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Dovish Leans Post FOMC Further Weigh on Greenback, NFP in Focus

FOREX
  • With the May FOMC outcome leaning dovish, a further decline for US yields has moderately weighed on the USD index on Thursday. G10 gains have been concentrated in CHF and JPY, with similar advances seen for Antipodean FX and the Canadian dollar.
  • Naturally, the focus was once again on the Japanese yen, following the suspected intervention late Wednesday, which likely takes the BOJ’s net USD selling to roughly $60 billion, a similar amount to that deployed in 2022 to support the local currency. USDJPY recovered back to 156.28 in APAC trade, however, has since consistently traded with a downward bias. The pair is now down 0.5% on the session, and sits just 75 pips from the 153.00 lows.
  • This week’s volatile session highlights the start of a possible corrective cycle and yesterday’s sharp sell-off reinforces this theme. The pair has traded through support at the 20-day EMA - at 154.58 - exposing the 50-day EMA at 152.39, a key support. Note that trendline support drawn from the Dec 28 low, lies at 151.05.
  • The CHF remains one of the best performers, reversing a small part of recent weakness as data this morning confirmed the stickiness of CPI, which came in well ahead of expectations (1.4% vs. Exp. 1.1% Y/Y). As a result, USD/CHF has reversed further below 0.92 and might be lining up a test of next support at the 0.9088 level.
  • EURUSD and GBPUSD remain close to unchanged and have been relatively insulated to the broader greenback moves as market participants may be sitting on the sidelines ahead of the key US employment report scheduled on Friday.
  • Few analysts look for an upside surprise for the u/e rate, but we wouldn’t rule one out with risk of a dovish reaction. At 3.83% in March, it doesn’t take much to move closer to the FOMC’s 4.0% end-2024 forecast. Following the data, US ISM Services PMI will round off the week’s calendar.
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