8th May 2025

Snapshot

• DXY: Soft tone in Asian session as markets pare back some of the US-China trade talk optimism after Trump indicated reluctance to reduce tariffs
• EUR/USD: Germany's Factory Orders and Construction PMI hints industrial sector stabilizing but Trump’s tariffs likely to hinder growth
• USD/JPY: BOJ March minutes reveals no clear consensus as to when next rate hike should be with the tariff situation clouding outlook
• AUD/USD & NZD/USD: Soft dollar tone in Asian session allows the antipodeans to be bided back up
• Oil: 2 days bounce fizzles out, awaits outcome to China-US talk for directions
• Gold: Firming in Asian session

US Dollar

Dxy extended higher off 98.901 (28 Apr low) to breach 23 Apr 99.939 reaction high. Market could stretch towards former low at 101.267 (3 Apr low), even up towards the 50 DMA~102.575, and the broader downtrend off 110.176 (13 Jan YTD high) will remain very much intact. We continue to see eventual renewed attempts on 97.921 (21 Apr low) after current recovery phase plays out. A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggests longer term bears now taking a hold on market. Thus far price action remains trapped below 100.813 (23.6% retrace of the 110.176-97.921 fall). Back below 98.901 (28 Apr reaction low) will be initial hint that bears have resume control

The Fed stand pat on rates as expected but Fed Chair Powell warned of stagflation risks to the economy during the news conference. He said “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment”

Expectations for a rate cut at the Fed’s next meeting June were pared back as Powell said officials felt like the costs of waiting to learn more about the economy were “fairly low”. Newswires reported he used the term “wait and see” 11 times, suggesting the Fed is in no hurry to judge the path forwards

Even though the Fed made pre-emptive rate cuts in 2019 to cushion the economy from a global slowdown and trade tensions, Powell said the current situation is different. Inflation back then was below the Fed’s 2% target, and it is above there now, with the expectations that there will be upwards pressure on inflation due to the tariffs

Looks like the Fed will continue to walk the tightrope on interest rates while awaiting how the two big risks from the tariffs, unemployment and inflation unfolds. Market will be scrutinizing upcoming months inflation and labour data as data from May onwards will better reflect the impact of tariffs on the economy

Market now looks ahead to the next main event this week the Saturday meeting between Treasury Secretary Bessent and Chief Trade Negotiator Jamieson Greer with the Chinese team headed by Vice Premier He Lifeng

The Chinese Government unveiled a range of measures to boost the economy, with a focus on tech and consumption indicating a broader push to support structural drivers of the economy. The range of policies were designed to strengthen Beijing’s hands in the negotiations. The mere fact that high level officials are meeting to talk is already sparking optimism in the markets but with both sides looking to project strength and assuming they have the upper hand in the negotiations, the outcome remains uncertain. Nevertheless, it is a crucial first step before the two Presidents can meet to finalize any deals agreed upon

Sean Stein, president of the US-China Business Council, told Bloomberg TV “You don’t put Secretary Bessent and Jamieson Greer on a plane to fly all the way to Europe and have these kinds of discussions, only to have the outcome be essentially nothing”. We too, don’t believe it will be nothing, with Trump’s administration you can at least bank on great soundbites. But how soon something concrete arises from the meeting remains to be seen.

Trump also flagged a trade deal in his Truth Social Post and said he plans to hold a news conference today on the Major Trade deal". The New York Times reported the deal would be with the UK. If they are accurate, this is actually a 5 year deal in the making and does not offer any positive light on how the broader "Liberation Day" tariff negotiations will play out, in fact, markets may view it in a negative light after realizing how long these kind of deals need if you include the talks before formal negotiations began. According to the Office of the United States Trade Representative, formal negotiations for this US-UK deal commenced on May 5 2020. As we have mentioned, trade deals are not McDonalds meals, in a matter of weeks, what we get will likely not be the traditional comprehensive trade deals that require congressional approvals but rather agreements that can easily be backtracked or withdrawn.

Meantime, David Perdue a former Republican US senator from Georgia has been sworn in as the new US Ambassador to China. President Trump emphasized the importance of his appointment, stating he is entrusting Perdue to help manage the complex US-China relationship. During the swearing in of David Perdue as ambassador to China, Trump insinuated it was China, not US who initiated the meeting. When asked if he was willing to reduce tariffs to get China to negotiate, Trump said "No".

Given that Perdue was labelled "anti-China' by a Chinese think tank while in Congress and he wrote an essay saying that Beijing wanted to "destroy capitalism and democracy" and the US led World Order, we can't wait to see how "well" this plays out. Be prepared to pare back some of the optimism heading into this Saturday's US-China meeting

Euro

EurUsd posted a 3 1/2-year highs at 1.1573 (21 Apr high) ahead of a 3-legged correction which may have terminated at 1.1266 (1 May low). Over 1.1425 (28 Apr lower high) to reignite bulls for renewed attempts on 1.1573. Above which paves the way for 28 Oct 21’ 1.1692 high next (also near 76.4% retrace of January 2021-September 2022, 1.2349-.9536. fall). Below 1.1266 delays but fresh bids could yet set in towards 1.1214 – 1.1144 (25 Sep 24’ former high – 3 Apr former high)

While Asian currencies have recently paused their recent sharp rallies against the dollar, the clear uptrend in the Bloomberg Asia Dollar Index suggest this may not be a one-off thing and there remains legs for this bull run to continue. We do not rule out further unwinding or demand for dollar hedging from the dollar rich Asian nations and this could continue to send reserve related flows to the Eur, Yen and Gold

According to Eurizon SLJ Capital's Stephen Jen, Asian exporters and investors may have amassed an "extremely large" pile of dollars through the years, widening the region's surplus with the US. He estimates these dollar hoardings to be in the region of $2.5 trillion. If the trade war deepens and global trade activity with US declines, some Asian investors might unwind this stockpile and this could pose severe downside risks to the dollar

Reuters reported that Ukraine is considering a shift away from the US dollar, possibly linking it's currency more closely to the Euro amid the splintering of global trade and it's growing ties to Europe. Ukraine launched it's currency the hryvnia in 1996 and since then it has used the dollar as the reference currency

Recently Released Eurozone Data

• Eurozone March Retail sales data MoM -0.1% vs fc -0.10% vs prior 0.20% (Revised)
• Eurozone March Retail sales data YoY 1.6% vs fc 1.60% vs prior 1.90% (Revised)

March retail sales numbers suggests ongoing trade uncertainty and weaker growth in pay keeps holding back consumers from splurging. Retail sales turned negative at -0.1% MoM. Looking ahead, the lower interest rates is expected to give consumption a boost but slowing growth in real income will continue to be a drag

• Germany March Factory Orders MoM 3.6% vs fc 1.3% vs prior 0.0%
• Germany March Factory Orders YoY 3.8% vs fc 1.2% vs prior -0.2%
• Germany April HCOB Construction PMI 45.1 vs prior 40.3

Germany’s March factory orders rose 3.6% MoM, well above forecast for a 1.3% rise. This suggested the German industrial sector was starting to stabilize after a long period of weakness. The improvement was widespread with electrical and transport equipment, machinery, automotives and pharmaceuticals all contributing. The March solid performance could also be due to companies trying to front run the tariffs. Going forward the outlook remains clouded with Trump’s tariffs likely to hinder growth and with the EU and US trade talks thus far heading nowhere

Germany’s April Construction PMI rose sharply to 45.1, marking the highest reading on over 2 years. While it remains in contractionary territory, the pace of decline has slowed considerably across housing, commercial and civil engineering segments. This broad based improvement and a stronger order book suggest the sector may be near a turning point

Japanese Yen

UsdJpy recovery off recent YTD low at 139.89 (22 Apr low) extended higher off 141.97 (29 Apr low) to break 144.56 (former 4 Apr low), touching 145.92 (2 May high) thus far. Stronger resistances lie above at 146.54 (11 Mar former low) – 50 DMA ~146.88 and while under there, risk is for the broader bear trend to reassert. Lapse back under 141.97 will suggest bears are back in force

Recently released BOJ minutes from their March policy meeting when the key policy rate was held at 0.5% revealed a BOJ board member urging caution when considering the timing of the interest rate hikes, particularly if the negative impacts from the US tariffs campaign increases

Another indicated that is is quite possible risks from US levies would have a significant negative impact on Japan's economy. A few members indicated they must closely monitor market developments and act nimbly if needed. While another said that although uncertainties are heightened, the bank need not always conduct monetary policy in a cautious manner and may need to act decisively. Yet another suggests that there may be a need to shift to a neutral stance after another rate hike

All in, the minutes of the March meeting suggests there is no clear consensus amongst members on when the next rate hike should be with the tariff situation clouding outlook

BOJ's Ueda reiterates that the BOJ will raise borrowing costs if the economic outlook is realized. Inflation gauges continues to show price pressures remain elevated nationwide. Much will hinge on the outcomes of the trade talks between US-Japan. If Japan could get US to suspend or pare back the tariffs on Japan substantially it could allow BOJ to refocus on the task of monetary normalization

The BOJ is scheduled to release a summary of opinions from it's April 30-1 May meeting on 13 May

Meantime, recent news on the negotiations front suggests that the US has rejected Japan's full exemption from not only the 10% reciprocal tariff but also it's country specific tariff. US officials apparently told Japan's negotiator Ryosei Akazawa that the Trump administration only intends to put a cut in the 14% Japan specific tariff on the negotiating table. Previously, media reports indicated the two sides remained at odds on the key issue of auto tariffs. Nevertheless, Chief Negotiator Akazawa expressed hopes that the two sides will reach an agreement in June.

Australian and New Zealand Dollar

AudUsd rallied sharply off YTD low at .5915 (9 Apr low), breaking above the 50 DMA~.6286 decisively and extending gains to breach the confluence of resistances in the .6389-.6391-.6409 area and the 50% retrace of the .6942-.5915 fall at .6428. Traded to a fresh YTD high at .6515 yesterday before current dip. The recent move above .6409 and the 200 DMA suggests AudUsd is hammering out a bottoming process and bulls should aim to press towards .6550 (25 Nov 24' lower high/also 61.8% retrace) next. Above which exposes 7 Nov 24' .6688 lower high. Back below the 50 DMA~.6313 needed to dampen current bullish momentum

Market dips back below the 200 DMA as it pares back some of the optimism that two of Australia's biggest trading partners are finally taking the first step towards resolving their trade war. Treasury Secretary Bessent and Chief Trade Negotiator Jamieson Greer will meet the Chinese team headed by Vice Premier He Lifeng for negotiations in Switzerland. What will unfold from the meeting is still anyone's guess as while Bessent is seen as pragmatic, Greer is a known China hawk.

During the swearing in of David Perdue as ambassador to China, Trump insinuated it was China, not US who initiated the meeting. When asked if he was willing to reduce tariffs to get China to negotiate, Trump said "No".

Finance ministers from the Asean Plus Three, a group comprising of the ten Asean member states plus China, Japan and Korea put out a statement this week reaffirming that they would try to offset the global trade shock with "greater inter regional trade". This also aligns with recent Asian currencies strengthening and ASEAN plus Three broader push to reduce dollar dependency and hedge against trade volatility

While there has been a pause to the recent uptrend in Bloomberg Asia Dollar Index, we do not rule out further unwinding or demand for dollar hedging from the dollar rich Asian nations. Also the recent basket of Asian currencies which have recently appreciated sharply against the dollar competes in the same export markets as China, as such there is basically less need for PBOC to depreciate the CNY, especially if China is amid negotiations with the US. Today's Yuan fixing with reference rate at 7.2073 per USD, a weaker fixing for the yuan compared to past few days, is indicating they are not about yuan to strengthen unnecessary and opting for stabilization at the moment. However, offshore UsdCnh have breached the 200 DMA support recently and suggest scope for further yuan strength. This should provide positive overtones to the antipodeans as Yuan proxies. Recent sweeping measures undertaken by the Chinese authorities to boost the economy should also have positive spill overs on the antipodeans

NzdUsd found support at .5894 (1 May low / just above the 200 DMA ~.5882) to stem recent corrective pullback off it’s 22 Apr .6029 YTD high. Renewed attempt on the .6029 YTD high though, have been rejected at .6023. Sideways consolidation over the 200 DMA~.5883 should now ensue. Any overshoot below the 200 DMA should see bids coming in near former highs at .5831-.5853 (18 Mar – 3 Apr highs). Market needs further bullish triggers to push above .6029-.6038 (7 Nov 24' minor lower reaction high/also 61.8% retrace of .6379-.5486 fall) and open .6120 (11 Oct 24 minor lower high) next

As with the Aussie, near term trigger depends on the tone that will be set after Saturday's meeting between US-China

Oil and Other Commodities

Brent Crude Oil nearly full retrace April's 58.40-68.65 recovery rally before bouncing off 58.50 (5 May low), but only reclaiming 68.65 (23 Apr high) suggests a turnaround. Below 58.40 risks fresh 4 year lows towards 57.42 (13 Jan 21 former high)

The EIA in it's monthly outlook cut it's 2025 average oil production forecast to 13.4 million barrels per day from 13.5 million b/d. The bearish oil price reduced expectations for US crude oil production growth.

As indicated before, many analysts are seeing Saudi Arabia’s willingness to push for an increase in OPEC+ output despite falling prices, as a move to punish OPEC+ members like Iraq and Kazakhstan who have repeatedly exceeded their production quotas. Some analysts also see this as a way for Saudi Arabia to defend and potentially regain market share that OPEC+ has lost to non-OPEC producers, particularly US shale oil companies, who generally need oil prices above $60 per barrel to remain profitable and maintain or expand their output

As it is, the recent 58.40 floor in Brent Crude remains intact despite news of OPEC+ increasing output, that in itself should give Oil bulls some optimism despite all the recent dire forecasts on oil price trajectory

Near term, oil recovery may not make much headway though, as global demand worries still abound, the tone set after this Saturday meeting between US-China could determine near term trajectory for oil, as it could signal peak demand destruction have been priced in for the trade wars or things could get worse

Gold posted a record high at 3500.10 (22 Apr high) ahead of a much-needed corrective pullback. Downside thus far halted above the 3193.74 - 3167.84 (14 Apr low - 3 Apr former high) support zone. We see scope for market to renew up climbs to target 3547.88 (1.764x ,2832.71-3167.84 off 2956.71 projection) next. Market firming again in today's Asian session after yesterday's dip from 3435.63, a 2 weeks high

Initial optimism over the upcoming US-China Trade talk sap some haven demand. However, Trump's recent comments (see under Dollar section) suggests the path towards a resolution of the current trade impasse will be anything but easy

The Fed kept rates on hold as expected but warn of rising stagflation risks. There is a possibility that US economic data have peaked, with the negative impact from tariffs becoming more visible in the upcoming months data. If we see a downturn in the labour data it could finally tilt the Fed towards cutting rates to support employment. Non-interest-bearing Gold will tend to benefit

With the recent broader dollar unwinding amongst the Asian nations, Bloomberg Asia Dollar Index is now in a very clear uptrend since early April. We do not rule out further unwinding or demand for dollar hedging from the dollar rich Asian nations and this could continue to send reserve related flows to the Eur, Yen and Gold

The longer-term trend bull drivers for Gold like the continued Central Banks buying and the Trump's administration agenda to extend and expand on the Trump's Tax Cuts and Jobs Act (TCJA) which looks set to widen the fiscal deficit and bolster the case for a structural weaker dollar, should keep Gold well bided. Treasury Secretary Bessent himself, have warned that US government debt is on a "scary" and unsustainable trajectory with US debt to GDP ratio at 124% as at end 2024.

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