14th May 2025

Snapshot

• DXY: Rejection seen off the 50 DMA
• EUR/USD: Bessent giving off vibes that Europe is far from reaching a deal with the US over trade matters
• USD/JPY: Market speculates Japan Finance Minister Kato may want to stabilize the yen as part of broader trade talks
• AUD/USD & NZD/USD: Yuan has leeway to strengthen after US-China de-escalation, Antipodeans should firm as yuan proxies
• Oil: Broader over supply headwinds remains despite current run up
• Gold: Physical Gold to become Tier 1 Asset on July 1 under Basel III

US Dollar

Dxy extended higher off 99.172 (6 May low) to break prior 100.375 (1 May reaction high) high, as well as 100.813 (23.6% retrace of the January-April, 110.176-97.921 fall), to probe the 50 DMA~101.924. As yet, price action has been unable to push for a daily close above the 50 DMA. The broader downtrend off 110.176 (13 Jan YTD high) remains very much intact and 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. Back below 100.086 (9 May low) will dampen current recovery momentum and open up 6 May minor higher low at 99.172. A daily close above the 50 DMA though, could see current recovery phase prolong, aiming for 102.602 (38.2% retrace) next

Recently Released US Data:

• April CPI MoM 0.2% vs fc 0.3% vs prior -0.1%
• April CPI Ex Food and Energy MoM 0.2% vs fc 0.3% vs prior 0.1%
• April CPI YoY 2.3% vs fc 2.4% vs prior 2.4%
• April CPI Ex Food and Energy YoY 2.8% vs fc 2.8% vs prior 2.8%
• April Real Average Hourly Earning YoY 1.4% vs prior 1.4%
• April Real Average Weekly Earnings YoY 1.7% vs prior 0.8%

Monthly inflation picked up in midst of tariff swings, with April CPI MoM up 0.2% compared to March -0.1% fall. Core CPI rose 2.8% matching forecast, Headline CPI came in at 2.3% y/y vs 2.4% expected — the softest print since February 2021. This had Trump posting on his Truth Social account, calling for the FED to cut interest rates again, claiming that there is no inflation and prices of everything are practically down

Tariffs remain notably higher than pre-Trump days so economists are still expecting prices for consumers and businesses to rise in the months ahead

Chief US economist at Morgan Stanley said that previous US tariff hikes show a time lag between implementation and inflation showing up in the data, since private businesses take time to adjust their orders and prices

The Fed held interest rates steady last week citing concerns that the tariffs could lead to higher unemployment and inflation. Cleveland Fed President Hammack said that the uncertainty over potential changes in the trade and fiscal policy could extend the amount of time the central bank stays in current wait and see stance on interest rates

Barclays and JPMorgan both now expecting the next rate cut to be delivered in December. Barclays still expects US activity to slow in coming quarters but now does not expect a recession in H2 2025. JPMorgan had previously looked for a rate cut in September.

Deutsche Bank are sticking to their view that the US unit will keep weakening, even as tariff-related risks subside after the US and China scaled back their levies.

George Saravelos, speaking to BBG said that the past month has highlighted the risks of being overinvested in US assets and states that institutional investors are now unwilling to return to such high exposure. He adds that real money and central banks remain wary of "concentration risk" in US assets, while fiscal shifts in Germany, China and other countries have boosted the global economic outlook, challenging the long-held view of US economic outperformance.

HSBC Forex analyst Paul Mackel says interest rate differentials and other traditional drivers suggest the dollar should be stronger but it’s recent weakness shows that other forces are dominating the moves and there’s an ongoing distrust in the currency. He added that “US economic activity, politics and structural factors imply the dollar should be on soft ground, although not one that points to a multi-year decline”

Euro

EurUsd extended the correction off it's 3 1/2-year high at 1.1573 (21 Apr high) via 1.1381 lower high (6 May high) to probe the 50 DMA. Bounce off there give bulls a chance to regroup. Over 1.1381 and 1.1425 (28 Apr high) to reignite bulls once again for renewed attempts on 1.1573. A decisive daily close below the 50 DMA signals a much more deeper corrective phase may lie ahead, taking market back towards former 18 March high at 1.0955, possibly 1.0882 (7 Apr higher low) before the broader bull trend reasserts

US Treasury Secretary Bessent said that the European Union suffers from a “collective action problem” that’s hampering trade negotiations. But he did add that “I’m sure at the end of the day, we will reach a satisfactory conclusion”. Somehow Bessent is giving out vibes talks are not heading smoothly with the EU side, downplaying their prospects for a deal. Or Europe does not seem to be on the list of nations the US want to complete a deal with quickly. Perhaps it could also be the Trump administration negotiating more aggressively in light of recent positive market developments. This is also a reminder to investors to not extrapolate any positive headline generated by the Trump administration linearly as there is a good cop bad cop routine going on here, usually with Trump issuing sometimes mind boggling statements on tariffs or "fill in the blanks" and Bessent then coming in to sooth things out. Which way the final policy path is headed remains to be seen

In any case, we do not think that given the time constraints, we will see the US enact any trade deals in the traditional sense, more likely we will see frameworks of discussion to work towards but will no doubt be celebrated as massive "wins" by the Trump Administration. Will the Trump administration resume the reciprocal tariffs after the deadline? If it does, markets could again price in weaker US growth – JP Morgan estimates a 1.5%-2.0% GDP contraction under full tariffs, and fears of de-dollarization and fiscal unsustainability will once again arise. More likely, reciprocal tariffs will be broadly lowered, the events in early April suggest a US with massive net negative international investment of -26 trillion affords the rest of the world with much more negotiating leverage than the Trump administration will ever admit

Markets will also be focusing on the potential Istanbul talks between President Trump, President Putin and President Zelensky. If President Putin refuses a ceasefire to allow peace talks to proceed, the EU supposedly with Trump’s backing as well, will impose further sanctions on Russia. A successful negotiation will reduce geopolitical risk in Europe and boost the Eur

Meantime, on the data front, Germany’s Zew Survey Expectations indicator for May beat consensus of 11.3 and posted a reading of 25.2, above prior -14.0

German’s financial confidence jumped this month as there were signs that the announcement of “Liberation Day” tariffs up till it’s suspension probably represented the peak period in tariffs. From here on, with Trump administration’s eagerness to score wins in “trade deals” we should see US retreat from its more severe tariff proposals. The overt softening of stance between China-US also helps raise sentiments. ZEW respondents were surveyed from May 5-12, so the readings could be even more optimistic if the decisions by US-Chin to temporarily slash levies for a 90-day period were taken into account

ECB strong policy support, with the May cut and expectations of further easing also re-vitalized sectors like construction and banking

Also, with Friedrich Merz finally elevated to Chancellor, the new regime of fiscal expansion which includes a massive ramp up in defence and infrastructure spending and the economic knock on effects that it will likely bring, also boost confidence

Germany’s ZEW Current Situation index however, came in at -82.0, below consensus of -77.0 and prior -81.2, reflecting persistent weakness in Germany’s real economy. High energy costs and weak global demand continues to suppress manufacturing output. Aging infrastructure and labor shortage hinder short term productivity. Hopes are high though that the situation will improve once Chancellor Merz pushes through his spending plans to modernize the infrastructure and shore up the military

Japanese Yen

UsdJpy recovery bulls gain traction after pushing above prior 145.92 (2 May high) reaction high and the 50 DMA. Gains extended to probe above 9 Apr 148.27 lower high ahead of current pause off 148.65 (12 May high). While we do not rule out further climbs towards the 200 DMA~149.72, current inability to sustain with follow through gains above 148.27 suggest UsdJpy bears are attempting to wrest back control. Lapse back under the 50 DMA needed to put the downside trajectory back in play though

What is seen as a major de-escalation between US-China, the world’s two largest economies, boosted risk appetite and traders unwound from their haven bets. Net yen longs which was at record highs as per CFTC records was pared back. As of 6 May report data net speculators long yen position was at 176,859 contracts, with the 1 year Z-score still overstretched at over 3 standard deviations.

However, recent reports that Japan Finance Minister Kato will seek an opportunity to discuss currency matters with US Treasury secretary Bessent at the Group of Seven meeting in Canada have given Yen bulls renewed hopes as it suggests Kato may want to stabilize the yen as part of broader trade talks and that would mean taking steps to prevent the yen from weakening

Yesterday's softer than expected US CPI numbers and Trump's screams for the Fed to start cutting rates also aided in the dollar's decline

Post truce CNY have also strengthened to a six month high, reflecting improved confidence in China’s export outlook. This could also allow Japan to let the yen appreciate modestly without losing relative competitiveness in the same export markets they compete in

Japan’s PM Shigeru Ishiba stated that they hope to reach a trade agreement with US in July, around the time of Japan’s upper house elections. PM Ishiba intends to visit US around July 9, when the 90 day pause on “Liberation Day” tariffs end

A successful trade negotiation for Japan could see market narratives shift back to BOJ hike resumption as the tariffs trade uncertainty was one of the big stumbling blocks

Recently Released Japan Data

• April PPI YoY vs fc 4.0% vs prior 4.2%
• April PPI MoM vs fc 0.3% vs prior 0.4%

Australian and New Zealand Dollar

AudUsd saw fresh bids set in just above 30 Apr .6356 reaction low and the subsequent recovery off .6357 (12 May low) have since pushed back above the 200 DMA. Yesterday's daily close above the 200 DMA sets the stage for renewed attempts on recent YTD high at .6515 (7 May high), above which resume climbs towards 7 Nov 24' .6688 lower high

Deutsche Bank analyst George Saravekos indicated that a de-escalation in the global trade war actually benefits the rest of the world more than it does the US in terms of economic growth

The PBOC fix yuan at a much stronger UsdCny 7.1991 reference rate yesterday. The first time since early April it has gone below the 7.2 per dollar threshold. This should help firm the antipodean currencies as yuan proxies

Meantime, with inflation back in the RBA’s target band and the RBA confident that it will remain in the band, markets are expecting the RBA to cut rates at the 20 May meeting

While the tariffs are seen to both dent growth and stoke inflation, Australia's economic reliance on China means the risk of a slowdown likely outweighs other concerns. Chinese exports bound for the US market could also find its way to Australia, keeping a lid on inflation. Latest reduction of tariffs on Chinese exports to US alleviates the pressure on the regional growth outlook though and Australia OIS markets have pared back bets of rate cuts from about 100bps of cuts for 2025 the prior week to current 79bps of cuts

RBA’s Governor Bullock have emphasized that in this uncertain environment, the RBA will be guided by “what the data says and not by speculation on what the data might say”.

NzdUsd bulls refused to succumb below the 200 DMA, bouncing sharpy off .5847 (12-13 May lows) to reclaim the 200 DMA. Focus shifts back to .6029-.6038 (7 Nov 24' minor lower reaction high/also 61.8% retrace of .6379-.5486 fall), above which opens .6120 (11 Oct 24 minor lower high) next. Lapse under the 50 DMA~.5822 needed to dampen bulls

Recently Released New Zealand Data

• April Card Spending Retail MoM 0.0% vs prior -0.8%
• April Card Spending Total MoM -0.2% vs prior -1.5%
• March Net Migration 2480 vs prior 4040 (Revised)

Card spending details continue to suggest cautious consumption amongst households as they continue to prioritize spedning on essentials. This reflects persistent cost of living pressures, weak wage growth and rising unemployment. The data should support RBNZ case for continued cautious easing

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). Latest break above 65.29 (23 Apr low) could now set up for further climbs towards the 50 DMA~67.91. Reclaiming 68.65 (23 Apr high) needed to suggest a turnaround though. Back below 63.25 (7 May high) dampens current recovery momentum

Brent Crude firms on news on the US-China de-escalation. However, the two economic giants now go into a 90 day period where more complex issues than just simply reducing tariffs is up for negotiations. So, prepare for curveballs along the way, remember that the Phase One deal between US-China during Trump’s first term took 18 months, 90 days to come to an agreement between the two is likely overly ambitious

Oil price trajectory for next few days may well depend on the potential talks that is supposed to go down in Istanbul where President Zelensky seeks to have a direct meet with Russian President Putin, with President Trump potentially attending the meeting as well. The world awaits if Russia will agree to a ceasefire and begin peace talks. If not, US and it’s allies are reportedly considering new sanctions that will impose up to 500% tariffs on imports from countries that buy Russian energy products.

The broader macro headwinds for oil is by no means over. Global tariff rates remain high, likely stunting global growth and energy demand. OPEC+ new strategy of output hikes even if oil price weakens, to keep members in lockstep and to prevent further loss of market share to US shale oil producers, should continue to weigh

Gold unfolding a wide sideways trading range between 3203.04 - 3500.10 after posting a record high at 3500.10 (22 Apr high). While the support zone at 3193.74 - 3167.84 (14 Apr low - 3 Apr former high) holds, look for renewed climbs to target 3547.88 (1.764x ,2832.71-3167.84 off 2956.71 projection)

A key development to be aware of on the Gold front. Physical Gold will become a Tier 1 asset on July 1 under Basel III. Currently Gold is a Tier 3 asset, meaning banks could only count 50% of it's value towards their reserves and had to hold extra capital against it, making it less attractive as a reserve asset.

Tier 1 assets are considered the safest and most liquid assets such as cash and government bonds. Banks can count these at 100% of their market value towards their core capital reserves which are crucial for regulatory compliance and financial stability

Physical Gold becoming a Tier 1 asset could lead to increased institutional demand for it, as banks will be incentivized to hold more physical gold as part of their reserves. This current transition period - from now till July, could see increased activity in the Gold market as banks adjust their portfolios to comply with the new rules

This is a step towards recognizing Gold as "real money" by the global banking system.

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