Many seemed optimistic that the weekend trade talks between the US and China would de-escalate the tension. We are less sanguine.
Even if the tariffs on both sides were halved, there would still be an effective bilateral embargo. In the larger picture we are concerned that blocking PRC’s exports and denying it a direct investment strategy as an alternative will ultimately not lead to significant reforms in Beijing but will strengthen nationalism and create a more determined and aggressive adversary.
It was not out of affection for Berlin that Keynes warned against the bleeding of Germany after WWI. It is in a similar realpolitik vein that we encourage caution of what could be a more powerful containment than the more than 60 distinct military bases that the US has in the area.
Although the made 3–4-week highs against most of the G10 currencies, the lack of follow-through leaves it within the broader consolidative ranges that have dominated. The noted that risks had increased on both of its mandates. It clearly and firmly reiterated that there was no urgency to adjust policy given the profound uncertainty continuing to arise from US policy.
Other central banks, including the , the , the , the , the Antipodean central banks, and Sweden’s Riksbank are expected to cut rates at least once before the Federal Reserve.
The week ahead highlights include what is expected to little changed US readings, and the UK’s first estimates of Q1 25 , the UK and Australia’s latest , and a 50 bp rate cut by the . Meanwhile, leaders in both India and Pakistan appear to be prepared to pause hostilities even as they further mobilize.
US
Drivers: Both macroeconomic and technical considerations appear to favor the greenback. The resilience of the US labor market means that most of the other G10 central banks, leaving aside the Bank of Japan, will likely cut rates again before the Fed’s easing cycle resumes. The dollar sold off from mid-January through late April/early May. A corrective phase appears to have begun.
We remain concerned about the a confluence of negative developments in the coming weeks, including the supply shock coming from the effective embargo of Chinese goods with prohibitive tariffs, the boycott of US brands in Canada and Europe, the dramatic reduction in forward booking by tourists, the coming crunch from government layoffs and cooling of immigration, the resumptions of student loan servicing, and the cooling effect of the economic uncertainty amid a precipitous drop in consumer confidence.
Yet this may only be evident in the data that is reported in July, and more likely, August.
Data: The week ahead features what is expected to be little change in the year-over-year rate of April (2.4%) and firm , helped by effects to avoid the tariff, and firmer industrial output after the 0.3% decline in March. Housing starts are also expected to rebound after the heady 11.4% drop in March. Between the end of the FOMC meeting and when Fed Chair Powell speaks on Thursday, May 15, nearly half of his colleagues would have already spoken.
Prices: The reached a four-week high before the weekend but was unable to sustain the upside momentum. Still, it settled above 100.00 on a weekly basis for the second consecutive week and rose for the third straight week. A move above 101.30-40 signals a continued correction with a 102.00-20 area target. The momentum indicators continue to recover. A break of last week’s low (~99.15) would undermine the corrective tone.
EMU
Drivers: The 14.25-cent euro rally from early February through April 21 is over. The question now is whether it consolidates–moving broadly sideways that alleviates the overbought technical condition or whether it needs a proper correction. Fundamentally, the resilience of the US jobs market means that the ECB will cut again before the FOMC resumes its easing cycle.
The widening US two-year premium over Germany often offers the dollar support. It has risen by about 20 bp since the end of April.
Data: The US economy contracted by 0.3% in Q1 at an annualized clip, while the eurozone economy grew by about 1.6% annualized. The update this week will provide more details of European growth. Economists project growth in Q2 will be about half of the Q1 pace. The survey may draw some attention. The assessment of the current situation has improved in each of the first four months of the year, but at -81.2 in April, it is still dismal.
The expectations component collapsed in April, falling from 51.6 to -14.0; from the high since January 2022 to the low since July 2023.
Prices: The found support ahead of the weekend slightly below $1.12, a four-week low. The five-day moving average fell below the 20-day moving average last week for the first time since early April. The $1.1150 area has been the halfway point of the rally since late March, when the low was nearly $1.0735. The next retracement (61.8%) is near $1.1050. A move above the $1.1300 area would suggest continued consolidation rather than a downside correction.
Japan
Drivers: The correlation between changes in the exchange rates and changes in the US 10-year yield remains near the weakest since Nov 2023. On a rolling 30-day basis, it is below 0.20, having spent Q1 between 0.50 and 0.70. The rolling 60-day correlation is below 0.30. It was above 0.60 as recently as early April.
The yen is trading a bit more like a risk currency in the sense that the 30-day correlation with the S&P 500 is a little above 0.40, the strongest since mid-2023. Most notable is that the yen’s movement has become increasing a function of the dollar’s broader changes. The 30-day correlation of the changes in the exchange rate and the Dollar Index is near 0.88, the highest since 2016.
Data: Japan reports Q1 25 . It likely slowed considerably after a 2.2% annualized pace in Q4 24. The median forecast in Bloomberg’s survey is for a 0.2% annualized pace in Q1 25. Net exports may have been a drag, while private investment and public consumption probably slowed. Industrial output was virtually flat. Japan will also report the March current account, alongside which is a country breakdown of its foreign bond purchases and sales. but the report will not shed light on what some thought was foreign-led selling of US assets in early April. Weekly MOF data showed large bond sales in the week ending April 4 (~JPY2.6 trillion, ~$17.5 bln). The rest of April was nearly flat. In the week ending April 4, Japanese investors were substantial buyers of foreign equities (~JPY1.8 trillion) and were modest net buyers through April 25 (~JPY980 bln).
Prices: The dollar reached four-week highs against the ahead of the weekend near JPY146.20. It was turned back and fell to almost JPY144.80 in the waning hours of the week’s activity. We had thought the bottoming pattern projected toward JPY148, but for the past two weeks the JPY146 area contained the greenback. We are also monitoring a down trendline connecting the January and March highs, which is found near JPY146.90 on Monday and around JPY146.35 at the end of the week.
UK
Drivers: Sterling and the euro tend to move in the same direction against the dollar. The 30-day correlation of the changes in the two exchange rates is around 0.75. The 60-day correlation is closer 0.80. It has not been below 0.75 this year. After last week’s rate cut and official comments, the market discounted a more gradual easing path. It is now pricing in a year end rate around 3.65%, about 10 bp higher on the week (now: 4.25%). The US-UK trade deal does not seem to impact either economy very much, but the consequences seem to be at least two-fold. First, it further pulls the UK from the EU, and second, it may make trade talks with others, who object to the range of tariffs, including the so-called reciprocal tariffs, which the UK was not subject.
Data: The key to next month’s BOE decision is unlikely to rest on the upcoming data. The highlights are the jobs report and Q1 GDP and real sector data for March. The economy is expected to have grown by 0.3% in the Jan-Mar period after practically stagnating in H2 24. Consumption and business investment look weaker. Manufacturing output may have continued to contract. However, the BOE’s forecast was considerably more optimistic with a 0.6% quarterly expansion projected, though nearly stagnating this quarter.
Prices: approached $1.3200 ahead of the weekend, its lowest level since April 17, and recovered to nearly $1.3325. The momentum indicators are falling, and the five-day moving average is now below the 20-day moving average. However, the price action is still consistent with a consolidative phase rather than a correction. Sterling did not trade above $1.3400 last week, and the high was set in late April near $1.3440.
Canada
Drivers: The Canadian dollar also continues to seem to be more a function of the broader movement of the US dollar. The rolling 30-day correlation with changes in the Dollar Index is above 0.70 for the first time in six months. Sometimes, the Canadian dollar is more of a risk currency with a stronger correlation with changes in the S&P 500, but the 30-day correlation is below 0.30.
Data: With the April jobs data behind us and the CPI due later in the month, real sector data this week is mostly from the housing sector (starts and permits, and existing home sales). At the end of the week, Canada reports March portfolio flows. Canada enjoyed net inflows that averaged C$16.0 bln a month in 2024, which was more than the monthly average of 2022 and 2023 combined. That said, net inflows slowed to a trickle in the first two months of 2025 and are the weakest since Jan-Feb 2004.
Prices: The 0.2% rise in Canada’s April unemployment rate to 6.9% and a loss of 31k manufacturing jobs, the most since January 2009, outside the pandemic, weighed on the . It was the only G10 currency not to have risen against the US dollar ahead of the weekend. The greenback held above CAD1.3900. The momentum indicators are still favorable and the CAD1.4000-30 area remains a reasonable near-term target. Support is seen in the CAD1.3850-70 area.
Australia
Drivers: The seemed to benefit from the US dollar’s broad weakness and optimism that US-China trade war has reached some sort of extreme tantamount to an embargo. But the push above $0.6500 was repulsed, what seemed like an exhaustive move with a bearish technical sign warned short-term trend followers and moment traders to begin moving to the sidelines. The 30-day correlation between changes in the Australian dollar and the is near 0.50 only slightly higher than with the Dollar Index. Still, the correlations with the dollar-bloc (Australia, New Zealand, Canada) are above 0.75.
Data: The last important high-frequency data points before next week’s central meeting are the May consumer inflation expectation survey and the April employment report. The Melbourne Institute’s consumer survey showed a jump in March to 4.2%, the highest for the year and matching the most elevated reading since last September. Nevertheless, over the past month, the Australian yield has fallen sharply, and the yield curve has steepened (bullish steepening). Meanwhile, overall job growth practically stalled in Q1 (<7k), the weakest quarter since Q3 21. Full-time employment grew by 9k in Q1 25, after 31k in Q4 24 and nearly 132k in Q1 24.
Prices: After rising to $0.6515 in the middle of last week, the Australian dollar posted a key downside reversal and fell to almost $0.6370 ahead of the weekend. It recovered smartly and reach almost $0.6435 in the North American session, perhaps encouraged by speculation that the weekend US-China trade talks mark the beginning of the de-escalation. Initial resistance may be found in the $0.6440-60 area. Disappointment with the outcome, of the weekend trade talks, especially if the effective embargo is not lifted, the Aussie can be sold in disappointment with support extending into the $0.6350-$0.6370 area.
Mexico
Drivers: The often trades like a risk currency (30-day correlation of ~0.65 with the changes in the ) that is also somewhat protected by a still wide interest rate premium. The peso is one of the few emerging market currencies that trade 24 hours a day. It is sometimes used as a proxy for less liquid emerging market currencies.
Data: The central bank meeting is on May 15. It cut rates five times last year in quarter-point steps to 10.0%. It has cut another 100 bp this year in two half-point steps (9.0%). The weakness of the economy and the resilience of the peso may give the central bank scope for another 50 bp move. The swaps market is pricing in a terminal rate around 7.25% by this time next year.
Prices: After being turned back from almost a three-week high on Tuesday (~19.7820), the greenback was sold to nearly MXN19.4350 ahead of the weekend and it closed below MXN19.50 for the first time since last October. . The next important chart area is near MXN19.37, which corresponds to the (38.2%) retracement of the rally that began last April (~MXN16.26) to the February high (~MXN19.29). A break of that could target the MXN19.00-5 area.
คำแนะนำการอ่านบทความนี้ : บางบทความในเว็บไซต์ ใช้ระบบแปลภาษาอัตโนมัติ คำศัพท์เฉพาะบางคำอาจจะทำให้ไม่เข้าใจ สามารถเปลี่ยนภาษาเว็บไซต์เป็นภาษาอังกฤษ หรือปรับเปลี่ยนภาษาในการใช้งานเว็บไซต์ได้ตามที่ถนัด บทความของเรารองรับการใช้งานได้หลากหลายภาษา หากใช้ระบบแปลภาษาที่เว็บไซต์ยังไม่เข้าใจ สามารถศึกษาเพิ่มเติมโดยคลิกลิ้งค์ที่มาของบทความนี้ตามลิ้งค์ที่อยู่ด้านล่างนี้
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