Today's FX Comment

Today’s FX Comment

Good morning. I have to start today with this WSJ headline: Trump Allies Draw Up Plans to Blunt Fed's Independence: "...the chair would regularly seek Trump's views on interest-rate policy and then negotiate with the committee to steer policy on the president's behalf. Some of the former president's advisers have discussed requiring that candidates for Fed chair privately agree to consult informally with Trump on the central bank's decisions, the people familiar with the matter said. Others have made the case that Trump himself could sit on the Fed's board of governors on an acting basis..."

I can see a reality show being made out of the Fed rate decisions. Trump in the Chair seat. Sweaty faced Fed members sitting around a table as one by one Trump asks them about their rate cut "dots". "Barr, how many rate cuts? Three, good, let's try for four and you get to stay" Kashkari how many rate cuts? Zero? You're fired..." It would make for thrilling tv viewing....

At any rate as we head into the weekend risk sentiment is on firmer footing. Pretty terrific earnings reports after the bell from Microsoft and Google have lifted spirits and equity markets pretty much everywhere.

Overnight, Asian indices were all higher ex-Australia with the Hang Seng leading the way (that index is up almost 10% this week). The BOJ grabbed most of the attention in Asia and of course we all know by now they didn't sound all that hawkish. Secretary of State Blinken met with President Xi and it was familiar rhetoric about both nations being partners with room for improvement in ties. Local media ran reports noting that the PBOC has little need to purchase government bonds in near term, putting a damper on any thoughts of QE in China.

European equity markets are all in the green this morning while futures point to healthy gains on the open in North America. All basking in the glow of last night's big tech earnings. We have the Fed's preferred inflation measure, core PCE this morning but it kind of feels anti-climactic after the week we have had. Think about it, the market absorbed a massive treasury supply ($184 billion worth) with relatively little impact on yields, we made it through yesterday's early stagflation fears on the back of weaker US GDP/higher GDP Price index and we have made it through a very heavy earnings week. Today's data just feels a lot less important. Official estimates for core PCE come in at 2.7% but I think after yesterday's numbers a lot of folks are prepped for a hotter print. The key takeaway this week for me: maybe we are finally seeing signs of an economic slowdown in the US, I am wondering if weaker PMI and GDP data are a harbinger of things to come.

FX thoughts:

JPY - I admit, I have been wrong here. I did not think Japanese officials would let the currency go like they have. Last night the BOJ kept rates steady as expected but I thought they would lean more hawkish and they didn't. Governor Ueda noted that a weak Yen was not having big impact on trend inflation and even Finance Minister Suzuki seemed to tone down the verbal intervention noting the FX trend may depend on how long rate differentials persist. Either this is a huge intervention setup or they just don't care and the market will test 160. I went to Japan in 2018 and would highly recommend it. CADJPY was 85 then, it is 115 now...it makes me want to go back.

AUD - No change here, domestic and services inflation have re-accelerated on a quarterly basis, the housing market is strong, unemployment is low and metals prices are ripping. Hard to be anything but bullish AUD based on that. Stronger equities help even more.? We are right near resistance at .6540 next topside level is .6590.

EUR - Remember when we were worried about Eurozone stagflation and the negative impact on the currency. My how times have changed with the market talking about potential US stagflation yesterday (I don't buy that to be clear). I think we'll see bids bumped up to 1.0630 now, same resistance levels 1.0730 and 1.0785.

GBP - No real change here either, services inflation is sticky as is wage growth.? I think market pricing of BOE rate cuts remains a bit aggressive. Support 1.2470, resistance 1.2580.

CAD - USDCAD will continue to follow broader moves in the US Dollar. I would guess if equities can hang on to their gains we should see some downward pressure on Funds today. 1.3600-20 is the major support level while we should find sellers around 1.3720 now.

Have a great weekend.

Good luck.

?