• US March PCE core inflation 4.6% vs 4.5% expected
• Canada GDP for February 0.1% versus 0.2% estimate
• US employment cost index for Q1 +1.2% q/q vs +1.1% expected
• April final UMich consumer sentiment 63.5 vs 63.5 expected
• Dallas Fed trimmed mean PCE price index +3.4% annualized in March
• Germany April preliminary CPI +7.2% vs +7.3% y/y expected
• Atlanta Fed GDPNow initial estimate for Q2 growth at 1.7%
• First Republic: „The window is closing fast“ – report
• Shares of First Republic fall more than 40% as receivership looms
• Baker Hughes US oil rig count unchanged at 591

Markets:

• Gold up $1 to $1989
• WTI crude oil up $1.95 to $76.71
• US 10-year yields down 9 bps to 3.43%
• S&P 500 up 0.9%
• GBP leads, JPY lags

The big story of the day was the Bank of Japan leaving policy unchanged and the yen taking a beating. It tumbled right across the board but arguably the biggest move in a technical sense was in EUR/JPY as the pair broke above the 2014 high and the 150.00 level, both for the first time since 2008.

Other yen crosses also made big moves and that could signal a fresh round of divergence. The BOJ staying easy also helped to put a bid in bonds.

The PCE headlines were hawkish but my sense is that the market sniffed it out based on the details in the GDP report. It was also another reminder that the market has moved past inflation worries and is more concerned the Fed is going to snuff out growth. The PCE inflation numbers appear certain to fall below 4% in short order and that could come as soon as next month.

Banking worries continue to percolate but they’re isolated around First Republic with the regional bank ETF up 1.7% on the day.

Cable was strong starting in North American trade in a move that foreshadowed the positive sentiment in equities that later appeared. Perhaps that was a coincidence and due to month-end flows but it was a strong move for the pound, perhaps with the lift of GBP/JPY bids.

One of the biggest intraday turns was in USD/CAD as the pair mirrored a reversal in oil and sentiment. USD/CAD rose as high as 1.3667 before sinking to 1.3550 late.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

Here’s how the week played out.

It started with worries about First Republic Bank and that ultimately led to a death spiral of the company as it reported much larger deposit outflows than anticipated. Shares hit $16 on Monday and are finishing the week around $3.50 with an FDIC takeover looming.

So what changed even as sentiment worsened? Mainly, the pain at FRC didn’t spread to other regional banks and that’s a case I made early in the week. The problem was that dip buyers didn’t want to wade in until mega-cap tech earnings were released. Even after strong Microsoft earnings, the market was skittish.

When Meta later had great earnings as well and some others were solid, that was enough to turn the tide and quickly led to FOMC. That feeling extended today despite some modest warnings about data centers from Amazon.

Here are the closing changes in North American markets today:

• S&P 500 +0.9% — up 39 points to 4192
• DJIA +0.8%
• Nasdaq Comp +0.7%
• Russell 2000 +1.0%
• Toronto TSX Comp +0.5%

On the week:

• S&P 500 +0.9%
• DJIA +0.9%
• Nasdaq Comp +1.3%
• Russell 2000 -1.3%
• Toronto TSX Comp -0.3%

On the month:

• S&P 500 +1.5%
• DJIA +2.5%
• Nasdaq Comp flat

Seasonally, April is the strongest month of the year and it’s another victory for that trade but it certainly wasn’t smooth sailing.

This article was written by Adam Button at www.forexlive.com.

The market has been reluctant to fully price in a hike from the Federal Reserve next week with odds hovering around 85%. Some of that may reflect uncertainty about First Republic Bank but it’s also a signal that the end of rate hikes is near. Even if the Fed does hike on May 3, the market isn’t expecting anything afterwards.

„The Fed needs to hike in May and go away,“ writes CIBC today. „By standing pat for a couple of quarters, the FOMC will gain considerable insight into the drag from developments at regional banks. With growth slowing, inflation is unlikely to run away to the upside, but we’ll need time to let it ease off enough. So our call is for May’s move to be the final hike for this cycle.“

The estimate that the impacts of the banking strain are roughly equivalent to 50 bps but that’s much more art than science because each banking episode is unique and it’s too early to tell.

„All of this is complicated by the fact that we were overdue for a retrenchment from the bloated liquidity seen during the pandemic. The 4% year-on-year decline in the money supply is without precedent since the Great Depression, but in level terms, the money supply still looks ample relative to its prior trend line.“

This article was written by Adam Button at www.forexlive.com.

MUFG Research maintains a long EUR/USD and a short USD/JPY exposure in its ToTW portfolio. The short USD/JPY trade suffered today longs after the Bank of Japan left policy unchanged.

MUFG is long EUR/USD from 1.0950, targeting a move towards 1.1350, with a
stop at 1.0750. It last traded at 1.1016.

MUFG is also short USD/JPY from 134.70, with a target
at 129.00, and a stop at 138.50. It last traded at 136.24.

„We are maintaining our long EUR/USD trade idea and our short USD/JPY
trade idea despite today’s large post-Boj rebound,“ MUFG notes.

For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.

This article was written by Adam Button at www.forexlive.com.