Market update by the trading desk at LTI

Dear Clients,

Below is this week's market forecast from our trade desk in London.

The week ahead is a week for the central bankers. The market is full of monetary policy meetings and key data releases. Before we touch base regarding our views on the policy meetings ahead, we reflect on the RBA's surprise 25 basis point rate hike this morning, following their pause back in April, that looked to be pretty much set in stone and a peak for their cash rate. It re-affirms our views that the current trading conditions?in regard to macro releases are tricky to grasp as we are getting surprises and misses in not just data releases but also monetary policy decisions. We'll look to assess their tone in upcoming speeches?and reflect on their?rate statements to see if this is a potential Dovish hike, and 3.85% looks to be the real peak in their cash rates.?

The FX market set up to be Bullish USD bias ahead of the much anticipated?FOMC meeting tomorrow, as a 25BP hike from the Fed was pretty much set in stone. With that said, we look more towards Jerome Powells tone in assessing whether or not this is a Dovish hike, or a Hawkish one. This will help us see if Powell is now more forward thinking, and dependent on financial data rather than the lag data such as the labor market. Nomura Asset Management sees this as being the last of the Fed's tightening cycle before a long pause.??

For today, the US focus will be on the March US JOLTS job opening data. A sharp fall in the February figure saw the dollar sell-off on signs that US labour supply constraints could be easing. A softer-than-consensus figure today could see DXY soften by 0.5%,?although investors will be reluctant to chase the dollar too much lower ahead of tomorrow's FOMC meeting. USD/JPY is definitely?attractive to our desk as we do not think level levels will hold for many weeks, but there is a risk of any data surprises from the US Jolts, NFP or the Fed it could push USD/JPY to 140.

?The ECB are also meeting to make adjustments to their monetary policy on Thursday. Of which, we are favouring a 25 BP rate hike following Monday morning's release of the ECB's quarterly?Bank Lending Survey. That shows that lending conditions have tightened "supporting the call for a compromise 25 BP hike" - ING.?Today also sees April eurozone CPI inflation. Again any upside surprises here could help the euro. Barring any surprises it looks like EUR/USD will continue to trade at a 1.0950-1.1050 range into tomorrow night's FOMC meeting. We do believe?that the EUR still has some more tightening left to do, however much like the ECB, we will stay data dependent on that view.

As for the GBP, it'll take a back seat for this week, and will touch on the UK in next week's forecast. With that said, that concludes our market forecast?for this week. We wish everyone a fantastic week, in and out of the markets.