FOREX NEWS & BLOG

Eamonn is off today so I’ll be filling in.

First of all, it’s still April 25 in much of the world, so I’m going to enjoy this meme.

For those of you in Asia, it’s now April 26, which is too bad. But it’s also Bank of Japan decision day and we get Tokyo CPI and Australian PPI. So that’s some consolation.

As for the Bank of Japan, the big news in US trade was a report from Jiji that said the BOJ will consider measures to reduce its government bond purchases. However the report didn’t specify exactly when they would consider that, though maybe it’s today.

There was some modest USD/JPY selling on the report but it did help to cap the pair at 155.74.

For the US dollar more broadly, it was a tumultuous one as it rose initially on the hot inflation indications in the GDP report, then slowly reversed completely, in part because of slowing growth.

This article was written by Adam Button at www.forexlive.com.

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The market reaction to today’s US GDP report was instructive.

At first, the market freaked out because the high inflation numbers in the report imply an upside surprise in Friday’s US PCE data. However as the day wore on, that faded and equities recouped a large portion of the gains, excluding some of the tech-inspired META selling.

With Fed cuts priced out until at least July 31, I don’t think the March or April inflation matters much. What will start to matter more and more is what happens with pricing later in the year and that’s where growth comes in. Today’s Q1 GDP data was soft at 1.6% versus 2.4% expected. Some of that is one-off quirks like inventories but the path towards lower growth is increasingly clear.

It’s also clear to me that inflation will follow it, though the timing is tough to pin down. Employment isn’t a leading indicator but Ian Shepherdson at Pantheon makes a compelling argument that it’s softer under the surface than it looks.

“I’ve been worried for a while that the weakening NFIB small business survey points to much slower job gains from Q2 onwards,” he writes. “Now, the S&P PMI employment index tells the same story; it’s more of a coincident indicator, while the NFIB leads by about 4 months. Look out below.”

Tomorrow the focus will undoubtedly remain on inflation with the PCE data but don’t forget that we saw an outsized move earlier this week on a soft US services PMI from S&P Global.

This article was written by Adam Button at www.forexlive.com.

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• It’s the perfect day, and it’s also Bank of Japan decision day
• Broader US indices close lower for the first time after three days of gains
• Alphabet EPS $1.89 versus $1.51 estimate. Revenues $80.54B versus $78.59B estimate
• Microsoft EPS $2.94 vs $2.82 estimate Revenues: $61.86 vs $60.82 estimate
• WSJ Timiraos: “The Dream of a Fed rate cuts is slipping away”
• Crude oil settles at $83.57
• ECBs Panetta: We must weigh risk of monetary policy becoming too tight
• U.S. Treasury auctions off $44 billion of the seven year notes at a high yield of 4.716%
• Major European indices close lower. US stocks lower. Yields are higher.
• Goldman Sachs: The composition of the GDP report was not as soft as it looked
• US pending home sales for March 3.4% versus 0.8% estimate
• US Treas Secretary Yellen: GDP data shows straight a consumer investment spending
• US yields move to new session highs. The 2 &10 year yields at highest level since November
• Kickstart the FX day for April 25 with a technical look at EURUSD, USDJPY and GBPUSD
• REPORT:BOJ to reportedly consider measures to reduce its government bond purchases
• Fed rate hike pricing plunges after GDP data
• Canada Feb average weekly earnings 4.53% vs 3.88% prior
• US March wholesale inventory advanced -0.4% versus 0.4% (revised from 0.5%) last month
• US March advanced goods trade balance $-91.83 billion versus $-91.1 billion estimate
• US Q1 advance GDP +1.6% vs +2.4% expected
• US initial jobless claims 207K versus 215K estimate
• The AUD is the strongest and the JPY is the weakest as the North American session begins
• ForexLive European FX news wrap: Dollar, stocks down awaiting US GDP data

The market got a scare after Q1 advance GDP growth came in lower than expected at 1.6% versus 2.4% expected. Meanwhile core PCE data for the quarter was higher-than-expected and 3.7% versus 3.4% expected. That scared traders further ahead of the monthly core PCE data scheduled for release tomorrow at 8:30 AM ET. There were whispers that the core PCE month-to-month could rise by closer to 0.5% versus the 0.3% expected when announced tomorrow. The YoY is expected at 2.7% and would be higher given numbers higher than 0.3%.

Lower growth and higher inflation is not the recipe for markets. As a result, stocks fell, bond prices fell (yields rose), and the US dollar moved higher. Yields across the curve moved to their highest level in 2024 with the 2-year yield moving above 5% (in his trading at 4.999% currently).

In the US equity market, the Dow Industrial Average average was down over -700 points at session lows. The S&P index fell as much as 81.04 points (-1.6%), and the NASDAQ fell as much as -368.83 points (-2.31%).

However, markets steadied. US stocks started to move higher. At the end of the day:

• Dow Industrial Average average closed down -378.12 points or -0.98% at 38085.81
• S&P index fell -23.21 points or -0.46% at 5048.41
• NASDAQ index fell -100.99 points or -0.64% at 15611.76.

The small-cap Russell 2000 fell -14.308 points or -0.72% at 1981.11. At session lows, the index was down as much as -37.6 points or -1.8%.

In the Forex, the US dollar moved higher but retraced most of the declines versus the the EUR, GBP, CHF, CAD. Although the AUDUSD and the NZDUSD recovered off of session lows, they could not move up to pre-GDP release levels.

The GBP is ending the session as the strongest of the major currencies followed by the AUD. The JPY was the weakest followed by the USD.

The USDJPY moved to yet another high for the year and highest level since 1990. Tha BOJ will announce their latest rate decision in the new trading day. Technically,, it would take a break of its 100-hour moving average at 154.977 followed by a break of the 200 hour moving average at 154.717 to give the sellers some hope that a temporary high might be in place. The current price is trading at 155.64.

For the EURUSD its fall and low for the day stalled right at its 100-hour moving average before bouncing back up toward its 50% midpoint of the April trading range. That level comes in at 1.07425. A move above that level in the new trading day would be more bullish.

The GBPUSD’s move lower stalled against its broken 38.2% retracement of the April trading range at 1.2455, and then snapped back higher toward its 100 bar moving average on the 4-hour chart at 1.2512. That level will be the barometer for trading in the new trading day.

Bank of Japan tonight. Core PCE data tomorrow.

This article was written by Greg Michalowski at www.forexlive.com.

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Société Générale assesses the potential for USD/JPY to test the Japanese Ministry of Finance’s intervention limits due to persistent US rate expectations and recent market dynamics. The bank highlights upcoming US economic data as critical to future currency movements.

Key Points:

• US Yield Curve Dynamics: The correlation between Fed funds futures and 10-year yields is notably high, reflecting a flat yield curve. This correlation significantly influences the USD/JPY exchange rate, with current US rate expectations supporting continued yen weakening.

• Potential for Yen Intervention: Given the strong correlation and current trends in US rate expectations, SocGen suggests that USD/JPY may soon test the MoF’s willingness to intervene significantly in the currency market to support the yen.

• Impact of US Economic Data: The recent market response to US PMI data indicates that positions in long dollar and short Treasury trades might be becoming overstretched. This situation sets the stage for next week’s US ISM and payroll data, which are expected to be crucial in determining short-term directions for USD/JPY.

• BoJ Meeting Expectations: While the upcoming Bank of Japan (BoJ) meeting is not anticipated to bring significant surprises, it remains a variable that could influence yen dynamics. Any unexpected shifts or statements from the BoJ could impact market expectations and potentially affect USD/JPY trends.

Conclusion:

SocGen emphasizes the importance of upcoming US economic indicators in shaping market expectations and influencing USD/JPY movements…Additionally, the potential for large-scale intervention by Japan’s MoF adds a layer of uncertainty and importance to the monitoring of these developments.

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This article was written by Adam Button at www.forexlive.com.

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