Asian FX Open: Pause on dollar assault as Trump walks back on firing Powell comments and softens stance on China
Snapshot
- DXY: As mentioned before, Trump is in the de-escalation phase of his escalate to de-escalate Art of Deal modus operandi, reaches out to China
- EUR/USD: ECB President Lagarde says they have almost achieved it's inflation goals & needs to be extremely data dependent in future rate decisions
- USD/JPY: Japan may be in right place, right time to wring a better trade deal for itself
- AUD/USD & NZD/USD: US softening stance towards China could keep the antipodeans on a bid tone
- Oil: Worries that Oil majors will reduce capex in view of low oil prices
- Gold: A much needed corrective dip for bulls to regroup and stage for next leg higher
US Dollar
Dxy breach below the 98 mark to post fresh 3year lows at 97.921 (21 Apr low) before bouncing. Upticks should fade under 100.276 (15 Apr minor lower reaction high), on overshoot, possibly towards former 101.267 low (3 Apr low) before bears reassert. The 30 Mar 2022 low 97.685 target is next downside target, loss of which opens 97.441 (28 Jan 22' former high) - 96.523 (25 Feb 22' low) next. A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggest longer term bears now taking a hold on market.
The rebound in US markets started off with reports of “significant progress” towards a trade deal with India, following talks between Vice President JD Vance and Indian PM Narenda Modi. It was later fuelled by reports of a "softening" stance towards China as US Treasury Secretary Bessent said the "standoff with China is unsustainable and that he expects the situation to de-escalate". Trump also said the China tariffs "will come down substantially". He also dismissed comments by Kevin Hassett, the director of National Economic Council, that the administration was studying whether the president could fire Powell and said he only wanted Powell to be more active in terms of "his idea to lower interest rates"
As we mentioned yesterday, with US dollar, equities and treasuries in the emerging market pattern of selling off all at the same time, "The treasury markets checkmated Trump on pushing on with his reciprocal tariffs, will it checkmate him a second time and see him use the carrot rather than stick approach on Powell?". Seems like it did
We also previously mentioned that "after having paused the reciprocal tariffs for 90 days, there are other signs he is now in the de-escalation phase of his escalate to de-escalate Art of the Deal modus operandi. Instead of a blanket tariffs on ALL Chinese imports, he carve out electronics/semiconductors for further investigation allowing a temporary lifeline for Chinese exporters. Treasury Secretary Bessent, considered the more rational and market-savvy member of Trump's administration also now appears to be the dominant mouthpiece for the Trade negotiations, instead of the more extreme hawks like Peter Navarro and Howard Lutnick. In Bessent's recent appearance in a number of networks, his emphasis has shifted to pro-market policies, tax cuts and deregulations, the initial "detox" warnings the economy has to go through is no longer talked about."
With Trump looking to trumpet some wins after the turmoil hitting US markets, Japan is in the right place at the right time to wring a better trade deal for itself. It is likely the talks will score some easy victories that both sides can frame as mutually beneficial eg; tariff free rice imports from US given Japan’s domestic rice shortages and soaring prices.
Expect a series of “promising” trade negotiations to emerge in the coming weeks as the administration seek to win back some credibility for their tariff strategy
Market could use this as an excuse to spark a risk asset rally and take some profits off their dollar shorts, giving dollar bulls a much-needed respite
The longer-term downtrend in the dollar is unlikely to be derailed though. Whether the Fed Chair resigns, whether Trump can find some legal moves to remove him, or whether Powell sits out until the end of his term in May 2026, there are a number of strategists who believe the damage has already been done. The next Fed chair will be picked based on how much he aligns with Trump’s policy preference. So, it is goodbye Fed independence and hello politicization of US monetary policy
Add this to the increasing number of reasons that is damaging America’s credibility, including Trump’s aggressive tariffs based off napkin maths, the threats to remove the security umbrella from traditional allies, the flip flopping on trade policies, and you have the calls for “Sell America” now becoming a loud scream
BBG economist is anticipating 25bps points of cuts from the Fed this year and 150bps next as Powell’s successor plays catch up to please his boss
IMF said US tariffs now exceed the highs reached during the Great Depression. They stated that the sharp rise in tariffs marks the onset of a new era that will see most economies grow more slowly, with US suffering one of the largest hit to it’s prospects
Regardless of how many "successful" trade deals they role out the next few weeks/months, we remain sceptical a comprehensive international treaty that will bring about "benefits" to the US can be achieved in a short span of time, more likely it will be fluff to score a media victory and unlikely anything concrete to bring net benefits to the Usa, given the negative impacts the tariffs have wrought.
We continue to believe we are amid a global macro regime shift. Investors will continue to vote with their capital and with the US $24 trillion net international investment deficit, the longer-term divestment trend will continue to play out as this shift to a less America-centric financial order takes shape
Recently Released US data
- April Philadelphia Fed Non-Manufacturing Activity -42.7 vs prior -32.5
- April Richmond Fed Manufacturing Index -13 vs f/c -7 vs prior -4
- April Richmond Fed Business Conditions -30 vs prior -14
The uncertainty in trade policy and rising stagflation fears continues to weigh heavy on these Fed regional surveys. April Philadelphia Fed Non-Manufacturing Index at -42.7 was the lowest since May 2020
Richmond Fed Survey shows signs of stagflation ahead with orders, shipments and employment declining amid trade policy uncertainty. Firm's expectations that prices paid will rise reached a historical high
Euro
EurUsd have fully retraced the September 2024-February 2025, 1.1214-1.0141 fall, extending gains to post 3 1/2-year highs at 1.1573 (21 Apr high) thus far. Scope now seen for advance towards 28 Oct 21’ 1.1692 high (also near 76.4% retrace of January 2021-September 2022, 1.2349-.9536. fall). Look for current overbought corrective pullbacks to seek fresh higher supports towards former key peaks at 1.1214-1.1276 (25 Sep 24' - 18 Jul 23' peaks)
Dollar bulls got some respite from supposedly "significant progress" on trade talks with both Japan and India and with Trump walking back on comments to fire Powell and a "softening" stance towards China
We are seeing a pause not a reversal in the ongoing Sell America and Buy Gold and any other currency not Usd theme and Euro which forms the largest component in the DXY should continue to be a major beneficiary. With the dollar treated like an emerging market currency, it’s relative yield advantage is not helping the dollar at all even as the divergence in EurUsd away from narrowing German10yr-Us10yr yields gets wider.
ECB quarterly survey of professional forecasters shows expectations for inflation ticking up slightly with gains of 2.2% and 2% for 2025 and 2026, up from previous forecasts of 2.1% and 1.9% respectively. Expectations for 2027 and the longer term remain at 2%, ECB’s price stability target
Forecasters also see slower economic growth for 2025 and 2026, at 0.9% and 1.2% compared to prior forecasts for 1% and 1.3% respectively. 2027 forecast was however raised to 1.4% from 1.3%. Unemployment forecasts lowered to 6.3% for 2025 and 2026
ECB President Lagarde says the ECB has almost achieved it’s goal of returning inflation to 2% and going forward, they need to be “data dependent in the extreme” as they decide whether to extend or pause their rate cutting cycle which began in June 2024
ECB Vice President Luis de Guindos said the euro could become an alternative to the dollar as a reserve currency if Europe increases it's integration efforts. He indicated that if Europe closes regulatory gaps and "speak with one voice", the euro's global weight will increase but notes that it is a longer term idea
The Eurozone, UK, France and Germany will be releasing their April Preliminary PMI data later today
Manufacturing PMI’s are expected to remain contractionary across all regions while service PMI’s in Germany and the UK are projected to stay resilient, albeit with France’s services sector continue to lag
Japanese Yen
UsdJpy resumes downtrend off 148.27 lower high (9 Apr high), to nearly retrace the Sep 2024-Jan 2025, 139.58-158.87 rally. Bears touched a fresh YTD low at 139.89 ahead of current bounce to unwind recent oversold techs. A lapse under 139.58 should open 28 Jul 23' 138.07 higher low. The bearish crossover of the 50-200 DMAs continues to weigh, and any corrective bounces should fade under former lows at 144.56-146.54 (4 Apr - 11 Mar lows)
Bilateral trade talks look set to dominate narratives as market looks to see how much concessions the Trump administration is willing to give on the reciprocal tariffs. US-Japan talks have become the high stakes meeting likely setting the tone for nations around the world in seeking their tariff exemptions. A positive outcome could allow dollar bulls a further breather following Trump's walk back on his comments to fire Powell. It could also continue to fuel further recovery in risk assets which has hit oversold states and could also end up seeing traders continue to take some profits off their Yen long bets in a buy the rumour sell fact type of move.
CFTC data as of reporting date 15 Apr shows speculators net long JPY interest increase by 24,788 contracts to a massive 171,855 contracts. Despite the 1-year z-score hitting above 3 standard deviations, in a paradigm shift where market is trying to price in the new normal in global trading relations, overstretched positions could get even more so. Nomura lowers it's year end dollar forecast to 137.50 from 140.00 amid increasing concerns over US stagflation and US asset credibility. Breaching 16 September 2024 139.58 pivot low could encourage technical traders to pile on additional UsdJpy shorts
Japan’s negotiators surely sensed Trump’s desire to conclude the US-Japan talks “successfully” as he is likely in the de-escalation phase of his escalate to de-escalate Art of the Deal modus operandi. They will also not be lost on the fact that the US seeks to tie as many nations to their side before negotiating with China with a stronger hand. The turmoil in US markets will also be seen as a weakness. Perhaps that explains PM Ishiba’s sudden “combative” statements on defending Japan’s interest and not to accede to US every demand. It was also reported that a Japanese delegation will deliver a letter from PM Ishiba to President Xi to avoid getting caught in the crossfire of escalating trade friction between China and Japan
It is likely the US-Japan talks will score some easy victories that both sides can frame as mutually beneficial, eg; tariff free rice imports from US given Japan’s domestic rice shortages and soaring prices.
While traders are focusing on the currency discussions ahead between Japanese Finance Minister Kato and US treasury secretary Bessent, Tokyo will likely resist explicit currency agreements but may use diplomatic language about “market determined rates”. With the steel, aluminium and autos tariffs still in place, BOJ will remain reticent about imminent rate hikes as they could harm Japan’s fragile economic recovery
BOJ officials stated that they will maintain their existing stance of gradually raising interest rates despite ongoing uncertainties from the tariff situation. Their overall economic projections largely remain on target and they will wait for more data to analyze the impact from US tariffs. According to BBG, BOJ officials may consider cutting it's price forecast in it's upcoming quarterly report due to the stronger yen, cheaper oil and economic weakness, with a core inflation projection of around 2% for fiscal 2027. Economic growth projection of 1.1% for this year may also be lowered, with Barclay economists anticipating it will be slashed to around 0.5%
Japan's April Preliminary PMI Manufacturing and Services data will be released today
Australian Dollar and New Zealand Dollars
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 to hit fresh YTD highs at .6439 (22 Apr high). The 200 DMA lies just above at .6469. Above there exposes .6550 (25 Nov 24' lower high/also 61.8% retrace). Back below the 50 DMA~.6296 needed to dampen upside momentum
With recent move above .6409, AudUsd appear to be hammering out a bottoming process amid the persistent rotation out of USD assets. Indeed Aud/Usd can get additional support if China expands on their policy support to shield their economy from US tariffs and reclaiming the 200 DMA would firm views of a bottom in place
The tariff situation remains fluid though, with Trump administration seemingly reaching out to China in a number of "friendly" comments.
OIS markets still pricing in a certainty for RBA to cut rates in May. Market players believe the threat to economic growth overwhelms the threat of higher inflation and will force RBA to opt for the rate cuts
Bloomberg Economist James McIntrye indicated that the direct from US tariffs on Australia’s economy will be limited but indirect effects on major trading partners like China and Japan could slow growth. However, he expects rate cuts from the RBA to cushion any slowdown in the economy. He is projecting Australia’s economy to grow by 1.9% this year
Recently Released Australia data
- April Preliminary S&P Global Australia PMI Composite 51.4 vs 51.6 prior
- April Preliminary S&P Global Australia PMI Manufacturing 51.7 vs 52.1 prior
- April Preliminary S&P Global Australia PMI Services 51.4 vs 51.6 prior
Both services and manufacturing growth moderated but remains in expansion territory
NzdUsd recovered sharply off it's .5486 YTD low (9 Apr low), to break decisively above it's 200 DMA. Market tested fresh YTD high at .6029 (22 Apr high) within sights of it's next bull target at .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). Current dips working out recent overstretched technicals but corrective pullbacks should fade towards the 200 DMA~.5883, with former highs at .5831-.5853 (18 Mar-3 Apr highs) providing stronger supports
Bloomberg Economist estimates that policymakers need to deliver deeper easing than the central bank’s November projections. They are looking for RBNZ to deliver by up to 175 bps to bring OCR to 2.5% by year end, below it’s long term neutral estimate of 3.00%, to maintain the recovery traction off 2024’s deep recession
Recent economic data from New Zealand saw their trade surplus widened to NZ$970m in March from revised NZ$392m in February. This was fuelled by higher global prices of key exports like milk powder and meat. New Zealand exports reached a record NZ$20.6 billion in the three months through March, an 11% jump form the 4th quarter and 19% more than year earlier period
Oil and Other Commodities
Brent Crude Oil bounced sharply off it’s 9 Apr YTD low at 58.40 to retrace over 50% of April’s sharp 75.47 – 58.40 fall. Former 68.33 low (5 Mar low) keeping a lid on upside for now. Over there could see recovery bulls target the 50 DMA~70.84. Lapse back under 63.79 (16 Apr reaction low) tilts short term bias bearish again
Recent narratives are starting to pint to the low oil prices and suggest this will lead to oil majors to reduce capex and along with that a reduction in supply
However, talks between US and Iran over their nuclear program should start to dominate narratives on oil this week. Depending on it's outcome it could affect Iranian crude supplies
Unless severe supply shocks occur, the impact of the US led trade war on global energy demand and potential global economic slowdown continues to hinder oil's recovery attempts
Gold
Gold posted a record high at 3500.10 ahead of a much needed corrective dip. With market breaching our 3498.50 (1.618x 2832.71-3167.84 off 2956.71 projection) target, next upside is seen towards 3547.88 (1.764x projection). The 3284.02 (17 Apr reaction low) - 3193.74 (14 Apr low) zone should cushion dips.
The rotation out of US assets continue to benefit haven assets like Gold. The weakening US dollar and heightened volatility in stocks and bonds have further increased gold’s appeal
However, recent upmove on a daily chart appears parabolic and with Gold volatility is pushing towards 3 year highs near 29, a corrective pullback is needed to reset market and allow bulls to regroup and stage for next leg higher
The longer term uptrend remains intact. In the face of a global slowdown, with US looking to blow up their fiscal deficits even more to fund their tax cuts program, with Europe looking on a massive defence fiscal expansion , with most of the global economies on a monetary easing path to combat the tariffs impact, Gold looks set to continue to shine against fiat currencies
---- Subscribe to read more ----
To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.