likely to confirm what we already know. The US economy is re-accelerating this quarter and headline price pressures. The PCE deflator is seen rising to 3.9% from 3.5%, with a more restrained core (3.3% vs. 3.2%). The plethora of Fed surveys (Chicago, Philadelphia, Richmond, and Dallas) and the Conference Board' s consumer confidence pose headline risk. April new home sales may have struggled to maintain the 7.4% jump seen in March and the April goods deficit is due at the end of the week. In Q1 26, the goods deficit was about $252 bln compared with a nearly $464 bln shortfall in Q1 25 and almost $275 bln in Q1 24.

Prices: The Dollar Index eked out a small gain last week. According to Bloomberg, last week's high was 99.515, a thousandth of an index point from closing the gap created on the sharply lower opening on April 8. The top of the gap, the April 7 low, was 99.516. The 99.50 area also corresponds to the (61.8%) retracement of the Dollar Index's retreat from the year's high on March 31 (~100.64). The momentum indicators are stretched but have yet to turn lower.

EMU

Drivers: While rising rates is supportive of the greenback, rising German rates is correlated with a weaker euro. That holds for the two-year as well as the 10-year yield. Meanwhile, the odds of an ECB hike next month now stand a little above 85%, little changed from the end of April. Two hikes and about 50% of a third is discounted in the swaps market. At the end of the previous week, the hike was fully priced.

Data: The EU confidence surveys typically do not move the market and aggregate data for the eurozone is otherwise light this week. At the end of the week, the four largest members of the euro area port May inflation. The only question is how much and how fast inflation is rising.

Prices: The euro met the (61.8%) retracement target of the rally from the year's low set in mid-March near $1.1410, which was found near $1.1580. The momentum indicators are getting stretched but may not prevent additional losses, especially if hostilities in the Middle East flare up. The next area of chart support may be $1.1500-25. It takes a move above $1.1660 to signal a low may be in place.

PRC

Drivers: While the PBOC manages the exchange rate, they do not do so randomly. The 60-day correlation between the dollar's changes against the offshore yuan is above 0.80 and appears to be near a record. Since the end of last September, the PBOC's daily reference rate has fallen on a weekly basis in all but three weeks. Over this stretch, it has fallen by 4%.

Data: China reports April industrial profits. In March, they rose 15.8% year-over-year. The risk is on the downside in April as rising commodity and input prices are passed on fully to the consumers.

Prices: The dollar consolidated against the yuan in recent days but finished last week with its lowest settlement since May 14, when the three-year low was recorded (~CNH6.7815). The PBOC campaign to manage the gradual appreciation of the yuan does not appear over. The median forecast in Bloomberg's survey seems too conservative at CNH6.75 at the year end. We suspect potential toward CNH6.60.

Japan

Drivers: The yen is sensitive to the overall dollar direction. The rolling 60-day correlation of changes in the Dollar Index and the dollar against the yen is above 0.75, it has rarely been higher over the past decade. The correlation between changes in 10-year US yields and the exchange rate is near 0.60, the most since last October, but it is recovering from a three-year low near 0.15 early February. Ironically, higher 10-year JGB yields are also positively correlated (albeit minor at less than 0.07) with the dollar against the yen. The correlation of 10-year interest rate differential was inverse briefly last December but is now near 0.54, which is also the highest since last October.

Data: Japan's key data is backloaded to the end of the week ahead. Tokyo's CPI is a reasonably good guide to the national figures, which are lagged by a few weeks. There are three real sector reports due the same day. April employment, retail sales, and industrial output. We learned last week that the Japanese economy grew by 1.7% annualized rate in Q1 26. It grew by 1.3% in Q4 25. The impact of the supply shock stemming from the Middle East war is expected to weigh on growth in Q2. Still, the market is confident (~80%) that the Bank of Japan will hike when it meets in the middle of next month.

Prices: Despite the ongoing threat of BOJ intervention and the decline in the US 10-year premium over Japan to four-year lows, the market has sold the yen in nine of the past 10 sessions. It reached its highest level since the April 30 reported intervention near JPY159.35 on May 21. The momentum indicators and price action suggest the market will likely continue to market to probe for official pain threshold.

Drivers: Sterling's rolling 30-day inverse correlation with changes in the US two-year yield is near -0.75. It has not been that extreme for two decades. Sterling is also inversely corelated with the UK's two-year yield (~-0.48). Sterling remains highly correlated with changes in the euro (0.88), the most since November 2023. It has rarely been higher in the past 20 years.

Data: The UK macro data is of little market significance in the coming days. There is no government data but private data, such as the BRC shop price index, CBI retail report, and Lloyd’s business barometer and price survey. The Bank of England meets next on June 18, and the swaps market is discounting slightly more than a 1-in-3 chance of a hike. At the end of April, a 60% probability was discounted.

Prices: Sterling posted an ostensibly bullish outside up days on Monday and Wednesday last week by trading on both sides of the previous day's range and settling above its high. However, progress was limited to about 15-ticks above Monday's high. It traded above Monday's high ($1.3450) in the last three sessions but was unable to settle over it. Initial support is seen in the $1.3375-85 area, and a break could spur a test on last week's low near $1.33.

Canada

Drivers: The broad direction of the US dollar is arguable the most important driver of CAD. The rolling 30-day correlation of changes in the Dollar Index and USD-CAD is around 0.70. It peaked near 0.85 in March but remained in the upper end of last year’s range. The exchange rate’s 30-day correlation with changes in the US two-year yield is a little above 0.50, having reached the highest level earlier last week in 6-7 months. Last September’s peak (~0.65) was the highest in three years. Yet counter-intuitively, the exchange rate is also positively correlated with higher Canadian yields too. The rolling 30-day correlation, above 0.30, the highest since last October, which was also a three-year high. The exchange rate is not so sensitive to the changes in the price of WTI. The 30-day correlation is around 0.20. It has been positive since mid-March but was inversely correlated from last November. The Canadian dollar is also sensitive to the risk environment. When the US S&P 500 sells off, the Canadian dollar tends to weaken. The inverse correlation between changes in the USD-CAD exchange rate and the S&P 500 is a little more than -45, which is among most extreme the inverse the 30-day correlation has been since the end of last September.

Data: The highlight of the week is saved until Friday, Q1 GDP. After contracting by 0.6% at an annual rate in Q4 25, the economy appears to have snapped back. The median forecast in Bloomberg's survey is for a 1.5% pace in Q1 26. The sum of the Q4 25 monthly GDP prints for flat but is up a cumulative 0.3% in Jan-Feb. The Bank of Canada meets next on June 10, and the swaps market is confident it will stand pat with its target rate at 2.25%. The odds rise to a little more than 30% for the following meeting in July.

Prices: The US dollar poked above CAD1.3815 ahead of the weekend for the first time in a little more than a month. It met the (61.8%) retracement objective of the decline from the year's high at the end of March (~CAD1.3965). The greenback finished the week above the 200-day moving average. The month's low, set May 1, is around CAD1.3550, and the subsequent rally has stretched the momentum indicators but there appears to be scope for additional, even if limited, near-term gains. The next technical target is in near CAD1.3870.

Australia

Drivers: The Australian dollar is the most sensitive to the broad movement of the US dollar as it has been for the past couple of years. The inverse 30-day correlation between changes in the Aussie and changes in the Dollar Index is more than -0.80. Recall that last the November, the correlation was briefly positive too for the first time since the pandemic. Changes in the Aussie and the S&P 500 are correlated by 0.75 over the past 30 sessions. In the past decade, the correlation has rarely moved above 0.80. The exchange rate's inverse correlation with changes in the US two-year yield is the most since at least 2000 at around -0.83. The 30-day correlation with Australia's two-year yield is less stable. It was, as one would suspect, positively correlated in the first two months of the year, peaking near 0.35, before signs switched and it became inversely correlated, reaching almost -0.30 in the middle of last month, the most inverse in three years. It swung back to a positive correlation in recent data and is approaching the year's high.

Data: After hiking rates three times in a row, the bar to another hike at the next RBA meeting in mid-June is high. Still, the futures market knows that it is not done. Another hike is fully discounted and about a 50% chance of a fifth hike before the end of the year. This week's data may boost the market's confidence. April CPI is due in the middle of the week. It is unlikely to repeat March's 1.1% surge (to 4.6% year-over-year), but it has not peaked. The median forecast in Bloomberg's survey is for a 0.6% rise, which would allow the year-over-year pace to soften slightly to 4.4% from 4.6%. Household spending in April may have pulled back for the first time this year, while private sector credit growth may show demand is still running at what the central bank sees as too strong (~8% year-over-year). The Reserve Bank of New Zealand meets on May 27. It is seen among the most aggressive in raising rates in the remainder of the year, with more than three hikes fully discounted in the swaps market. Still, it is not seen pulling the trigger this week (~22%) and instead waiting until its next meeting in July (~83%).

Prices: The Australian dollar has strung together three inside trading days, forging a symmetrical triangle, which is often understood as a continuation pattern. The Aussie was sold to $0.7080 last week, the lowest level in a little over a month. The momentum indicators are falling but are not over-extended. The next near-term technical target is around $0.7055, and a convincing break could send it toward $0.7000.

Mexico

Drivers: There are three main forces that appear to drive the peso's exchange rate. First is the broad direction of the dollar. The correlation of changes of the dollar against the peso and the Dollar Index over the past 30 sessions is around 0.60. It peaked last month above 0.80 but are still above where it was for most of last year. The dollar-peso exchange rate is inversely correlated to the JP Morgan emerging market currency index (~-0.80). The second driver is US rate expectations. The 30-day correlation of changes in the exchange rate and the US two-year yield is near 0.75, the highest since 2013. The third driver is the risk environment, for which we use the S&P 500 as a proxy. Over the past 30 sessions, the inverse correlation between changes in the exchange rate and the S&P 600 is around -0.65. It reached a 10-year extreme last month, a little more than -0.80.

Data: The week begins with the April trade figures. Mexico's trade balance tends to deteriorate in April (15 of 20 years). Moreover, the March surplus (~$5.93 bln) was the largest since the end of 2020. Still, it posted a trade deficit of slightly more than $1 bln in Q1. The deficit in Q1 25 was almost $270 bln and nearly $5 bln in Q1 24. The broader measure of trade, the current account is in a small deficit in Mexico. It was about 0.5% of GDP last year. The IMF expects it to be around the same proportion this year. In the middle of the week, the central bank will publish its inflation report when new economic projections are made available.

Prices: The dollar reached MXN17.43 in the middle of last week, a two-and-a-half week high. However, the consolidative tone continued, and the greenback remained mostly in the range set May 15 (~MXN17.21-MXN17.4030. Given the positioning of the momentum indicators, our working hypothesis is that the consolidation is a continuation pattern. If this view is correct, the US dollar can still rise to test the month's high near MXN17.55.

Disclaimer

Stocks and Bonds Rally Despite the Apparent Lack of Progress in the Middle East

noreply@blogger.com (Marc Chandler) — Fri, 22 May 2026 06:51:40 -0400

The dollar’s losses in the North American afternoon yesterday have been unwound as hopes that a framework for negotiations between the US and Iran have faded again. A drone strike on the UAE, ostensibly from Iranian proxies in Iraq, has helped lift oil prices and the greenback. Yet, stocks and bonds are higher. Still, ahead of the long holiday weekend in the US and UK, risk appetites may be limited as the risk of US strike on Iran seems to have risen.

In the US, Warsh will be sworn in as the next Fed chair and at 10:00 am ET Governor Waller addresses the economic outlook. The final University of Michigan consumer confidence report typically does not elicit as much of a response as the initial reading. The US Treasury market closes early today, ahead of the holiday, and liquidity will fall off in the North American afternoon. The US dollar in consolidating in narrow ranges with a slightly firmer bias.

Prices

G10

• The euro was sold to a new marginal low since April 7 yesterday in what appeared to be a response to the stronger than expected US May PMI. It was the only one among the high-income countries that did not fall. The euro slipped through the $1.1580 support area by a few hundredths of a cent. It recovered to about $1.1630 on reports that suggested an agreement between the US and Iran has been struck (again). The euro settled above $1.1600. However, the hopes of an agreement have not been sustained, and the euro is trading with a heavier bias between about $1.1595 and $1.1620.

• Since the BOJ’s intervention on April 30, the yen has strengthened in only three of the 15 sessions coming into today. The dollar rose to a new high for the month yesterday near JPY159.35. It has been capped at JPY159.15 today but has not traded below JPY158.90. We note that the US 10-year premium over Japan is hovering near four-year lows around 180 bp. It was around 290 bp at the end of May 2025. In the first 20 weeks of the year, Japanese investors have sold about JPY3 trillion (~$19.bln) of foreign bonds and bought JPY1.77 trillion of foreign stocks. In the same period last year, Japanese investors bought around JPY4.4 trillion of foreign bonds and JPY8 trillion of foreign stocks. To round out the picture, note that foreign investors have purchased JPY7.5 trillion of Japanese bonds this year and JPY10.7 trillion of Japanese stocks (compared with JPY4.4 trillion of Japanese bonds and JPY334 bln of Japanese stocks in the year ago period)

• Sterling continues to trade within Wednesday’s range, giving little obvious clue to the near-term outlook. It began the week with a test on $1.33, its lowest level in over a month and rebounded to reach nearly $1.3465 Wednesday. Despite the disappointing retail sales and the largest budget shortfall in six years, sterling is trading quietly, in about a quarter-cent range above $1.3415.

• The Canadian dollar fell to its lowest level since April 13 yesterday. The greenback reached CAD1.38, the lower end of a resistance band we identified that extends to about CAD1.3815. The US dollar pulled back and settled slightly below Wednesday’s high (~CAD1.3780). The greenback is firm but has held below CAD1.38.

• The Australian dollar rebounded from a test in the local session on $0.7100 to reach new session highs in the NY afternoon yesterday near $0.7165. The $0.7175-85 area has capped it in recent days. Two G10 currencies appreciated against the dollar since the Middle East war began: The Norwegian krone, which has appreciated by about 3%, and the Australian dollar, which has gained about 0.65%. The Aussie is in a little more than a quarter-cent range above $0.7125 today.

• As risk appetites improve in the North American afternoon yesterday, the Mexican peso traded higher. The dollar peaked on Wednesday before Moody’s downgrade was announced near MXN17.43. By late yesterday, the greenback had eased to a new low for the week near MXN17.26. The dollar has held above MXN17.2960 today and is trading firmly, but well within yesterday’s range.

• The dollar made a marginal new low for the week today against the offshore yuan. It slipped to CNH6.7955. Barring a recovery, it will be the sixth weekly loss for the greenback in the past eight weeks. The PBOC fixed the dollar slightly higher today (CNY6.8373 vs. CNY6.8349). On a weekly basis, the fix has fallen in all but three weeks since the end of last September.

• The central bank’s engineered short squeeze extended the Indian rupee’s gains today. The dollar slumped to INR95.6850, its lowest level in seven sessions. Estimates of the size of yesterday's intervention range from around $2 bln to $5 bln.

Other Markets

• The rally to new highs for the week in the US S&P 500 and Nasdaq set the tone for today’s gains in Asia Pacific and European equities. Nearly all the markets are higher today. The Nikkei led the move in the Asia Pacific region with a nearly 2.7% rise. Taiwan’s Taiex was close with an almost 2.2% rally. Europe’s Stoxx 600 is rising for the fifth consecutive session, for the first time since last November. US index futures are around 0.2%-0.3% firmer.

• Benchmark 10-year yields are mostly lower with the help of the pullback in oil prices and the rally in the US 10-year yesterday. The 10-year US Treasury yield fell to 4.55%, a new low for the week. European yields are 4-6 bp lower. In Europe, the 10-year Gilts yield has dropped the most this week, 19 bp. The US 10-year yield is off about four basis points this week, while the 2.5 bp rise in the 10-year JGB is the anomaly.

• Gold dipped below $4500 support for the fourth time this week yesterday but recovered on the back of the broader rally in risk assets and settled above the previous session’s high for the first time in a couple of weeks. A move above the week’s high, seen Tuesday near $4589, lifts the technical tone. Silver was firmer. The week’s high was set on Tuesday slightly below $79. That is the immediate hurdle. Still, both metals are consolidating with a slightly softer bias so far today.

• July WTI was sold yesterday in the North American afternoon on the optimism that a preliminary deal has been struck between the US and Iran. It was the third consecutive declining session, matching the longest since the Middle East war began. July WTI fell to almost $95.76, a five-day low and briefly traded below the 20-day moving average (~$97 today) for the first time in two weeks. However, the contradictory reports have seen oil trade firmer today. July WTI reached almost $99.45 before but it is pulling back ahead of the North American open and is probing the $98 area late in the European morning,

Data

• As the week draws to a close, the US sees the final University of Michigan survey. Recall that the preliminary results show a record low of consumer sentiment (48.2). It did not fall below 55 during the Great Financial Crisis or below 70 during the pandemic. One year inflation expectations softened in the initial read to 4.5% from 4.7%. It had fallen to 3.4% before war. The 5–10-year inflation projection slipped to 3.4% from 3.5%. It was at 3.3% before the war. The five-year breakeven (the yield differential between the US conventional yield and the inflation protected security is around 2.65%, up about 20 bp since the war on Iran began. The 10-year breakeven is slightly below 2.50%, up around 23 bp during the same time.

• Canada reports March retail sales today. StatCan has indicated that preliminary data point to a 0.6% increase after a 0.7% rise in February. Excluding auto sales, the median forecast in Bloomberg’s survey is for a 0.9% rise after 0.5% previously. Canada reports Q1 26 GDP next week. After contracting by 0.6% in Q4 25 at an annual rate, the economy appears to have returned to growth.

• Mexico is not expected to revise its estimate that the economy shrank by 0.8% quarter-over-quarter in Q1 26. Although the economy appears to be expanding this quarter, the pulse is weak. The IGAE economic activity report, which functions as a monthly GDP report may show the economy stagnating after a 0.11% rise in February. Note that Mexico and the EU hold a summit that will produce a new trade deal.

• Negotiated wage growth in the eurozone slowed to 2.46% from 2.86% in Q4 25. Negotiated wages rose by an average of 2.82% in 2025, down from around 4.5% in the previous two years. Still, the hawks have persuaded the market that the ECB will hike rates next month (~88%).

• Germany’s May IFO survey showed the first improvement since the Middle East war began. The sentiment towards the business climate rose to 84.9 from 84.5. The current assessment rose to 86.1 from 85.4 and the expectations component improved to 83.8 from 83.5.

• The UK reported April retail sales fell. Including gasoline, they tumbled by 1.3%, more than twice the expected fall (median forecast in Bloomberg’s survey was for a 0.6% decline). Yet, the story was mostly about gasoline. Excluding it, retail sales slipped by 0.4%. Unlike most countries, the UK’s retail sales ae reported in volume terms. In the first four months of the year, the headline retail sales rose by an average of 0.1% and the ex-gasoline measure rose by an average of 0.2%. In the first four months of last year, both measures rose by about 0.4% a month. Separately, the UK reported a GBP24.3 bln budget deficit in April, the largest since the pandemic.

• Japan reported softer than expected April CPI. Indeed, the results were weaker than any economist in Bloomberg’s survey anticipated. The headline CPI ticked slipped to 1.4% from 1.5% and the core measures, which is targeted fell to 1.4% from 1.8%. It is the third consecutive month below target. The measure that excludes both fresh food and energy eased for the sixth consecutive month and at 1.9% (from 2.4%), matching the lowest reading since September 2022. Process food prices eased and energy costs eased at a slower pace than in March. The price of rise, which rose 98% in the year through April 2025, is up 0.6% in the past 12 months. Pricing in the swaps market is consistent with about an 80% chance of a hike at next month’s BOJ meeting. The market has almost two hikes this year discounted.

Disclaimer

Flash PMIs Show War's Impact

noreply@blogger.com (Marc Chandler) — Thu, 21 May 2026 06:46:24 -0400

There have been no further developments to fuel optimism about the Strait of Hormuz. Polymarket shows little change in the assessment that there is around a 35% chance that the Strait is open by the end of next month and 47% chance opens by the end of July. Still Brent and WTI are trading with a slightly heavier today. Equities are mostly firmer as are bonds. Most of the preliminary May PMI estimates have shown the impact of the war with softer readings and higher prices.

The dollar is trading with a firmer bias, recovering from yesterday’s losses in the North American afternoon. A poor employment report and the weak PMI have the Australian dollar the weakest of the G10 currencies after it led the pack yesterday. The dollar continues to straddle the JPY159 area, but Japanese rhetoric has not escalated. The PBOC set the dollar’s reference rate today at a new multiyear low.

Prices

G10

• The euro tested the lower end of the range of support we identified in the $1.1580-$1.1600 area before recovering to new session highs (~$1.1645) amid a flight of fancy after President Trump indicated that negotiations with Iran were in the final stages. Oil tumbled and rates fell. Still, the feeling of “Groundhog Day” could not be shaken that the euro consolidated mostly between $1.1620 and $1.1640 in the North American afternoon. The euro reached the session low today, near $1.1595 after the disappointing French PMI but was already recovering before the German figures shortly after the French report. It stalled near $1.1635.

• The Japanese yen strengthened yesterday for the first time in eight sessions. Not, we think, coincidentally that US 10-year yields dropped by about 8.5 bp yesterday, the largest single day decline since February 5. The greenback eased to a two-day low near JPY158.60 and recovered to almost JPY159 in afternoon turnover. The dollar remains firm but is subdued in a JPY158.80-JPY159.10 range.

• Sterling posted an outside up day on Monday, consolidated on Tuesday, and posted an outside up day yesterday. It traded on both sides of Tuesday’s range and settled above it high. Sterling reached a new four-day high near $1.3465. The session low, near $1.3415 today was recovered before the soft PMI. It recorded the session high shortly thereafter, around $1.3455 before stalling, where options for about GBP935 mln expire today. The (50%) retracement of the losses since the month’s high on May 1 is around $1.3480. A move above there could target the $1.3510-20 area next.

• The Canadian dollar was the only G10 currency that did not rise against the US dollar yesterday. Even the Norwegian krone, which is more sensitive (higher correlation) with oil managed to eke out a small gain (~0.10%). The greenback reached almost CAD1.3780, a new high since April 15. For the past four consecutive sessions, the US dollar has traded above CAD1.3760, which is roughly the (50%) retracement the sell-off since the high for the year was posted at the end of March near CAD1.3965. However, it has not settled once above it. The US dollar is trading inside yesterday’s range but firmly today. The market may take another run at chart resistance in the CAD1.3800-15 area.

• The Aussie rebounded smartly yesterday. The nearly 0.65% gain put it atop the G10 performers. It posted its lowest settlement in a month on Tuesday slightly above $0.7105 and rallied to almost $0.7175, a few hundredths of a cent below Tuesday’s high. It is trading well within this week’s range today and confined to $0.7100-$0.7160 range. A convincing move above $0.7200 would suggest the downside correction may be over.

• The three factors that seem to drive the Mexican peso favored gains yesterday. First, the dollar was broadly weaker, and the JP Morgan Emerging Market Currency Index rose. Second, US rates fell. Third, risk-on was featured with strong gains in US equities. After setting a new two-week high slightly above MXN17.43, the dollar reversed low and fell to almost MXN17.26, a little through Tuesday’s low. Still, the broad consolidation continues. The dollar is trading between MXN17.29 and MXN17.3650 so far today. There seemed to be little reaction to Moody’s decision to cut Mexico’s sovereign rating to Baa3, which matches Fitches earlier move. S&P is one notch better at BBB.

• The dollar has moved mostly sideways against the offshore yuan so far this week. The range has been roughly CNH6.7960 and CNH6.8215. The dollar is in the lower end of that range today. The weakness of the dollar may have encouraged the PBOC to lower the dollar’s reference rate today (to a new multiyear low, CNY6.8349) after raising it yesterday for the third time in four sessions.

• The Reserve Bank of India intervened more aggressively today to support the rupee, including reportedly in the offshore market. That and more threats of action to stem the pressure, including rate hikes, helped trigger a short squeeze. The dollar gapped lower today after posting a record high yesterday. It peaked near INR96.9650 yesterday and fell to the low of the week near INR96.04 today.

Other Markets

• The rally in US equities and the favorable response to Nvidia’s earnings helped arrest the four-day slide in the MSCI Asia Pacific Index. Most of the large bourses outside China and India were higher. The last-minute deal between Samsung and its employees avoided a strike and a South Korea-flagged oil tanker made it through the Strait of Hormuz yesterday. The Kospi rallied by nearly 8.5% and Taiwan’s Taiex jumped almost 3.4%. Japan’s Nikkei gained a little more than 3%. Europe’s Stoxx 600 is rising for the fourth consecutive session. If sustained it would match the longest advance of the year. US index futures are narrowly mixed.

• Benchmark 10-year yields fell sharply yesterday in Europe’s afternoon. Most yields fell between 9 and 13 bp, The UK, Italy, and Greece led the charged with 13-14 bp declines. The 10-year US Treasury yield fell a little more than nine basis points to 4.57%. Asia Pacific bonds played catch-up today while European bond yields have edged lower, though the 10-year Gilt yield is off a little more than four basis points. The 10-year US Treasury yield is a little softer, near 4.57%.

• Gold made a marginal new low yesterday since the end of March near $4475 and set a new session high shortly before midday in NY a little below $4553. It reached almost $4571 today before being turned back. It needs to overcome the $4590-$4600 area to boost confidence that a low is in place. Silver held above Tuesday’s low (~$73.10) yesterday and settled around 3.25% higher. It reached nearly $77 but is now slightly lower on the day. A move above the $80-$81 area would lift the technical tone.

• July WTI tumbled from almost $103 to $97 in the first hour after the news broke of President Trump’s comment on Iran. It consolidated choppily for the remainder of the session and posted its lowest settlement in four sessions. It is consolidating in the lower end of yesterday’s range. It was capped a little above $100 and found support near $97.25. The 20-day moving average is a little below $97. It has not settled below for a month.

Data

• In a 75-minute window, the US reports weekly jobless claims, April housing starts and permits, the May Philadelphia Fed business survey and the preliminary PMI. Housing starts are expected to slow after jumping 10.8% in March. Although the US economy appears to be re-accelerating this quarter, it may not be picked up by the Fed survey or the composite PMI. The Atlanta Fed’s GDPNow sees the US economy tracking 4% annualized growth this quarter, which is accurate, would be the most since the end of 2021.

• Mexico is expected to report a rebound in March retail sales (0.5%) after falling by 0.9% in February. Still, with Q1 GDP in hand (the 0.7% quarterly contraction is subject to revision tomorrow), the retail sales report is unlikely to have much impact.

• The eurozone reported a March current account surplus of 14.86 bln euros. That brings the Q1 surplus to 80.6 bln euros compared with almost 75 bln euros in Q1 25 and nearly 117 bln euros in Q1 24. However, the flash PMI appeared to draw more interest. Manufacturing ticked down (51.4 vs. 52.2) while services contracted (46.4 vs. 47.6), with the composite slipping to 47.5 from 48.8 to remain below the 50 boom/bust level for the second consecutive month. It spent all last year above 50.

• The UK’s preliminary PMI, on the heels of the disappointing employment report earlier this week, seemed to show an economy losing its forward momentum. The 0.6% growth in Q1 matched the strongest since Q1 24. The manufacturing PMI was unchanged at 53.7, but the services PMI tumbled to 47.9 from 52.7. The composite fell to 48.5 (from 52.6). The composite stood at 51.4 at the end of last year.

• Australia saw the preliminary May PMI and the April employment data earlier today. The PMI softened. Manufacturing eased to 50.2 (from 51.3), and services to 47.7 (from 50.7). The composite fell to 47.8 (from 50.4) but held well above the shockingly poor March reading of 46.6 (which looks like a fluke). The unemployment rate jumped to 4.5% from 4.3%, while the participation rate slipped to 66.7% from 66.8%. Australia loss 18.6k jobs, in April (vs median forecast in Bloomberg’s survey for a gain of 15k. The March series was revised to show 23.3k jobs were created vs. 17.9k initially estimated. Full-time positions slipped by 10.7k after rising a revised 63.4k in March.

• Japan reported that the April surplus narrowed by half from April while the preliminary May PMI slowed. Japan’s trade balance often deteriorates in April (16 of the past 20 years), and this year was not an exception. Through April, Japan recorded a JPY184 bln trade deficit compared with a JPY1.8 trillion deficit in the first four months of 2025. The IMF projects Japan’s current account surplus to fall to 3.8% of GDP this year from 4.9% last year. The PMI does not draw much attention in Japan. The manufacturing and services PMI slowed but both remain above 50. The composite is at 51.1 (vs. 52.2 in April and an average of 53.3 in Q1 26).

• India’s preliminary May PMI held up the best. The services PMI actually edged up to 58.9 from 58.8. The manufacturing PMI eased to 54.3 from 54.7. The composite ticked lower to 58.1 from 58.2.

Disclaimer

Markets Wait

noreply@blogger.com (Marc Chandler) — Wed, 20 May 2026 06:42:27 -0400

The US dollar is mostly firmer, though the Australian and New Zealand dollars are resisting the pull. The euro is trading in almost a 15-tick range on both sides of $1.16, and even with a Gilts-rally spurred by lower-than-expected inflation, sterling is struggling to recapture $1.34. The yen has fallen for the past seven sessions and is little changed now, in a narrow band around JPY159. There has not been intervention, but the market knows it is tempting officials. At the same time, the fragile ceasefire in Iran may ended in the coming days and this is keeping investors on edge. Oil prices are softer amid reports of three supertankers have passed through the Strait of Hormuz today.

The preliminary May PMI surveys are due tomorrow and are expected to show more of the war’s disruption to both prices and activity. The minutes from the Powell’s last FOMC meeting as chair are due today and will likely show more support for a neutral stance than the three dissents indicated. After the markets close today, Nvidia will report earnings.

Prices

G10

• After Monday’s short-covering rally fizzled, the euro’s decline resumed yesterday. The single currency fell to almost $1.1590, its lowest level since April 8. Today, it has edged a little close to the (61.8%) retracement of the rally from the year’s low on March 16 (~$1.1410) found near $1.1580. The positioning of the momentum indicators warn of more downside potential, which could extend toward $1.1515-25 next. It has not traded above $1.1615 today.

• In the 13 sessions this month, the yen was weakened in all but two and that includes the seven-day slide coming into today. In the 13 sessions before the April 30 BOJ intervention, the yen weakened in 10 of the sessions. One-month implied volatility settled slightly below 7.4% yesterday, essentially flat since the day before the April 30 intervention.

• Monday’s potentially bullish key reversal failed to spur follow-through gains yesterday. In fact, sterling gave back half of yesterday’s advance from almost $1.33, its lowest level since April 8. Sterling has been confined to a narrow range so far today between about $1.3375 and $1.3405. A break of $1.3360 signals a retest on Monday’s low.

• Softer than expected inflation helped the greenback extend its gains against the Canadian dollar to almost CAD1.3775. It was the US dollar’s ninth advance in ten sessions. The greenback has edged up to almost CAD1.3780. We have suggested potential into the CAD1.3800-15 area. Initial support now is around CAD1.3740.

• The Australian dollar was sold to $0.7080 yesterday, its lowest level since April 14. It stopped shy of the $0.7055 area, which corresponds to a halfway mark of the Aussie’s rally from the March 30 low (~$0.6835). The momentum indicators have only recently turned down, giving plenty of scope for additional declines. Moreover, the five-day moving average crossed below the 20-day moving average for the first time since in over a month. It is trading quietly in the lower end of yesterday’s range, holding below about $0.7115 and above $0.7085.

• Amid the risk-off environment, the Mexican peso fell to two-week lows yesterday. The greenback settled above the 20-day moving average (~MXN17.3445 today) for the first time since May 5. It rose to almost MXN17.41. Today it briefly overshot the MXN17.4225 area that represents the (61.8%) retracement of this month’s decline before sellers emerged and pushed it back to almost MXN17.3750.

• The dollar is consolidate against the Chinese yuan. Yesterday, the dollar held a little below Monday’s high against the offshore yuan (~CNH6.8215) but the move does not appear over. A move above CNH6.8250 could signal gains into the CNH6.85 area. It is trading so far today within yesterday’s range. The PBOC set the dollar’s reference rate a little higher today (CNY6.8397 vs. CNY6.8375, multi-year low yesterday).

• The Indian rupee’s slide continues. The greenback reached a record high near INR96.9650. The central bank reportedly sold a small amount of dollars, but it was not sufficiently forceful to stem the tide. The pressure on the rupee continued even though Indian stocks and bond rose today.

Other Markets

• After extending their slide yesterday, the S&P 500 and Nasdaq recovered and reached new session highs in the NY afternoon before pulling back into the close. The index futures are trading higher now. Asia Pacific equities sold off today. The regional MSCI Index fell for the fourth consecutive session. Indian equities were a notable exception. Indonesian equities fell as well, despite the 50 bp rate cut by the central bank. The market anticipated a quarter-point cut. Europe’s Stoxx 600 is higher for the third session, which if sustained would be the match the longest rally since the Middle East war began.

• Benchmark 10-year bonds continued to sell off yesterday, despite the stability in oil prices and the sell-off in equities. The US 10-year yield rose every day last week, and after slipping by less than a basis point on Monday, tacked on another seven basis points yesterday. Yields have pulled back today. The Treasury yield is almost three basis points lower to 4.64%. The 10-year JGB yield slipped a basis point, while European benchmarks are 2-5 bp lower, though softer than expected UK CPI has pushed the 10-year Gilts yield eight basis points lower.

• Gold has struggled recently under the weight of the rising dollar and yields. The yellow metal traded on both sides of Monday’s range. Although it settled within Monday’s range it closed below $4500 support for the first time since late March. It has struggled to re-establish a foothold above $4500. It fell slightly below $4454 before recovering to about $4493 before stalling. Silver also posted an outside day but settled below Monday’s low. Yet, there has been no follow-through selling today and silver regained the $75 handle in Europe.

• July WTI remained firm yesterday. It traded in the upper end of Monday’s range when the contract high was recorded near $105.20. Yesterday’s range was about $102.10-$104.70. It is a bit softer today. So far, the range is about $1.01.60-$104.45. Reports suggest three supertankers were moving through the Strait of Hormuz, two of which were Chinese and the other South-Korean flagged.

Data

• In an otherwise quiet economic diary, the record from the recent FOMC meeting will be released late in the North American session today. The FOMC meeting saw four dissents—one by Governor Miran who has vacated his seat for the new chair Warsh. Three dissented over the statement though the minutes will likely show more were sympathetic and it seemed more an issue of timing than substance. Governor Barr addresses consumer financial health at a conference in Atlanta today.

• Despite a 0.7% jump in the UK’s headline CPI (0.9% expected), the year-over-year rate slipped to 2.8% from 3.3%. The counter-intuitive results were a function of last April’s 1.2% surge that was driven by the increase in administered prices for energy, water, train fares, and local authority taxes. The increase in core prices slowed to 2.5% from 3.1%, while services price inflation slowed to 3.2% from 4.5%. The chances of a hike at next month’s BOE meeting eased to about 15%, less than half of what it was at the end of last week and the lowest in two months. The odds have been pared in five of the last six sessions.

• As widely anticipated, Chinese banks left their one- and five-year loan prime rates steady at 3.0% and 3.5%, respectively.

Disclaimer

Asia and Europe were More Skeptical about Developments in the Strait of Hormuz than the US

noreply@blogger.com (Marc Chandler) — Tue, 19 May 2026 06:53:08 -0400

The US greeted the news late yesterday that the US would not bomb Iran, apparently as planned, as a constructive sign that would lead to a resolution of the conflict. Asia and Europe appear less sanguine. The dollar has recouped most of what it lost in yesterday’s North American afternoon. Benchmark 10-year yields are mostly firmer. Oil is softer but the July WTI contract held above $102 and July Brent, above $109. On Polymarket, there is slightly less than a 33% chance of the Strait of Hormuz opening by the end of next month.

The G7 finance and central bankers’ meeting concludes today. With the US turning on its allies and threatening to increase the tariffs on EU vehicles if the trade agreement is not approved by July 4, it makes for awkward meetings. Greenland officials have indicated that the US desire to control and own it remains intact. The US waiver on Russian oil was a unilateral decision and many European centers oppose it.

Prices

G10

• The euro snapped a five-day slide yesterday after initially the losses were extended slightly through $1.1610. It recovered to $1.1660 in late dealings after President Trump indicated at that the request of Gulf allies he agreed to call off today’s strike on Iran. Last Friday’s high was near $1.1675. There was no follow-through euro buying and the single currency returned to $1.1615 in Europe. Support is seen in the $1.1580-$1.1600 area. Options for almost 2.5 bln euros at $1.1650 expire today.

• The dollar rose for the sixth consecutive session against the Japanese yen yesterday. It matches the longest rally of the year. The dollar has edged higher today even though the stronger than expected Japanese Q1 GDP. The yen had fallen for seven of eight sessions when the BOJ apparently intervened on April 30, though as we noted at the time, the dollar has fallen for three consecutive weeks through April 17 before recovering a little less than 0.5% in the week prior to the intervention. The dollar reached slightly above JPY159.15 in European turnover though is in a narrow range of a little less than a half a yen. Options for nearly $635 mln at JPY159 expire today.

• Sterling rose for the first time in six sessions yesterday. It tested support near $1.33 before it recovered $1.3450. Sterling posted an ostensibly bullish outside up day as it traded on both sides of last Friday’s range and settled above it high. The roughly 0.75% gain was the most in two-and-a-half weeks. In one fell swoop, sterling overshot the (38.2%) of last week’s slide (~$1.3435). Sterling is trading in the upper end of yesterday’s range. It is straddling the $1.3400 area after the weak labor market report. Resistance is now seen around $1.3420.

• The Canadian dollar stabilized. Coming into this week’s activity, the Canadian dollar has declined in 10 of the past 11 sessions. It edged up a little yesterday. The greenback traded quietly inside last Friday’s range (~CAD1.3715-CAD1.3765). However, the Canadian dollar is on its back foot again today. The greenback is edging above last week’s high. Resistance is seen in the CAD1.3800-15 area.

• The Australian dollar initially extended last week’s decline and fell to about $0.7120, a new low for the month. It rebounded and set the session high, almost $0.7185 in the North American morning yesterday. Sellers took it slightly through $0.7110 today. A break of the $0.7100 area could target $0.7055 next. Options for nearly A$1 bln struck between $0.7135 and $0.7150 roll-off today.

• The dollar jumped almost 0.7% against the Mexican peso at the end of last week and consolidated in quiet turnover yesterday. The greenback recorded an inside session and found support near MXN17.2570. It is consolidating inside yesterday’s range today, though the price action looks constructive. The high recorded at the end of last week was around MXN17.4030.

• With the exception of last Friday, the offshore yuan has appreciated in 12 of the past 13 sessions. The greenback pierced CNH6.82 for the first time in eight sessions before being driven to the session low near CNH6.7975 in the North American morning yesterday. It is trading firmly, slightly below CNH6.81 in Europe. The PBOC set the dollar’s reference rate at CNY6.8375, a new multiyear low. The previous low was recorded last Thursday at CNY6.8401.

• The Indian rupee declined for the eighth consecutive session today, hitting a new record low. Some reports suggest the central bank may have intervened around INR96.34. The dollar reached almost INR96.6165. The roughly 1.7% decline this month brings the year’s rupee loss to 6.9%. We note that the Indonesian rupiah also has fallen to record low.

Other Markets

• Equities are mixed today, and this was reflected in Japan, where the Nikkei fell but the Topix rose. China and Hong Kong markets rose, but the liquidation in the tech sector saw Taiwan’s Taiex fall 1.75%, while South Korea’s Kospi got hit for 3.25%. Europe’s Stoxx 600 is up almost 0.7%, and with yesterday’s gain, it has almost recouped the nearly1.5% loss incurred before the weekend. US index futures are lower, warning the pullback from last week’s record-highs is not over.

• Benchmark 10-year yields are mostly firmer. The 10-year JGB yield jumped 5.5 bp following the GDP data. Japan sells 20-year bonds tomorrow. Most European yields are around one basis point better, while the 10-year Treasury yield is up nearly two basis points to poke above 4.60%.

• Gold was initially sold through $4500 yesterday for the first time since late March. It recovered and recorded session highs slightly above $4584. It consolidated mostly above $4535 in the North American afternoon. It has come back better offered after stalling near $4589. It could re-challenge the $4500 area. Silver traded at a seven-session low, a little below $74 and rebounded to poke above $78. Silver traded mostly between $76 and $77.25 in the North American afternoon. It reached almost $79 today before it was turned back to a little below $75.50.

• July crude reached new contracts highs year during the Asia Pacific session yesterday, near $104.35. It was sold to the session low (~$98.60) in early North American turnover. However, it recovered back to around $103.65 before consolidating above $102. It is trading between about $102 and $104 today and is near the middle of the range ahead of the US open. The US extended the waiver of sanctions on those who buy Russian oil that is already in tankers at sea for 30 more days. Previously, the US warned the sanctions would not resume. Some suggest that without the waivers, China is the most important buyer of cheap Russian oil.

Data

• In a relatively quiet data week, the US pending home sales for April are due today. A small gain is expected. Last week, we learned that existing home sales edged up in April by 0.2% after a revised 2.9% (from 3.6%) decline in March, when pending home sales rose by 1.5%. Governor Waller speaks early today and Philadelphia Fed President Paulson during the Asia Pacific session, ahead of tomorrow’s FOMC minutes.

• Another large rise in Canada’s CPI is expected. The median forecast in Bloomberg’s survey is for a 0.7% month-over-month increase in April for a 3.1% year-over-year pave. The underlying core measures at seen little changed (2.2%-2.3%). The Bank of Canada meets on June 10, and the swaps market sees little chance of a change in policy. A hike is nearly fully discounted by the end of Q3.

• With Q1 growth in hand, the eurozone's March trade balance drew little interest today. The trade surplus of 3.5 bln euros compared a 26 bln euro surplus in March 2025 and 14.1 bln in March 2024. At about 21 bln euros, the Q1 26 trade surplus was about half of Q1 25 (~56.2 bln euros). Tariffs have reduced US demand for EMU exports while imports from China are up about 12% since last April.

• The UK’s labor market report disappointed. Payrolled employees fell by 100k. The median in Bloomberg’s survey looked for a loss of 10k and the March figure was revised from a loss of 11k jobs to a loss of 28k. The claimant count rose by 26.5k in April after the 26.8k increase in March was revised to 4.9k. The unemployment rate, measured by the ILO, rose to 5.0% from 4.9%. Average weekly earnings, including bonus payments, rose 4.1% on the three-month year-over-year basis from a revised 3.9% in February. Private sector earnings, excluding bonuses, slowed to 3.0% from 3.2%. Tomorrow, UK reports April CPI. Due to the base effect, last April’s CPI jumped 1.2%, this drops out of the 12-month comparison, which will allow the year-over-year rates (headline and core) may slip. Despite some hawkish comments from BOE’s Greene, the swaps market discounts a little more than a 20% chance of a hike at next month’s meeting and it rises to almost 80% by the end of July.

• The record from the Reserve Bank of Australia’s meeting earlier this month when it hiked rates of third consecutive time this year reinforced the market’s sense that while the tightening cycle is not over, the central bank will standpat next month. The futures market has discounted one hike and around a 33% chance of another in H2 26.

• Japan reported it's economy grew by 2.1% at an annualized pace in Q1 26 after Q4 25 growth was cut to 0.8% from 1.3%. Consumption rose by 0.3%, a bit more than expected, but the consumption in Q4 25 was cut to flat from 0.3%. Government spending slowed (0.4% vs. 1.5%), as did private investment (1.1% vs. 5.6%). did capex. Inventories shaved 0.1% off GDP (-0.4% in Q4 25). Net exports contributed 0.3% after a flat Q4 25 contribution. The swaps market is pricing in almost a 78% chance of a hike next month, up from about 65% at the end of April.

Disclaimer

Takaichi Endorses Supplemental Budget, Trump Escalates Rhetoric toward Iran, and Markets Spooked

noreply@blogger.com (Marc Chandler) — Mon, 18 May 2026 06:44:54 -0400

The dollar initially extended its gains against most of the G10 currencies but was sold in Europe and will begin the North American session lower except against the Japanese yen. Japan’s Prime Minister Takaichi has reconsidered her initial reluctance and has endorse a supplemental budget to help households and businesses cope the with commodity shock. With the US-China summit over, President Trump’s rhetoric toward Iran has escalated following reports that Iranian drones targeted a nuclear facility in the UAE. July WTI reached a contract high near $104.35 today. We suspect the concrete outcome of the Trump-Xi meeting many not be known until the US decides on the $14 bln arms package to Taiwan. Yet even to consider the arms package as negotiable can not set easy in the capitols of the US allies and at the same time the US has announced a troop withdrawal from Germany and has halted the rotation into Poland.

The dollar’s setback in Europe has stretched the intraday momentum indicators and North American participants may see the dip as a new buying opportunity. There are few large option expirations today to note. First, there are almost 1.3 bln euros at $1.1650 (today’s high has been about $1.1645). There are a little more than 2 bln euros of options that expire there tomorrow. And at $1.1600, there are 3.75 bln euros of options that expire today. Turning to the Japanese yen, where the market seems to be challenges Japanese officials, there are $4.7 bln options at JPY159 that expire today.

Prices

G10

• The euro was sold below $1.1620 in the European morning before the weekend and spent most of the North American session below $1.1640. Its 1.4% weekly decline was the largest in two months. It fell every session last week. It made new lows for the week in late dealings ahead of the weekend and settled below the lower Bollinger Band. The losses were extended to slightly below $1.1610 in the Asia Pacific session before recovering to reach $1.1645 in Europe. If the session high is not in place, it seems nearly so. The next technical area of support is $1.1580-$1.1600. There are 3.75 bln euro in options that expire at $1.1600 today and nearly 1.3 bln euros at $1.1650. Tomorrow, options for a little more than 2.0 bln euros at $1.1650 expire.

• The dollar rose for the past five sessions against the Japanese yen and reached JPY158.85 before the weekend. The gains have been extended today to almost JPY159.10, its best level since the BOJ reportedly intervened on April 30. The dollar recorded a bullish outside up day last Thursday by trading on both sides of Wednesday’s range and settled above its high. Follow-through buying materialized Friday though the market knows it is tempting material intervention again. The dollar closed above the 20-day moving average for the second consecutive session before the weekend and surpassed the (61.8%) retracement of the intervention-spurred losses. Options for $4.7 bln at JPY159 expire today.

• The recovering dollar and the political drama as Labour looks to dump Starmer who led them into a strong victory two short years ago. Sterling, like the yen and euro fell every day last week. Sterling’s roughly 2.2% decline last week broke the five-week rally and was the largest weekly loss since November 2024. Sterling fell to $1.3315 before the weekend. It settled below the lower Bollinger Band for the second consecutive session. It edged a little closer to $1.33 today before rebounding to almost $1.3385. The lower Bollinger Band is near $1.3365 today. The pre-weekend high was slightly above $1.3400, and this may be enough to cap it today.

• Although the Canadian dollar was the best performing G10 currency against the US dollar last week, its 0.55% decline was sufficient to push its to its lowest level in a month. The US dollar reached slightly through CAD1.3765 before the weekend, overshooting a little the (50%) retracement of its losses since the March 31 high (~CAD1.3965). The greenback has held below the pre-weekend high and returned to around CAD1.3735. The Canadian dollar has fallen for the past eight consecutive sessions. The US dollar settled a little above the upper Bollinger Band (~CAD1.3760 today). In January and March when it did, the greenback was near a high. Initial support is seen near CAD1.37. Canadian markets are closed for Victoria Day today.

• The upside momentum had been stalling even though the Australian dollar reached a new three-year high on May 6 near $0.7280. The broad US dollar gains proved too much, and the Aussie broke down before the weekend. It reached $0.7140, the lowest level in10 days. Follow-through selling pushed the Australian dollar to a new low for the month today, near $0.7120. The Aussie caught a bid that lifted it back to almost $0.7170. While a marginal new high is possible, the $0.7180 area may cap it.

• The dollar forged a base against the Mexican peso around MXN17.16. After coiling most of last week, the greenback sprang higher ahead of the weekend. It traded a little above MXN17.40, the dollar’s best level since May 5. It is consolidating quietly today between roughly MXN17.29 and MXN17.37. The MXN17.4225 area corresponds to the (61.8%) retracement of this month’s decline. Similarly, the dollar based around BRL4.88 before jumping higher beginning in the middle of last week. It reached nearly BRL5.0820 before the weekend, its best level since April 9. A new funding scandal hit the Bolsonaro family. The next technical area of note is around BRL5.1050-BRL5.1200. Domestic political concerns and the doubts over the independence of the central bank have seen the Colombian peso sell-off for the past three weeks. The dollar rose in each session last week and reached almost COP3821 before the weekend. The high for the year was recorded in early January near COP3839.

• The PBOC may be willing to accept a stronger yuan, but the greenback’s broader strength makes for an opportune time to consolidate. The US dollar reached CNH6.8165 before the weekend, its best level since May 6 and slightly in front of the 20-day moving average. The dollar’s rise before the weekend snapped an 11-session drop. The dollar reached CNH6.8215 today before pulling back to almost CNH6.7975. The dollar can rise toward CNH6.85 without inflicting much technical damage. The PBOC set the dollar’s fix at CNY6.8435 (CNY6.8415 before the weekend and multi-year low last Thursday at CNY6.8401).

• Rising oil prices and higher global interest rates continues to drag the Indian rupee lower. Counting today, it has fallen for seven sessions. The dollar reached a record high of about INR96.3925 in late dealings. The central bank has begun investigating foreign investments by Indian companies.

Other Markets

• Equities fell heavily before the weekend and have yet to stabilize. Nearly all the bourses, but South Korea, Singapore, and India fell in the Asia Pacific region, while Europe’s Stoxx 600 is off about 0.25% after dropped nearly 1.5% before the weekend. US Nasdaq futures are off slightly while the S&P futures are off about 0.3%.

• Benchmark 10-year yields soared at the end of last week. The US, Germany, Japan, and UK saw their benchmark yield rise to the highest in more than a year. The 18 bp increase in the 10-year Treasury yield was second most in the G10 after the 20 bp increase in the 10-year JGB. Yields have begun the week with a firmer bias. Japan’s Prime Minister Takaichi has endorsed a supplemental budget in response to the rise in commodity prices and this weighs on supply concerns. While the 10-year JGB yield edged up to 2.71%, the long-end of the curve, the 30- and 40-year yields rose 6-9 bp. European benchmark yields are mostly a little firmer. The 10-year Gilt yield is an exception, off 2 bp. The 10-year US Treasury yield is almost a basis point firmer near 4.60%. The 30-year Treasury yield is a bit firmer at 5.13%.

• Rising rates and a stronger dollar pressed gold and silver lower before the weekend. Gold reached almost $4774 last Tuesday and probed $4512 ahead of the weekend. It slipped below $4500 today for the first time since the end of March. It recovered to almost $4560 in early European activity but stalled. A close below $4500 could target $4400. Silver was turned back after it approached $90 in the middle of last week. It settled the week below $77. Follow-through selling today saw it dip below $74 before steadying.

• July WTI settled at two-week-highs, a little above $101. It set a new contract high today around $104.35. The previous contract high was recorded on April 30 (~$103.80), the same day that the Bank of Japan reportedly intervened to support the yen.

Data

• It is a lighter week for US data. The May New York Fed’s service survey poses little more than headline risk. Its manufacturing survey, reported at the end of last week, softened to 7.3 from 11.0. Services were already under-performing in April at -14.0. The March TIC data is due toward the end of the session. Contrary to a common narrative of the drying up of foreign interest in US stocks and bonds, the TIC data showed foreign investors bought a net $1.41 trillion of US paper assets in 2025, up from $1.22 trillion in 2024 and almost $840 bln in 2023. It is a volatile series, and every quarter last year saw one month of net liquidation. In Q1 26, January saw a net outflow, but it was more than made up for by the $184.50 bln net inflow in February.

• Australia ordered the largest shareholders in critical minerals company to liquidate their stakes due to national security issues. Of the six largest owners, five are registered in China/Hong Kong, and one in the British Virgin Islands. The companies were given two weeks to divest. The six investors own a little more than a quarter of the company. The Australian government’s effort to reduce foreign ownership of the company began in 2024.

• Japan reports Q1 26 GDP first thing tomorrow. With less of a drag coming from inventories and a small contribution from net exports, the Japanese economy is expected to have expanded by about 0.4% after 0.3% growth in Q4 25. The annualized pace is projected to rise to 1.6% from 1.3%. Consumption and business spending are expected to slow. The GDP deflator may moderate to around 3.1% from 3.4%, according to the median forecasts in Bloomberg’s survey.

• China reported disappointing April real sector data earlier today. According to Beijing, the economy grew by 1.3% quarter-over-quarter in Q1 26 for a 5.0% year-over-year pace. The second quarter began poorly. Retail sales and industrial production slowed. Retail sales rose by 0.2% year-over-year after rising 1.7% in March. Industrial output rose 4.1% year-over-year, down from 5.7% in March. After falling, perhaps due to the anti-involution campaign (over-investment) in the last four months of 2025, fixed asset investment appeared to have stabilized in March but fell 1.6% in the year-to-date year-over-year measure after rising 1.7% in March. Despite years of efforts, the Chinese property market remains a drag. House prices continue to fall, property investment is contracting, and residential property sales are running almost 16% below last year’s sales through April.

Disclaimer

Week Ahead: Rising US Rates Underpin Greenback

noreply@blogger.com (Marc Chandler) — Sat, 16 May 2026 07:03:19 -0400

The US economy appears to be re-accelerating here in Q2 after nearly grinding to a halt in Q1 (0.5% annualized pace). April US CPI and PPI were more elevated than expected. The anticipated average effective Fed funds rate in December rose more than 15 bp in the past week and is up slightly more than 75 bp since the war on Iran began. The Dollar Index rose almost 1.4% last week, its best week since the first week of March.

In addition to the swinging pendulum of market expectations for the Federal Reserve, which has a new chair (and will likely usher in a new era for the central bank), UK political drama that appears likely to bring down Prime Minister Starmer, added to the pressure on sterling and UK stocks and bonds. The market has taken the yen to its lowest level since the end of April's apparent intervention. It will begin the week ahead testing the resolve of Japanese officials. Lastly, Trump-Xi meeting was heralded as a success by both sides. Despite Beijing promises to buy more beans, beef, planes, and energy) from the US, Washington is a dilemma. If it proceeds with the $14 bln arms package to Taiwan, it will risk the wrath of Beijing, but it is shelved, the administration's domestic critics will cry "appeasement".

Drivers: There are two main drivers of the Dollar Index now: Changes in US rates and risk-environment. The rolling 60-day correlation of changes in the Dollar Index and two-year yields is near a six-month high a little over 0.50. The correlation with changes in the 10-year yield is slightly higher. Changes in the two and 10-year yields are around 0.90 correlated over the past 60 days, which is the most in three years. Changes in the Dollar Index and the VIX are correlated over the past 60 days by the most since June 2024 (~0.4)9. The Dollar Index is inversely correlated with the S&P 500 itself, and the inversion over the past 60 sessions is the most since January 2023 (~-0.57).

Data: After the recent jobs and inflation data, this week's high-frequency reports are of a secondary importance. Economists pour over the March TIC report and the minutes from the recent FOMC meeting, but the impact on the capital markets may be minimal. May survey data (including the preliminary PMI, the Philadelphia Fed's monthly survey) may pose headline risk. The Atlanta Fed's GDPNow sees the economy tracking 3.7% growth here in Q2 after Q1's 2.0% annual pace.

Prices: With last week's advance, the Dollar Index has recouped a little more than half of what is lost in the pullback from the year's high set on March 31 (~100.65). The next retracement target is in the 99.50 area, which is also the top of an old gap (from the lower opening on April 8). The momentum indicators are constructive, and the five-day moving average crossed back above the 20-day moving average. A move toward 100.00 looks reasonable.

EMU

Drivers: The euro is more sensitive to changes in the short-term US rates than it is to short-term German rates. The 60-day correlation between changes in the euro and the US two-year yield is inverse by nearly -0.50, the most extreme since last November. Intuitively, this makes sense. Higher US interest rates make the dollar more attractive. Yet the 60-day correlation between changes in the euro and changes in Germany's two-year yield is also inverse (~-0.30). Theory says the differential should be more important but the rolling 60-day correlation with the exchange rate is much weaker and statistically insignificant (~-0.10).

Data: With Q1 GDP in hand (0.1%), the eurozone's March trade and current account surplus are largely old news, as is the final April CPI and March construction spending. The preliminary May PMI is due on Thursday. The market remains confident that the ECB will hike rates when it meets on June 11. The swaps market has nearly 80% probability discounted and is pricing in two hikes fully and a little more than a 60% chance of a third.

Prices: For the third time this year, the euro declined for five consecutive sessions. The drop has seen int retrace about half of what it gains since the mid-March low near $1.1410. With the momentum indicators falling and the five-day moving average crossing below the 20-day moving average, there appears to be scope for additional near-term losses. Initial support is seen in the $1.1580-$1.1600 area and a break could signal a move toward the April lows near $1.1500. It may take a push back above the $1.1685 area to stabilize the technical tone.

PRC

Drivers: The PBOC has continued to use the fix to signal its tolerance for a stronger yuan and weaker dollar. While some observers linked to it last week's Trump-Xi meeting, we see it has having begun around the middle of last year. Moreover, the rolling 60-day correlation between changes in the Dollar Index and the offshore yuan is near 0.80, the highest in nearly a decade.

Data: China reports April macro data early Monday. Both retail sales and industrial output are expected to rise sequentially on a year-over-year basis. Several large Chinese cities have taken measures to support the housing market but new and used house prices likely continued to decline, and property investment looks weak. Beijing appears to be relying more on fiscal policy to support the economy than new monetary measures, and the market has backtracked from earlier speculation of a rate cut. Without new signals from officials, the prime loan rates will remain steady when set on May 20.

Prices: The dollar's broad recovery points to a consolidation of the yuan after it rose to new three-year highs. The greenback was sold to about CNH6.7815 on May 14. Ahead of the weekend, the dollar settled above the five-day moving average for the first time this month. It reached CNH6.8140. A band of resistance may extend from CNH6.8150-CNH6.8250. The CNH6.85 area may offer a more formidable cap.

Japan

Drivers: The threat of intervention tempers the bearishness toward the yen. Still, the yen seems to be driven by two main considerations. The first is the dollar's general direction. The rolling 60-day correlation between changes in the dollar-yen exchange rate and the Dollar Index is near 0.75, the upper end of this year's range. The second is the 10-year US yield. Changes in the dollar-yen exchange rate and the 10-year Treasury yield are hovering near 0.60, the highest since last October. The rolling 60-day correlation between the exchange rate and Japan's 10-year yield has a positive sign, and while the less than 0.10 correlation is statistically insignificant, it is near highest in four months.

Data: Japan reports Q1 GDP on Tuesday. The median forecast in Blomberg's survey calls for a 0.4% quarter-over-quarter growth (0.3% in Q4 25) and 1.4% at an annualized rate (1.3% in Q4 25). The GDP price deflator is seen slightly softer at 3.2% from 3.4% in the previous quarter. The April trade figures are also due, and there is a strong seasonal pattern (16 of 20 years) that balance deteriorates in April. Despite the undervalued yen on most metrics, Japan continues to run a trade deficit. The 12-month average shortfall in March was a little more than JPY145 bln. The rolling 12-month average was last positive (surplus) in October 2021. The average monthly deficit in Q1 26 was JPY162.1 bln. At the end of the week, the national April CPI is due. The Tokyo report out in late April hints at little changed to slightly firmer headline rate but it is all about fresh food and energy, without which Tokyo CPI eased to 1.9% from 2.3%. The median forecast in Bloomberg's survey was for 2.2%. Recall that the national core measure, which excludes fresh food, was below the 2% target for the second consecutive month. Meanwhile, the swaps market has almost a 75% chance of a hike discounted for next month's BOJ meeting and about the same probability of another hike before the end of the year.

Prices: The yen fell every session last week and slumped to its lowest level since the BOJ is believed to have intervened on April 30. The apparent common front offered by US Treasury Secretary Bessent and Japanese officials did not deter the market from lifting the dollar to around JPY158.65 before the weekend. Note the day before the April 30 intervention, the one-month implied volatility set a new four-year low near 6.6%. The implied three-month vol made a new four-year low early last week near 7.6%. Still the market may turn cautious as the JPY159 area is approached.

Drivers: Sterling is highly correlated with the euro. Around 0.90, the rolling 60-day correlation is near the highest since the end of 2023. However, unlike the dollar, sterling moves inversely to UK rates. What is striking is not the actual correlation, which is modest at best (~0.20) but the sign. And for the record, the exchange rate is more inversely correlated with US than UK rates (~-0.45).

Data: This is an important week for UK data. It includes the data points for which investors and policymakers place much emphasis. This includes an update on the labor market, consumption (retail sales), and prices. Then there are the preliminary May PMI and April government finance figures. Before the BOE meets on June 18, it will have the May CPI in hand, but this is the last report on retail sales and employment. The swaps market has about 30% chance of a hike discounted, which is the lower end of where it has been since mid-March.

Prices: Sterling's advance from the year's low at the end of March (~$1.3160) stalled in front of $1.3660 twice earlier this month. The greenback's broad recovery and the political drama unfolding in the UK saw sterling drop every session last week. It overshot the (61.8%) retracement of the rally since the end of March, found near $1.3350. Although the momentum indicators are still falling, sterling settled below the lower Bollinger Band for the second consecutive session before the weekend. Initial support is now pegged around $1.3300. On the upside, the $1.3400-25 must be overcome to stabilize the technical tone.

Canada

Drivers: There is a US dollar-driven move now and the USD-CAD exchange rate's rolling 60-day correlation with changes in the Dollar Index has eased from the near 0.80 seen in March, the highest since July 2024, but above 0.60 is still fairly strong for it. Also, there seems to be some sensitivity to general risk appetite. Using the S&P 500 as a proxy, the correlation with changes in the exchange rate is around -0.50, which is among the most extremes it has recorded for the last couple of years.

Data: The Canadian economy is struggling. It lost almost 47k full-time positions in April, the third consecutive monthly loss. The composite PMI has risen in four of the last five months but is still below the 50 boom/bust level. StatCan reports April CPI and March retail sales in the week ahead. April CPI accelerated and the question is magnitude, and last April's 0.1% decline drops out of the 12-month comparison will amplify the increase. March retail sales are due at the end of the week. They will be flattered by the rise in prices (CPI rose 0.9% in March). The market has pushed a Bank of Canada rate hike further it. The swaps market recognizes little chance of a hike before late Q3. It is pricing in 40 bp of hikes this year, down from 60 bp earlier this month and a peak of almost 80 bp on March 20.

Prices: The US dollar begins the new week with an eight-session advance in tow. It has risen in 10 of the past 11 sessions. The gains were sufficient for it to retrace (61.8%) of its losses from the year's high recorded at the end of March near CAD1.3965. The momentum indicators suggest the greenback has more room to appreciate, though it did settle above its upper Bollinger Band. The next technical target is in the CAD1.3800-10 area. A close below CAD1.3690 could be an early sign that a top is in place.

Australia:

Drivers: The rolling 60-day inverse correlation of changes in the Australian dollar and the Dollar Index is near -0.80. It was briefly more extreme in early Q4 25 but not by much. The 60-day correlation between the exchange rate and the US two-year yield is almost -0.50, the extreme since September 2025. The Aussie's correlation with its own two-year yield is also inverse (~-0.15). Higher oil prices are correlated with a weaker Australian dollar. The inverse correlation with Brent is around -0.40. It reached -0.45 last August, which appears to be the most extreme for at least 20 years.

Data: With the third rate cut of the year delivered recently, the central bank seems to have signaled that it will pause but it is not sure that it has tightened sufficiently. The futures market has the next hike fully discounted for September. This week's data might not materially impact expectations, but the market will get some insight into how the central bank is thinking about the risks as the record of recent meeting will be published. The preliminary May PMI will likely the moderate expansion continues, but the most important report is on the labor market on Thursday. While changes in full-time employment are often volatile, it is doing well. It grew such positions by an average 26k a month in Q1, the most since Q3 24. In Q1 25, it lost about 22k full-time jobs. With one exception (September 2025), Australia's unemployment rate has been steady between 4.1% and 4.3% since the end of 2024.

Prices: The Australian dollar's consolidation was resolved to the downside at the end of last week. The Aussie had been trading within the May 6 range (~$0.7180-$0.7280 until May 15, when it was pushed to $0.7140. It settled below the 20-day moving average (~$0.7190) for the first time since April 7. The momentum indicators are curling lower. The next technical target is near $0.7100, and potential may exist toward $0.7050.

Mexico

Drivers: Changes in the US dollar-Mexican peso exchange rate and the Dollar Index are nearly 0.70 correlated over the past 60 sessions. It rarely has gotten much higher. The exchange rate is also sensitive to the changes of the two-year US yield (~0.43), the most in three years. The dollar tends to rise against the peso when oil prices are rising. The 60-day correlation is a little above 0.50, the highest in at least two decades. The exchange rate is sensitive to the overall risk environment. The 60-day rolling correlation between changes in the exchange rate and changes in the S&P 500 is around -0.75, the most in six years.

Data: The Bank of Mexico left open the possibility of a rate cut at next month's meeting. The data due in the coming days may not impact expectations. March retail sales are due, but Q1 GDP is already out, and although its 0.8% contraction could be revised this week, there is no doubt that the economy is weak. In the three months through February, retail sales were flat. And remember this in nominal in the face of CPI that is above 4%. The CPI for the first half of May likely confirmed it remained above the upper end of the target range.

Prices: The dollar jumped out of its consolidative range against the peso ahead of the weekend. The greenback poked above MXN17.40 and settled above the 20-day moving average for the first time this month. Near-term potential may extend toward the recent highs, ~MXN17.55-MXN17.58.

Disclaimer

Greenback Breaks Higher, Stocks and Bonds Lower

noreply@blogger.com (Marc Chandler) — Fri, 15 May 2026 06:54:01 -0400

The US dollar has extended its gains against most currencies today. What is seen as a successful US-China summit and a swing in expectations for Fed policy are aiding the greenback. The anticipated year-end effective Fed funds rate has risen by a dozen basis points this week and the two-year Treasury yield is up 16 bp this week and is the fourth week it has risen. With the Trump-Xi meeting over, the US is seen turning its attention back to Iran, where a fragile ceasefire has frozen the conflict. Crude oil prices are at their highest in more than a week. Bond yields are sharply higher and equities lower.

The UK political drama continues to play out. It has weighed extra om UK stocks and bonds and sterling, which is among the worst performing currencies in the G10 this week. Meanwhile, the market has taken the yen to its lowest level since the apparent April 30 intervention. The market has become increasingly confident that the BOJ will hike rates next month.

Prices

G10

• Unable to resurface above $1.1720 yesterday left the euro bears in controls. The euro was pushed to $1.1665 and settled the North American session below the 200-day moving average (~$1.1685 today) for the first time in a little more than a month. Follow-through selling took it to almost $1.1615, to extend its losing streak into the fifth consecutive session. A band of support is seen in the $1.1580-$1.1600 area and there are 2.4 bln euros of options at $1.1600 that expire Monday. Initial resistance may be around $1.1660.

• North American participants seemed particularly unimpressed with US Treasury’s support for the “anti-volatility” stance attributed to Tokyo. They sold the yen aggressively and took the dollar to almost JPY158.40, its highest level since what appears to have been intervention on April 30. And that was after an inexplicable sharp drop to new session lows around 9:30 AM ET yesterday (~JPY157.30). We suspect the price action reflected nervousness of short-term yen shorts. The dollar’s gains have been extended to slightly more than JPY158.65. Options for $1 bln at JPY158 expire today, and there are options for nearly $4.5 bln at JPY159 that expire Monday.

• Sterling fell for the fourth consecutive session yesterday. It settled last week at $1.3630, its highest settlement in nearly three months and it was flirting with the upper Bollinger Band. Yesterday, it slipped below $1.3400 in New York afternoon dealings on news that Greater Manchester Mayor Burnham is once again trying to maneuver to secure a parliament seat to challenge Prime Minister Starmer. A similar attempt earlier this year was rebuffed. Sterling settled below its lower Bollinger Band (comes in today near $1.3395) and the 200-day moving average (~$1.3425). The five-day moving average has fallen below the 20-day moving average. Sterling sulked to almost $1.3325 in Europe today. The $1.3400 area offers initial resistance.

• The Canadian dollar continues to leak lower. The greenback rally in tow is rising for its eighth consecutive session today, its longest advance since October 2024, and at its best level in about a month. It is probing resistance CAD1.3760, and a convincing break could signal potential to CAD1.3800-20.

• The Australian dollar finally broke out of the range set on May 6 (~$0.7180-$0.7280). It has reached $0.7140 and has initially held above this month’s low (~$0.7135). Although the next technical target is closer to $0.7100, it could bounce toward $0.7180 or so. There are around A$400 mln options at $0.7150 that expire today and A$625 at $0.7170 that expire Monday.

• The Mexican peso consolidated this week until today and today’s sell-off has seen the peso reach its lowest level since May 5. The greenback has been confined to about a MXN17.16-MXN17.28 range and shot up to almost MXN17.4030 today. A move above MXN17.4250 could signal a move toward the recent highs (~MXN17.54-MXN17.58).

• The dollar ground lower against the offshore yuan yesterday and slipped a little closer to CNH6.7800 before returning to little changed levels. The greenback jumped to CNH6.8140 today, a seven-day high. It will likely settle above the five-day moving average (~CNH6.7935) for the first time this month. The PBOC set the dollar’s reference rate slightly higher today at CNY6.8415 (CNY6.8401 yesterday and CNY6.8502 last Friday). Since the end of last September, there have only been three weeks that the dollar’s fix has not fallen.

• Higher oil prices and risk-off sentiment sent the Indian rupee to new lows. The dollar reached INR96.1425. The rupee lost about 1.6% this week, which appears to be the largest weekly loss in many years.

Other Markets

• Equities are being crushed today. Practically all bourses are lower. The Nikkei and China’s CSI 300 fell more than 1%, but it was the high-flying South Korean Kospi that suffered the most. It was tagged for more than 6%. Europe’s Stoxx 600 is off nearly 1.5%, nearly giving back the gains of the past two sessions. The Nasdaq futures are off 1.4% and the S&P 500 futures are down almost 1%.

• Benchmark 10-year yields are jumping. The 10-year JGB yields rose almost nine basis points, while European rates are mostly 7-10 bp higher, but the 10-year Gilt yield has soared more than 14 bp. The 10-year Treasury yield is up nearly six basis points to 4.54%.

• After trading quietly yesterday, gold has been sold aggressively today. The yellow metal has been drifting within Tuesday’s range (~$4638.60-$4773.55) and has been sold to almost $4532 today. It has not traded below $4500 since the end of March. Silver stalled on Wednesday near $90 and disappointed longs seemed to cut yesterday, driving the below $84 at its worst. Follow-through liquidation saw $76.85 today. It is stabilizing in late European morning turnover.

• June WTI has moved sideways in recent days. The $97 area marks the low end of the range, while around $102.50 marks the top. It has broken higher today and reached $105.30, its highest level since May 5. The contract high was set at the end of April slightly below $111.

Data

• The US reports April industrial production figures today. The Trump administration wants to bring manufacturing back to the US. That is one of the goals of the tariffs. Manufacturing output rose by an average of 0.1% a month in 2025 and is off to better start this year. It rose by an average of 0.3% a month in Q1. It sounds impressive, but recall that in Q1 25, manufacturing output rose by an average of 0.5% a month. And note that here too, AI-related goods appear to dominate. Moreover, as is widely appreciated, manufacturing output is highly automated. The manufacturing sector lost almost 100k jobs last year. The first quarter saw the manufacturing sector gain about 18k jobs, it was the first quarterly increase since Q4 22. The Empire State manufacturing survey for May is due, and although it may have softened, the Atlanta Fed’s tracker sees the economy re-accelerating in Q2 (3.7%).

• Canada is expected to report a modest increase in April housing starts, and another solid gain in March manufacturing sales. But it is the portfolio capital flow report that may draw the most attention. The foreign demand for Canadian bonds and stocks slowed considerably last year (C$118.25 bln vs. C$193.25 bln in 2024). Demand surged to C$46.8 bln in January but slowed to a crawl in February (~C$6.2 bln).

• Japan’s April PPI rose 2.3%, a multiple of the 0.8% projected by the median response in Bloomberg’s survey. The year-over-year pace jumped to 4.9% from a revised 2.9% (from 2.6% initially). Machine tool orders rose 45.1% year-over-year in April, accelerating from 28% in March.

• China reported $184.1 bln Q1 current account surplus, down from $243.8 bln in Q4 25 and $163.6 bln in Q1 25. Like other Chinese data, many market observers are skeptical of its veracity.

• India’s April goods trade deficit widened to $28.4 bln from $20.6 bln in March. India’s surplus narrowed with the US to $3.2 bln from $3.7 bln and its trade deficit with China widened to $10.2 bln from $10.1 bln.

Disclaimer

US Dollar Threatening to Break Higher

noreply@blogger.com (Marc Chandler) — Thu, 14 May 2026 06:46:22 -0400

The US dollar is trading quietly against the major currencies. The euro is holding above $1.17 and sterling is holding above $1.35, but the market does not appear done probing these support areas. The greenback has also traded as close to JPY158 as possible without going over. This is where the Bank of Japan may have intervened last week. In the UK, Prime Minister Starmer’s rivals are preparing to mount a challenge.

China has promised to buy more of the B-3—beans, beef, and Boeing. Trump and Xi have exchanged platitudes, and Beijing has again cautioned that Taiwan is core interest. While Xi has repeated the typical mantra of opening up China more for foreign business, it is the foreign businesses that are trying to de-risk from China. A new “board of trade” is expected to be established, though such forums have existed in the past with little to show. The PBOC set the dollar’s reference rate at a new three-year low today.

Prices

G10

• The euro traded at the lower end of this month’s range yesterday and briefly traded below $1.17 before the one-billion-euro option expired. Options for a little more than 1.7 bln euros expire there today, too. After the low was recorded, a little before the North American banks go going, the euro was unable to push much above the $1.1720 area, Tuesday’s low. The month’s low was recorded on May 5 near $1.1675, a little below the 200-day moving average (~$1.1685).

• The market is gingerly dancing around the area that may have seen BOJ intervention last week. The dollar reached JPY157.90 yesterday. According to Bloomberg’s pricing, the dollar peaked slightly below JPY157.95 last Wednesday. It apparently edged a little closer to JPY158 today without going over. Our reading of the macro-picture and technical indicators suggest officials will likely be challenged. The daily momentum indicators are turning higher. Options at JPY158 for $1 bln expire today. Still, market participants will tread carefully and a move above JPY158 may slow near the 20-day moving average (~JPY158.25).

• Sterling was sold through $1.35 yesterday for the first time this month, though it was back above it before the options struck there expired. Its attempt to recover stalled around $1.3530. Recall that sterling rallied from the year’s low on March 31 (~$1.3160) to two-and-a-half-month high on May 1 (~$1.3660). Options for GBP1.2 bln at $1.3570 expire today, but sterling has not been above $1.3535 today. The nickel rally looks tired. The five- and 20-day moving averages are falling and the momentum indicators have turned down. A convincing move through $1.35 targets the $1.3440-50 area.

• The US dollar was confined to a narrow range of around 15 pips on either side of CAD1.3700 yesterday and remains within it today. Options for around $340 mln at CAD1.3715 expire today. The upside breakout we have been anticipating seems to be at hand. The next technical target is around CAD1.3750.

• The Australian dollar traded firmly yesterday. It moved to the upper end of the range that was set last Wednesday, slightly below $0.7280. Yet the Aussie still posted a new high close in nearly four years and still looks to be among the strongest of the major currencies, though the momentum indicators remain over-extended. It is trading little changed today in a roughly $0.7240-$07265 range.

• The Mexican peso traded firmly yesterday, leaving the greenback trapped in the recent trough (~MXN17.16-MXN17.3250). We favored an upside break for the dollar, but the momentum indicators are less clear. A break of the MXN17.16 area could spur a test on last month’s low (~MXN17.1275). The peso did not seem to have been impacted much by S&P’s cut of the sovereign outlook to negative from stable of its BBB rating, which matches an earlier move by Moody’s. The dollar is trading between MXN17.16 and MXN17.2050 today.

• The dollar continues to bleed lower against the yuan. It is not hemorrhaging, but a steady trickle. Coming into today, the dollar has not risen against the offshore yuan for ten consecutive sessions. It has in this run, fallen by less than 1%. The dollar eased to a new low near CNH6.7850 today. Beijing is delivering a tortoise, and its critics want a hare. The dollar’s fix was set at a new three-year low near CNY6.84 today. It seems that many want to dismiss it as cosmetic for the Trump-Xi meeting, but the general trend has been unfolding for months. That said, given our near-term constructive dollar outlook, the yuan may begin consolidating.

• The Indian rupee felt to new record lows today before stabilizing amid news that the government is considering reducing taxes levied on foreign investors in the local bond market. After reaching almost INR95.9590, the dollar pulled back and settled near INR95.7690.

Other Markets

• Equities are mixed but mostly firmer today. Japanese and Chinese stocks retreated but other large Asia Pacific markets rose, including Taiwan, South Korea, Australia, and India. Europe’s Stoxx 600 is advancing about 0.5%, which puts the benchmark higher on the week. US index futures also enjoy a firmer today.

• Benchmark 10-year yields are mostly softer with the sell-off in the JGBs the notable exception. The yield rose four basis points to 2.61%, a new high. European yields are 3-4 bp lower, and despite the political pressures in the UK, Gilts are participating fully in today’s advance. The 10-year Treasury yield is 1-2 bp lower to hover near 4.45%.

• Gold trading quietly yesterday inside Tuesday’s range (~$4638.60-$4773.55) and it is trading inside yesterday’s range today as the consolidative phase continues. Silver, however, has been trending higher and approached $90 yesterday, which it has not traded above for two months. It too is trading within yesterday’s range but has held below $89 so far today.

• June WTI reached session highs yesterday in mid-morning in NY around $103.65 and steadily surrendered its gains and slipped back to almost $100.75. It briefly dipped below $100 to $99.60 today before returning to $102.35. It is trading heavier in late European morning turnover to approach $100.50.

Data

• The US reports April import and export price indices today. The US appears to be experiencing a positive terms of trade shock as export prices are rising roughly twice the pace of import prices. That said, the import/export prices tend not to elicit much of a market reaction and today they compete with weekly jobless claims and April retail sales for attention. April retail sales are expected to show that the US consumers continue to shop despite weak confidence and inflation offset wage gains. Softer auto sales were likely offset by higher gasoline prices. The median forecast in Bloomberg’s survey is for a 0.5% rise in retail sales, and 0.3% excluding autos and gasoline. Core retail sales, which exclude those two categories, and food services and building materials, is projected to rise by 0.4% after 0.7% in March.

• Canada reports April existing home sales. Economists surveyed by Bloomberg project the rise monthly increase since last October.

• The UK economy grew 0.6% in Q1 26 and Q4 25 growth was revised to 0.2% from 0.1%. There was sequential quarterly improvement in most of the components but capex and trade. The economy ended the quarter on a firm note as the monthly March GDP print was for 0.3% growth rather than the -0.1% contraction projected by the median forecast in Bloomberg’s survey, though the February GDP was shaved to 0.4% from 0.5%. Industrial output for 0.3% in March as did the index of services activity. Construction jumped 1.5% (though the February series was revised to 0.5% from 1.0%. The trade balance deteriorated with and without precious metals.

• China’s April lending figures were weaker than expected. Aggregate financing, which is the comprehensive measures increased by CNY621 bln (~$91 bln) in last month. This is almost half of the growth reported in April 2025. New loans declined by CNY15.3 bln, while the median projection was for an increase of CNY300 bln. April tends to be a weak month on seasonal factors. Government financing accounted for the bulk of the credit expansion.

Disclaimer

The Euro and Sterling are Threatening to Break Lower, while a Record Current Account Surplus Does not Prevent the Yen from Challenging Intervention Levels

noreply@blogger.com (Marc Chandler) — Wed, 13 May 2026 06:47:10 -0400

The lack of progress in re-opening the Strait of Hormuz has not prevented oil prices from stabilizing or risk-appetites improving today. Equities and bonds are trading with a firmer bias. The Trump-Xi meeting tomorrow is key talking point today. Ahead of it, the PBOC set the dollar’s reference rate at a new three-year low. US Treasury Secretary Bessent was in Tokyo earlier this week and today, Japan reported a record current account surplus, flattered by its largest trade surplus in five years. The dollar, which is firmer against most G10 currencies, is hovering near JPY158, where the BOJ is thought to have intervened a week ago.

Although economic theory puts emphasis on interest rate differentials, we find that the dollar is frequently sensitive to the direction of US interest rates. And the market is continuing to move against a Fed cut this year. The futures market appears to be discounting about a 35% chance of a hike this year. It was still pricing in a chance of a cut at the end of last month. In addition, the momentum indicators continue to favor an upside break for the greenback out of the recent consolidation.

Prices

G10

• The euro fell from the upper end of its recent range, near $1.18 on Monday, to the lower end of the recent range slightly below $1.1725 yesterday and frayed $1.17 in the European morning today. It remains within the range recorded in the middle of last week (~$1.1690-$1.1800). Options for 1 bln euros at $1.17 expire today and another 1.6 bln euros tomorrow. The intraday day momentum indicators were oversold ahead of the North American open. Initial resistance is seen in the $1.1720-30 area.

• Despite US Treasury Secretary Bessent and Japanese officials show a solid front, the lack of US comments around recent intervention is in stark contrast with the type verbal intervention in January. The yen lost a little more than 0.25% yesterday as the greenback reached JPY157.75, a four-day high. The gains have been extended to JPY157.90 today. The high from last Wednesday when the BOJ is believed to have intervened was JPY158. The often-cited conditions for intervention, like a one-way market, high-volatility, and/or the speculative move did not seem to exist. One -month implied vol was at the low for the year before the April 30 intervention and the dollar fell in three of the four weeks before the intervention. It is true that speculators had amassed the largest net short yen position in the CME futures market since July 2024 (around when Japan intervened previously). But the bearish outlook for the yen was based on macroeconomic fundamental factors. Oil prices were elevated. The BOJ has remained reluctant to normalize monetary policy. The pendulum of market expectations had swung against Fed easing. Speculators participated in the move to be sure, but they were reading the same tea leaves as other market participants.

• The fight over the leadership of the UK’s Labour Party has seen interest rates surge this week in an environment in which global interest rates have risen. However, unlike Monday, when sterling was resilient in the face of the Gilt sell-off, sterling traded heavily yesterday and was among the worst performing G10 currencies. It frayed the $1.3500. There are around GBP330 mln of options struck that that expire today. It may take a break of $1.3450 to boost the chances that the high is in place and a correction is at hand. The initial target may be in the $1.3350-$1.3400 area.

• In a firm US dollar environment, the Canadian dollar was among the best among the G10 currencies yesterday, second to the Norwegian krone. The greenback did manage to take the out recent highs (~CAD1.3715) and reached CAD1.3725 before returning the CAD1.3700 area late in the North American afternoon. Although the US dollar did not sustain the break higher, the momentum indicators suggest it likely will. It is straddling the CAD1.37 area in quiet turnover today. Options for about $340 mln at CAD1.3715 expire tomorrow.

• The Australian dollar remains within the range it carved last Wednesday (~$0.7180-$0.7280). It has held above $0.7200 since that range was set. Options for almost A$1 bln expire there today (and another A$800 mln tomorrow). The signal from the momentum indicators is not quite as strong as with the Canadian dollar, but the risk is on the downside.

• Although the Mexican peso rose to its best level in a little more than three weeks on Monday, it has stalled. At the end of April, the greenback peaked near MXN17.60 and fell to around MXN17.16 Monday. It is trading in a narrow MXN17.2040-MXN17.2465 range so far today. The price action looks more like bottom pattern is being forged. This could set the stage for another run at the MXN17.50-60 area.

• The yuan remains strong. In the run-up to the Trump-Xi meeting, the first in nine years, Beijing is still guiding the yuan higher through the daily fix. It was set at its lowest level in three years yesterday (CNY6.8426). Given the greenback’s gains, it is not surprising that the fix was set a little higher today (CNY6.8431). Against the offshore yuan, the dollar has fallen to a new three-year low near CNH6.7880. The dollar has not settled above its five-day moving average against the yuan this month. It is found a little below CNH6.7955 today.

• The Indian rupee continues to fall into uncharted waters. The US dollar rose to a new record high for the second consecutive session. It reached INR95.8050. India raised tariffs on gold and sliver imports from 6% to around 15%. The next psychological target is INR96.

Other Markets

• Equities are enjoying a firmer tone today. Most of the large bourses in the Asia Pacific region advanced with the exception of Taiwan and Australia, though many smaller ones fell. Europe’s Stoxx 600 is up about 0.4% after losing 1% yesterday. In the US, the S&P and NASDAQ futures are recouping yesterday’s losses.

• Benchmark 10-year yields played a little catch-up in the Asia Pacific region and rose around three basis points (Japan, and the Antipodeans). European rates are mostly 1-2 bp lower. 10-year Treasury yield is off almost a basis point to nearly 4.46%.

• Gold traded on both sides of Monday’s range yesterday but settled well within it and slightly above the 20-day moving average. After bouncing off $4500 early last week, the yellow metal is trading broadly sideways. It is trading quietly today between about $4686 and $4727. Silver continued to outperform gold. In the past five sessions, gold has risen by about 3.2% and silver, ~18.3%. It traded above $87 yesterday for the first time in two months and extended its gains marginally to $87.80 today.

• Like several of the currency pairs, June WTI has trading within last Wednesday’s trading range (~$88.65-$102.70). With the impasse in the war, oil frayed the top of the range yesterday and settled near session highs. It has held above $100 today and capped near $102.25. June 2027 WTI is near $77.00. The discount peaked in late April near $33.75.

Data

• On the heels of yesterday’s CPI, the US reports April PPI today. A 0.3% rise in the both the headline and core rates will lift the year-over-year pace to 4.8% (from 4.0%) and 4.3% (from 3.8%), respectively. In response to the firm CPI reading, the US two-year breakeven rose by almost six basis points to about 2.94%. It is down 5-6 bp since the end of last month. The 10-year breakeven edged up a basis point yesterday to 2.49%. It is up less than a single basis point this month.

• The eurozone’s Q1 GDP was confirmed today at 0.1%, and 0.8% year-over-year. Aggregate March industrial production rose 0.2%. Although German industrial output shank for the second consecutive month, it rose in Spain (2.3%), France (1.0%), and Italy (0.2%). Disappointingly, February’s 0.4% gain has halved in revision.

• Australia’s Q1 wage price index (0.8% quarter-over-quarter, the same as in Q4 25, for a 3.3% year-over-year pace, down from 3.4%) was of little significance. Although the market anticipates a pause in the central bank’s tightening cycle, another hike is fully discounted by the end of Q3.

• Japan’s current account surplus tends to improve in March (16 of 20 years), and this year was no exception. The current account surplus rose to JPY4.68 trillion, a record high, from JPY3.93 trillion in February. The bulk of the improvement took place on the trade. The trade surplus on the balance of payments accounting, surged to JPY830.5 bln from JPY267.6 bln. The trade surplus was the largest since March 2021.

Disclaimer

Ceasefire is on "Life Support": Saps Risk Appetites, Buoys the Greenback

noreply@blogger.com (Marc Chandler) — Tue, 12 May 2026 06:55:00 -0400

The uncertainty about the US-Iran fragile ceasefire, which President Trump has said is on “life support” is weighing on risk-taking appetites today. Brent and WTI are up over $3 and bonds and stocks have been sold. The US dollar is firmer against the G10 currencies but the Norwegian krone. Most emerging market currencies are lower. Ahead of the Xi-Trump meeting later this week, the PBOC continued to gradually lower the dollar’s reference rate. Treasury Secretary Bessent is in Tokyo, and the media reports he ‘understands” Japanese exchange rate policy. This is a far cry from having the Treasury Department use the Federal Reserve to check prices as it did in January. The dollar reached a new five-session high against the yen.

The US reports April CPI today. The headline rate is seen rising to around 3.7% from 3.3%. And as Warsh’s confirmation process continued to make progress, the swaps market has boosted the chances of a rate hike this year to around 31%, the highest since late March. Still, the other major central banks are expected to raise rates sooner and by more.

Prices

G10

• The euro was confined to about a fifth of a cent range in North America yesterday, mostly $1.1765 to $1.1785. It has been sold steadily today and slipped through yesterday’s lows (~$1.1745) in Europe. Options for about 1.9 bln euros at $1.1750 expire today. Last Wednesday, the euro traded in a roughly $1.1690-$1.1800 trading range has been confined to it since. Commitment of Traders data for the week ending May 5 showed bears added on to shorts more than the bulls added to longs. The net long speculative position of about 32.2k contracts. It reached almost 180k contracts in mid-February, a three-year high, and has fallen in all but two reporting weeks since the Middle East war began.

• Rising US rates helped the dollar firm to session highs in North America, slightly above JPY157.25 yesterday, a three-day high. Today, newswires report that US Treasury Secretary Bessent “understands” Japan’s fx actions (intervention) and agrees, as the G7 does, that excessive volatility is undesirable and still the dollar extended its gains to JPY157.75 today. The greenback also remains in last Wednesday’s trading range against the yen, when the BOJ is believed to have intervened. The range then was about JPY155-JPY158. The market may be wary of intervention if the upper end of that range is approached.

• Sterling was impressively resilient yesterday but was sold to a five-day low today near $1.3500. Options for about GBP375 mln at $1.3495 expire today. The pound rose to a six-day high yesterday around $1.3655. What made yesterday’s gains notable was that sterling outperformed the dollar and euro, but that it did so with rising yields. Counterintuitively, sterling’s inverse correlation with changes in the two- and 10-year Gilts yield is near -0.50, the most extreme since last October-November. Political anxiety added to the geopolitical pressures reflected in the rise in oil prices, and UK 2-10 yields rose a little more than eight basis points yesterday. Rates are up another 10 bp today. An increasing number of Labour MPs, almost 20%, appear to want Starmer to step down but he continues to resist.

• The Canadian dollar consolidated yesterday, and the greenback was confined to the pre-weekend range. The US dollar is in a roughly CAD1.3640-CAD1.3715 range and today it is testing the upper end of the range. A convincing break could see CAD1.3750 next.

• The Australian dollar traded firmly yesterday after it held the $0.7200 area initially. Still, like a couple of the other pairs, it remained within last Wednesday’s range (~$0.7180-$0.7280). It is trading heavier today but still rangebound. It was already coming off before the Australia’s Treasurer Chalmer’s first budget projected a somewhat larger than expected deficit and made good on the promise to reduce the tax concessions for property owners as a way to help address the intergenerational inequality and has made it difficult for younger Australians to be buyers.

• The dollar consolidated in its recent trough against the Mexican peso. It briefly took out last week’s low (recorded before the weekend, near MXN17.1735) and slipped to almost MXN17.16 in early North American activity yesterday. In the consolidation, it held below MXN17.2250. The dollar is better bid today and reached MXN17.2580 in Europe today. The MXN17.30-31 area capped it at the end of last week.

• The dollar made a marginal new session low against the offshore yuan, slightly below CNH6.79 late in the European session. It is the first time the dollar has traded there since February 2023. The dollar has held above CNH6.79 today, albeit barely. The PBOC set the dollar’s reference rate at CNY6.8426 (CNY6.8467 yesterday), a new low.

• Firm oil prices weighed on the Indian rupee, which was sold to new record lows today near INR95.7440. Reports suggest the central bank intervened but not aggressively. Reports suggest new measures to support the currency are under review, including import controls.

Other Markets

• Equities are under pressure. Most of the large bourses in the Asia Pacific region fell, with the notable exception of Japan, Taiwan, and Singapore. South Korea’s high-flying benchmark fell (~2.2%) for the first time this month. Europe’s Stoxx 600 off by nearly 0.7%. If sustained, it would be the third loss in four sessions. US S&P futures are off about 0.3%, while the Nasdaq futures are off about twice as much.

• 10-year yields are broadly higher. The 3.5 bp rise in the Japan’s 10-year yield, even after firm demand materialized at today’s auction, was enough to lift the yield to a new 30-year+ high near 2.56%. European 10-year benchmark yields are mostly 4-6 bp higher but the Gilt yield is up another 10 bp to approach 5.10%, the highest since 2008. The 10-year US Treasury yield is about 1.5 bp firmer, near 4.43%.

• Gold bounced to almost $4750 in North America. It fell below $4650 in Asia-Pacific turnover on Monday and re-tested in Europe. Gold initially extended yesterday’s gains to about $4773.50 today before sellers drove it below $4700 to $4687.55. Yesterday’s low was close to $4648.20. Silver was a little faster. It took out April’s high yesterday to test the $86 level. And after reaching $87.20 today, it has been sold back below $84.

• After recording a high in the initial reaction to the US rejection of Iran’s offer yesterday near $100.35, June WTI was sold to almost $96 in early North American trading. It was snapped up and tested the $100 area. Follow-through buying today lifted the contract to $101.75, a four-session high. It remains within last Wednesday’s range, when it reached a high of $102.70.

Data

• The US is expected to report that consumer prices jumped 0.6% in April following the 0.9% surge in March. Given the base effect, it is projected to lift the year-over-year rate to 3.7% from 3.3%. The core is better behaved. It is seen rising by 0.3% after a 0.2% gain in March. The year-over-year rate is seen ticking up to 2.7% from 2.6%. Latte in the session, the April federal budget balance is due. The median projection in Bloomberg’s survey is for a $219 bln surplus. It was $258.4 bln in April 2025.

• Mexico reports March industrial production figures today. It is expected to have contracted by 0.5%, offsetting February’s 0.4% gain. Given that Q1 GDP has already been reported (-0.8%) and Banxico cut has been delivered, today’s report is old news.

• It is not surprising that sentiment in Germany’s financial sector is deteriorating. The ZEW survey found the assessment of the current situation deteriorated to -77.8 from -73.7. It is the lowest for this year. A year ago, it was -82. The surprise was that the expectations component rose -10.2 from -17.2 in April. Last May, it stood at 25.2. Separately, Italy rounded out the Big Four industrial production reports ahead of tomorrow’s aggregate estimate. The 0.7% gain (0.2% was median forecast in Bloomberg’s survey) follows a 1.0% rise in France and 2.3% jump in Spain. German industrial output unexpected fell by 0.7%.

• Despite the rise in in real wages, Japanese real household consumption continued to fall in March. The -2.9% year-over decline was the fourth consecutive decline and more than twice the decline the median forecast in Bloomberg’s survey anticipated. Japan reports Q1 26 GDP on May 19. Consumer spending appears to have slowed to less than a 1% increase in Q1, which would be the weakest since at the end of 2024.

• India’s CPI ticked up to 3.48% in April from 3.40% in March. It is the highest since March 2025 and is the sixth month the year-over-year pace increased. It is drawing close to the central bank’s 4% cap. The swaps market has a hike discounted late in the year, but it may be brought forward given the weakness of the rupee and limited room going forward to cushion higher oil prices.

Disclaimer

Monday Blues: US Negotiating Tactic or Ceasefire may End

noreply@blogger.com (Marc Chandler) — Mon, 11 May 2026 06:53:00 -0400

News that the US rejected Iran’s counter-proposal is set the tone for today’s session. The dollar is mostly firmer, though the Canadian dollar and Norwegian krone are slightly firmer. Equities are mostly lower, yields, higher, alongside oil. Appreciating the seeming reluctance of the US to renew “kinetic” operations, the North American market may view the US position as predictable negotiation tactics.

This week, US Treasury Secretary Bessent is in Tokyo. He has indicated that the weak yen is on the agenda. President Trump will be in Beijing later this week. The Trump-Xi meeting is highlight, and we have argued to keep expectations modest. Meanwhile, UK Prime Minister continues to fight for high political future after Labour’s drubbing in last week’s local elections. His speech earlier today does not appear to have done the trick. Sterling and Gilts are lower than before the speech.

Prices

G10

• Given the unexpectedly poor German industrial output figures and the first back-to-back gain in US nonfarm payrolls last April and May, the euro performed amazingly well before the weekend. It recorded session high into the close, slightly below $1.1790. After President Trump rejected the Iran’s counter-proposal, the euro fell about $1.1745 in early turnover today. It recovered to slightly above $1.1780 before stalling in Europe. There are 2.1 bln euros in options struck at $1.1750 that expire today and almost another 1.7 bln euros that expire there tomorrow.

• Despite the US jobs data and the bounce in oil prices, the yen held firm ahead of the weekend. It held below JPY157 though barely, even after the $620 mln options struck there rolled off. The greenback fell to session lows after the jobs data, near JPY156.45. It approached JPY157.20 today, a three-day high. The high for the day does not look to be in place but the market may be turn cautious closer to JPY157.40-50.

• Sterling and Gilts turned an impressive showing ahead of the weekend and after the Labour’s electoral drubbing. Sterling outperformed the euro slightly and the 10-year Gilts performed best in Europe at the end of the week when the yield fell by about four basis points. While sterling made a lower intraday high for the second session, it ended last week at its best level since mid-February, near $1.3630, set late in the session. Risk-off in early trading today saw sterling drop to $1.3550. But by early European turnover it reached almost $1.3615 before consolidating. No cabinet officials have resigned, and Prime Minister Starmer earlier today promised bolder domestic action and signaled a shift in foreign policy, putting the UK “at the heart of Europe” to strengthen the economy, defense, and energy security. Over the weekend, he brought back Gordon Brown (former PM and Chancellor of the Exchequer under Blair and Harriet Harman (deputy Labour leader under Brown), in part-time advisory roles. Initial support is seen near $1.3580. Sterling has forged support in recent days in the $1.3540-50 area.

• Poor Canadian jobs report and its contrast with the US weighed on the Canadian dollar, which fell for the third consecutive session and five of the last six. The US dollar tested the upper end of its three-week trading range, a little above CAD1.3700. The greenback settled above the 20-day moving average (~CA0D1.3670 today) for the first time in a month. Still, it is consolidating in quiet if choppy action today between about CAD1.3660 and CAD.3700. There are a little more than $5 bln in options struck at CAD1.3650 and CAD!.3660 that expire today.

• The Australian dollar reached almost $0.7280 middle of last week for the first time since June 2022. It consolidated for the next two sessions and successfully tested $0.7200 before the weekend. Still, it settled firmly near session highs, reached earlier in the North American session around $0.7250. However, amid the risk-off in early trading, the Aussie fell back to almost $0.7210. It recovered to almost $0.7250 in early European turnover. The consolidation looks constructive.

• Mexico’s central bank cut interest rates last week shortly after April’s CPI (headline and core) were confirmed above the upper end of the 2%-4% target range. However, the peso was not punished. To the contrary, it rose to three-week highs before the weekend. The dollar was sold to MXN17.1920. After first rising through the previous session’s high, the dollar reversed and settled below above its low (~MXN17.1960). On an intraday basis it poked briefly through MXN17.1735. Last month low was near MXN17.1275. It is trading inside the pre-weekend range today and reached nearly MXN17.2550 before dollar sellers reemerged. It found support in the European morning near MXN17.18.

• The offshore yuan reached its best level in a little more than three years today, near CNH6.7910. Beijing’s intentions are being extrapolated from the PBOC’s fix and general dollar movement. There is little meaningful on the charts until closer to CNH6.70. The PBOC set the dollar’s reference rate at a new low today of CNY6.8467

• Prime Minister Modi’s electoral success has not alleviated the pressure on the Indian rupee. Higher oil prices and foreign sales of bonds and stocks continue to take a toll. The dollar rose to almost INR95.3165 today to approach the record high set last week near INR95.4375.

Other Markets

• Equities are mostly lower today. Japan indices themselves were mixed, while China’s CSI 300 gained almost 1.65%. South Korea’s Kospi jumped another 4.3% to bring this month’s gain to about 18.5%. Europe’s Stoxx 600 is nursing a small loss, which if sustained would be the third consecutive decline. US index futures are also slightly in the red.

• Tensions around Iran and the high oil prices are lifting yields today. European benchmark 10-year yields are mostly 3-4 bp firmer, while the 10-year Gilt yield is up seven basis points. The 10-year US Treasury yield is up a little more than three basis points to approach 4.39%.

• Gold was sold to a three-day low near $4648 today. It has steadied but still is heavy, below $4665. It settled around $4715 before the weekend. Silver is straddling the $80 area, confined to the pre-weekend range.

• June WTI poked above $100 on the initial rejection of the Iranian proposal but has since trimmed its gains. It is near $97.35 now, having recorded a low slightly below $97.

Data

• After the April jobs data and before the April CPI tomorrow, today’s US existing home sales will not have much impact. A small increase is expected as the series continues to alternate monthly between gains and losses. The sawtooth pattern began in November 2025. In March, the seasonally adjusted annual pace matched last year’s low (3.98 mln), which itself was the lowest since September 2024.

• Mexico reports April vehicle production and exports. In March, Mexico exported a little more than 90% of its production. Last week, Mexico reported that domestic sales dropped almost 10% in April and are off about 23% since the end of last year. Mexico auto sales show powerful seasonal patterns. April sales often (17 or 20 years) fall but have not failed in 20 years to recover in May.

• Earlier today, China reported that consumer price inflation rose to 1.2% from 1.0% in March. The core rate rose to 1.2% from 1.1%. It is the third month that CPI rose more than 1% on a year-over-year basis. And, at an annual rate, it rose by about 2.4% in the first four months of the year. Housing costs have been a drag for the past five months. Producer prices, which had been locked in deflation since Q4 22, rose to 0.5% in March and jumped to 2.8% in April, the fastest since July 2022. The swaps market had given up on ideas that the PBOC would cut rates this year since the early days of the war on Iran. Over the weekend, China reported its April trade surplus rose to $84.82 bln from $51.13 bln in March. In April 2025, its surplus was $95.88 bln. Through April, the surplus reached almost $350 bln compared with nearly $367 bln in the first four months of last year. Exports have risen by 14.1% year-over-year while imports have surged by 25.3%.

Disclaimer

Week Ahead: Trump-Xi and US-China CPI

noreply@blogger.com (Marc Chandler) — Sat, 9 May 2026 07:05:00 -0400

There were several developments to note last week, but arguably the most important was that investors are optimistic that the Middle East war is winding down despite some violations of the ceasefire. June WTI fell by 7% to around $95 a barrel, after rising by more than 22% in the previous two weeks. July Brent tumbled by about 6.6% to $101 a barrel. It has risen by almost 24% in the prior two weeks. Benchmark 10-year yields fell throughout the G10 accept Australia and New Zealand, where they edged higher. There seemed to be little fallout from Labour's poor showing in the local elections on Thursday as sterling was among the top performing G10 currency ahead of the weekend and the nearly four basis point decline in the UK's 10-year Gilt led the rally on Friday. Prime Minister Starmer cast aside calls for his resignation. Norway surprised many by becoming the first in Europe to hike rates. The krone appreciated by 1% the following day, Friday, to lead the G10 currencies. The Bank of Japan appears to have intervened in the middle the week to drive home the message of its intervention on April 30 to arrest the yen's weakness. A federal trade court issued a narrow ruling on a 2-1 vote that prevents the US from collecting Section 122 tariffs that the Trump administration adopted to replace the tariffs that were imposed under the International Emergency Economic Powers Act were ruled illegal by the Supreme Court. Meanwhile, Beijing has been facilitating yuan appreciation by its adjustment of the dollar's daily reference rate. It was set at new three-year lows last week.

While the US and China's CPI data are the economic data highlights of the week ahead, politics may dominate, and this includes the war in the Middle East. However, there are two other events of note. First, US Treasury Secretary Bessent will meet with senior Japanese officials in Tokyo. He says the yen's weakness will be discussed. The fact that the BOJ has not raised rates this year may help explain why Japan's recent intervention saw a different US response than the verbal intervention drew in January. Recall that, then the Federal Reserve checked prices (not unusual) but revealed that they were doing it on behalf of Treasury (highly unusual). This time crickets. The G-2 meeting between Trump and Xi at the end of the week is unlikely to impact markets in the short-term. Trump says he has a good personal relationship with Xi. And why not? According to reports at least some officials in Beijing think that Trump's threats on Greenland is more telling of the new world order than the US war on Iran, though the latter clearly is more disruptive. Expectations should be kept minimal and that includes the (re-) establishment of a permanent facility to communicate on either economic issues broadly, or perhaps, as some have suggested, AI.

Drivers: Two considerations seemed to drive the dollar lower. The first is geopolitical developments and the hope that peace and an open Strait of Hormuz may be near. The second was speculation that the BOJ intervened on April 30, and possibly again on May 6 to support the yen. At the same time, the inverse correlation between changes in the Dollar Index and the S&P 500 over the past 30 sessions reached nearly -0.75 last week, the most since October 2022. Changes in DXY and the two-year US yield (~0.45) in the upper end of where it has been in six months.

Data: With the next FOMC meeting in June, this week's data poses headline risk but may have little impact on policy. The highlight is the April CPI, and it is likely to rise by around 0.7% (0.9% in March), and that would lift the year-over-year pace to 3.8%-3.9%. The core pace is more moderate. It may rise by 0.2% for a 2.7% year-over-year rate. The week finishes off with the May Empire State manufacturing survey, and April retail sales (bolster by higher gasoline prices) and industrial output (which fell by 0.5% in March).

Prices: Despite the strong jobs data, which saw the US economy add jobs in back-to-back months for the first time since last April and May, the greenback found little traction. The Dollar Index traded inside Thursday's range (~97.80-98.30), which was inside Wednesday's range (~97.60-98.35). The momentum indicators are not generating significant signals. DXY appears to be stuck in a range. A break of 97.50, which is the (61.8%) retracement of the rally from the late January low (~95.55) to the end of March high (~100.65), could signal a move toward 96.75-97.00. On the upside, last week's high was near 98.60 and that offers initial resistance.

EMU

Drivers: The euro is positively correlated with changes in the Stoxx 600, and near 0.50, the rolling 30-day correlation is near its most robust level since Q3 24. On the other hand, changes in the euro and German two-year yields are inversely correlated (30-days) by almost -0.35. That suggests higher German yields has not been supportive of the euro. It has been inversed since the war began and was positively correlated from last January through the end of February. The same is broadly true of the 60-day correlation, as well.

Data: Data from the first quarter seems largely irrelevant now to investors. The leaves Germany's ZEW survey as the most relevant in the coming days. There have been many stories in the media about China's exports to Europe, but it seems that most immediately the shocks from the US tariff war and war on Iran are paramount. It has depressed investor sentiment and outlook. We learned last week that Germany trade surplus in Q1 was actually slightly larger than in Q1 25 and the rolling 12-month surplus reached a five-month high in March. This is not to say that Chinese imports are not significant, but the immediate pressure is from the US, which last week raised the tariff on EU vehicle exports to 25% from 15%.

Prices: The euro reached a three-week high in the middle of last week, a few hundredths of a cent below $1.18. Neither the disappointing March contraction in German industrial output nor the first US jobs data managed to drag the euro lower ahead of the weekend. It settled firmly, and made new session highs slightly below $1.1790 in the waning minutes of last week's activity. Last month's highs were in the $1.1825-50 area. The lower end of that range corresponds to the (61.8%) retracement of the euro's decline from the late January high (~$1.2080) to the mid-March low (~$1.1410).

Japan

Drivers: If, in fact, the BOJ intervened to cap the dollar, some would say its timing was impeccable. It sold dollars near a multi-year high and the drop in US yields and oil prices sent the dollar back to levels not seen since a few days before the war began. Yet, one cannot help but wonder if decline in US rate and oil prices alone would have achieved similar results, albeit more orderly. The US 10-year premium over Japan is at four-year lows near 185 bp. However, since the premium recorded its recent peak in early 2025 near 350 bp, the TIC data shows Japanese investors holdings of Treasuries increased from ~$1.06 trillion at the end of 2024 to $1.24 trillion as of February. The dollar value of the holdings increased every month last year but December but increased in January and February. US Treasury Secretary Bessent is in Tokyo in the coming days, and he has indicated he will discuss the weak yen.

Data: Bank of Japan Governor Ueda was careful not to pre-commit to raising rates at his press conference after the board decided on a 6-3 vote to keep rates steady. The data due in the coming day does not seem likely to have much impact on the BOJ's decision at the next meeting in mid-June. Due this week are March household spending, current account and April PPI.

Prices: The dollar fell from JPY160.70 on April 30 to a low last week near JPY155 on the back of the suspected intervention. The JPY155.40 area corresponds to the (61.8%) retracement of the greenback's rally from the late January low (~JPY152.10) to that multiyear high the end of April. Since the low was recorded, the greenback has held below JPY157.

PRC

Drivers: Beijing is accepting a pace of yuan appreciation that is among the strongest in the region. There can be only one reason in essence and the ruling clique with the CCP apparatus sees it in China's interest. There are numerous possibilities, including cost of not doing so. Still, the dollar's broad general direction is also important. The 30-day rolling correlation of changes in the Dollar Index and the dollar against the offshore yuan reached almost 0.87 in early May, the most robust in a decade (now near 0.77). The 100-day correlation, around 0.65, is the highest in a little more than a year.

Data: China is expected to report April lending figures over the course of the week. However, what can be counted on is the April CPI and PPI on May 11. China's deflation appears to have ended and both CPI and PPI were higher year-over-year in March.

Prices: The dollar settled below CNH6.80 ahead of the weekend for the first time in three years. The next important chart area is around CNH6.70, the low from Q1 23. The PBOC's campaign to guide the yuan higher continues. On a weekly basis, the dollars' reference rate has fallen three times since the end of last November.

Drivers: Changes in sterling are correlated over the past 30 sessions with changes in the Dollar Index (~-0.90) and nearly the same with the euro, the largest component of DXY. It makes sense that sterling is inversely correlated with changes in US two-year rates (~0.36) but is less intuitive is that sterling is also inversely correlated with UK two-year yields. It reached almost -0.60 last week, the most inverse since last October, and is now near -0.50. It was positively correlated from mid-last December to early March. Labour's losses in the local elections failed to have much impact sterling or UK rates ahead of the weekend. Prime Minister Starmer does not look as if he will resign over the poor results.

Data: The highlight of the week is Q1 GDP and the March details. The median forecast in Bloomberg's for 0.3% growth, which if accurate, would be the strongest quarter since Q1 25 and better than the previous two quarters combined. Consumption appears stronger, the government spending appears to have nearly doubled from the Q4 25 pace, and net exports improved.

Prices: The $1.36 area capped sterling last month and corresponds to the (61.8%) retracement of sterling's losses from the late January high (~$1.3870) to the end of March low (~$1.3160). It reached almost $1.3660 on May 1 and settled above $1.36 before the weekend for the first time since Valentine's Day. It recorded session highs, near $1.3535 in late turnover. Support last week was found near the 20-day moving average (~$1.3540 to start the new week) and it has not settled below it for a little over a month. The momentum indicators have stalled but they may not prevent sterling from extending its gains in the coming days to retest last month's high. The next resistance area is seen around $1.3700.

Canada

Drivers: The Canadian dollar remains sensitive to the US dollar's overall direction. The rolling 30-day correlation of changes in the greenback against the Loonie and the Dollar Index is near 0.65, which is around the best it has been since last November. The nearly 0.5 correlation between the exchange rate and the S&P 500 shows risk-sensitivity too. On the other hand, counter-intuitively, the US dollar tends to rise against the Canadian dollar when oil prices rise (30-day correlation is almost 0.25) and when Canada's two-year yield rises (~0.22)

Data: Portfolio capital inflows dried up last year. They fell to a net C$118.25 bln from C$193.20 bln in 2024. However, in the first two months of 2026, net inflows were C$53 bln or nearly 45% of last year's total. The March figures are due at the end of the week.

Prices: The greenback began last week below CAD1.36. On May 1, it reached CAD1.3550, the lowest level since March 10. After the diverging employment data before the weekend, the greenback recovered to the upper end of its three-week range, a little above CAD1.3700. A convincing more through CAD1.3715 targets CAD1.3760 and then possibly the CAD1.3800-15 area. The momentum indicators are curling up from over-sold territory, and the five-day moving average looks poised to cross above the 20-day moving average in the coming days.

Australia

Drivers: The Australian dollar offers a higher yielding, risk-on alternative to the US dollar. Indeed, the Aussie's 30-day inverse correlation with the Dollar Index reached -0.85, the most extreme since in nearly two years. The fundamental narrative would note the hawkish central bank that has lifted rates three times this year, and the market is convinced it is not done. However, we note that the 30-day correlation between changes in Australia's two-year yield and the Australian dollar's exchange rate is also inverse, albeit slightly. However, it has been inversely correlated since early March. The correlation was modestly positive for the previous three months.

Data: With the third consecutive rate hike behind us and only a small chance of a rate hike in May, this week's data are unlikely to change many minds. The Q1 wage price index is too old as we approach the middle of Q2. May's consumer inflation survey by Melbourne Institute may be more interesting. In April the diffusion index stood at 5.9%, the highest since late 2022.

Prices: After reaching its best level since June 2022 in the middle of last week (~$0.7280), the Aussie pulled back to $0.7200 before finding new bids. The momentum indicators have flatlined since becoming over-extended. Still, the firm close ahead of the weekend suggests demand has not been satiated. There is little on the charts until closer to $0.7500 but that seems a bit far without a correction.

Mexico

Drivers: While the dollar-peso exchange rate is sensitive to the greenback's broad direction (~0.70 30-day correlation with changes in the Dollar Index), it is a little more sensitive to the risk environment. The inverse correlation with changes in the S&P 500 is near -0.75. The 30-day correlation of changes in the exchange rate and changes in WTI was inverse in the month before the Middle East war began but reached 0.60 last week, the most in four years.

Data: Mexico reports March industrial production figures and April vehicle production and exports. Through February, industrial output contracted by about 0.6% at the start the year. In the first two months of 2025, it grew by around 2%. Vehicle output increased in Q1 by about 3.8% over Q4 25, though compared with Q1 25, it was off marginally. Vehicle exports slowed slightly on the quarter, but March exports rose by 25% for the third consecutive monthly increase. The Mexican economy contract by 0.8% in the first quarter and it may take the more than next two quarters to recoup it.

Prices: The dovish cut delivered by the Banxico last week--with the door left open to one more cut in the cycle, did not deter peso buying. Ahead of the weekend, the dollar posted its lowest close since before the Middle East war started (~MXN17.18). The price action looked particularly poor for the dollar. The five-day moving average crossed back below the 20-day moving average after getting whipsawed in late April. Last month's low was near MXN17.1275. The low since the run-up to the 2024 Mexican election was recorded on February 18 near MXN17.0865.

Disclaimer

US Jobs on Tap after Court Ruled Against Section 122 Tariffs and Conflict in the Middle East

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

After recovering in the North American afternoon for the second consecutive session yesterday, the dollar has been sold again in Asia and Europe today. The market has mostly shrugged off news of new hostilities in the Middle East. As is often the case, the ceasefire has been frayed but appears to remain intact. Ostensibly, it runs until May 17. Late yesterday, a federal trade court issued a narrow ruling on 2-1 vote to grant a request by a group of small businesses and Washington state to stop the US from collecting the Section 122 tariffs.

The focus shifts to the US jobs report. Ahead of the report, the Fed funds futures have about two basis points of tightening discounted for this year, down from nearly eight at the beginning of the week. Given the uncertainties surrounding the Middle East, the market may pare risk exposure before the weekend. The dollar is mostly softer and the drubbing of the UK’s Labour Party and the surprising drop in in German industrial output failed to have much market impact.

Prices

G10

• The euro traded firmly yesterday but was unable to extend Wednesday’s rally, which took it to almost $1.1800. For the second consecutive session, the euro was sold in the North American afternoon. Disappointed longs appeared to move to the sidelines and sent the euro back to around $1.1735. Despite new hostilities in the Middle East and an unexpected decline in German industrial output, the euro has risen steadily and is challenging the $1.1775 area in Europe. There are options for 1.77 bln euros at $1.18 and 1.57 bn euros at $1.1750 that expire today.

• What appears to be two rounds of BOJ intervention (April 30 and May 6) succeeded in driving the dollar from around JPY160.70 to almost JPY155 on Wednesday. It held above JPY156 yesterday and set the session high near JPY156.65 in North America. The dollar reached almost JPY157 today, where options for $620 mln expire today. Some observers look at the Fed’s custody holdings as another place outside of the BOJ’s accounts that could show intervention. The Fed’s custody holdings of US Treasuries rose for the third consecutive week in the week ending May 6. It does not mean that there was no intervention. Rather it means that the BOJ may not have sold Treasuries from this account.

• Sterling was firm yesterday, but the market was unable to extend its recent gains. Wednesday’s high was near $1.3635 and last week’s high was closer to $1.3660. Yesterday, it briefly poked above $1.3630 but ground lower in the North American afternoon and fell to almost $1.3560. Despite Labour’s losses in the yesterday’s local elections and calls for Prime Minister Starmer to step down, the market impact looks minimal at best. Sterling is up not just against the dollar but has edged up against the euro. It has approached $1.3625 today. and UK Gilts are the best performing bond market today, with a little more than a five basis point decline in the 10-year yield. Options for GBP1.35 bln at $1.3600 expire today.

• The US dollar edged up to a new five-session high yesterday against the Canadian dollar, rising to about CAD1.3665. It held today and the greenback has retread to around CAD1.3640 in Europe. Last week’s high was near CAD1.3715. The CAD1.3650 area corresponds to the (61.8%) retracement of the greenback’s losses from last week’s high to the low on May 1 (~CAD1.3550).

• Assuming the Australian dollar closes above $0.7200 today (where options for A$880 mln expire today), it will mark the fifth weekly advance in the past six weeks. It reached almost $0.7265 yesterday, its best level since July 2022. Yet it trended lower in the North American session and set the session low in late dealings near $0.7215. It held above $0.7200 and is near session highs (~$0.7240) in late European morning activity.

• After rallying about 1.5% on Tuesday and Wednesday, the Mexican peso consolidated in Wednesday’s range ahead of the central bank's rate decision. As expected, it announced a quarter-point rate cut (to 6.50%). The governor suggested that she expected a debate at the next month’s meeting about one last cut in the cycle. The dollar was near session highs (~MXN17.2765) before the rate cut and it slipped below MXN17.24 shortly after the move, but it recovered to new session highs near MXN17.3125 in late dealings. It made a marginal new high today (~MXN17.3230) before being sold to session lows around MXN17.2250.

• The dollar extended its losses against the yuan yesterday. Against the offshore yuan, the greenback was sold to about CNH6.7960, its lowest level in three years. It settled back above CNH6.80 and remains in yesterday’s range today. The PBOC set the dollar’s fix at CNY6.8502 (vs. CNY6.8487 yesterday

• The dollar recovered against the Indian rupee today after it weakened by slightly more than 1% over the previous two sessions. The greenback’s record high was set Tuesday near INR95.4375 and yesterday returned to ~INR94.0750. Today, it reached INR94.6775 before pulling back to around INR94.4835.

Other Markets

• Asia Pacific and European equities were mostly weaker. Among the large bourses in the Asia Pacific region, South Korea’s Kospi was the notable exception. Its small gain was sufficient to lift the index by a little more than 12% this week. Europe’s Stoxx 600 is off around 0.65% to trim this week’s gain to about 0.10% after a 0.15% increase last week. The US Nasdaq futures are about 0.6% better (almost 3.7% for the week) and the S&P futures are up about 0.45% (~1.9% for the week).

• Benchmark 10-year yields rose in the Asia Pacific region and are mostly narrowly mixed in Europe, though Gilts are easily the best performer off about 5.5 bp to a little below 4.90% for a seven basis point decline on the week. The 10-year US Treasury yield is off 1-2 bp to around 4.37%. It is off about seven basis points for the week ahead of the jobs report.

• Gold is consolidating with a firmer bias today but below yesterday’s two-week high near $4765. Silver reached almost a three-week high yesterday (a little above $82) and is consolidating firmly today and is pushing back above $80 in Europe.

• June WTI rose through yesterday’s high to reach about $98.65 today but the early gains were pared, and it is nearly flat ahead of the start of the North American session (~$95.20).

Data

• The US sees the April jobs report and the preliminary University of Michigan’s consumer survey. The US labor market remains resilient. Pending today’s revisions, 204k jobs were created in Q1 26 vs. 60k in Q1 25. The private sector created 237k jobs in Q1 26 and 30k in Q1 25. The unemployment rate stood at 4.3% in March and 4.2% in March 2025. The median Fed official projection was 4.4% this year, which is where it finished last year. Average hourly earnings growth has moderated to 3.5% in March from 4.2% in March 2025. Amid the war, rising gasoline and food prices, it would be a surprise if consumer sentiment did not deteriorate further last month. The one-year inflation expectation may have ticked up from 4.7% in April. The 5–10-year inflation outlook was at 3.5% in April. The breakeven (difference between the yield of the conventional note and the inflation-protected security is 2.70% for the five-year and about 2.50% for the ten-year.

• Canada also reports April employment figures today. Its labor market is not as resilient as the US. Canada lost 94.5k jobs in Q1 26 after gaining almost 30k in Q1 25. Of those jobs, 64.5k were full-time position in Q1 26. All the jobs gained in Q1 25 were part time, as full-time posts shrank by 41.3k. Canada’s unemployment rate was at 6.7% in March 2026, down slightly from 6.8% in March 2025.

• As widely anticipated, Mexico’s central bank cut its overnight rate target to 6.50% from 6.75% yesterday. The governor suggested there will be a debate next month whether to cut rates one more time. The swaps market has about 60% chance of a cut discounted.

• Germany reported an unexpected decline in March industrial production. The 0.7% contraction compared with a median forecast of a 0.4% gain in Bloomberg’s survey. It was the first back-to-back drop in output since Sept-Oct 2024. The March trade surplus was smaller than expected as imports surged (14.3 bln euros from 19.6 bln in Feb) Through March, the trade surplus stood at about 54 bln euros, the same as in Q1 25. Exports rose by 0.5% in March. Economists in Bloomberg’s survey had anticipated a decline. Imports jumped by 5.1% in March after a 4.9% increase in February. Just like the producers of commodities may have a positive terms of trade shock, exporters of manufactured goods (like Germany and China) appear vulnerable for a negative terms of trade shock.

• Japan’s March labor compensation increase slowed in March. The year-over-year pace of the nominal measure rose 2.7 % (vs. 3.2% expected and 3.4% previously). Adjusted for inflation, labor cash earnings rose 1.0% year-over-year (1.8% expected and 2.0% in February). It is the first three-month advance in nearly five years. Still, for the economic outlook, the income must translate into consumption. Contrary to conventional wisdom, consumption is not just about income and wealth. They are necessary but not sufficient conditions. Mass consumption requires a culture to facilitate it. Household spending contracted in February for the third consecutive month. March figures are due next Tuesday. The government has responded to inflation worries but subsidizing utilities at the start of the year and put a cap on gasoline prices since the war on Iran began. Japan reinstated and updated its fuel subsidy program to cap gasoline prices at approximately JPY170 per liter. The government aimed to prevent retail prices from exceeding ¥200 by providing subsidies to oil distributors.

Disclaimer

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 discouraging 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