French President Emmanuel Macron faces a tough reelection campaign. A victory for far-right candidate Marine Le Pen would crash the euro. EUR/USD is struggling, partly in due to a re-estimation of Le Pen's chances. A victory for Macron would boost the euro. Once bitten, twice shy – Investors are still licking the wounds from Brexit, Russia's invasion of Ukraine and other improbable events that became reality. A low-chance event carries big risks, and markets seem unwilling to take any – but with the French elections, they may have gone too far. Background France is the eurozone's second-largest economy, the only member with nuclear arms and after German Chancellor Angela Merkel's departure, the old continent's leading pro-integration force. Incumbent President Emmanuel Macron has been a champion of "more Europe" and a victory for his far-right rival Marine Le Pen – who supported "Frexit" in the past – would be a nightmare for the project. It would also devastate the euro. France's economy is over one-sixth for the full 27-member bloc: Source: Eurostat The young, energetic and well-educated leader at the Elysee Palace suffers from an image of being a president only for the rich, which is exacerbated by rising costs and plan to cut pensions. His rival has moderated her anti-immigration and anti-European stances, focusing on bread-and-butter issues and gaining more votes. The vote on April 24 will be the pair's second encounter. Back in 2017, mainstream parties and the public united behind Macron, leading to a 66% victory for the centrist that seemed to come from nowhere. This time, he is no longer the new guy, but rather the one overseeing the handling of covid, war, economy and many other issues – with some managed better than others. It is a referendum on the incumbent, and inherently pessimistic France may vote him out.  Nevertheless, despite the incumbent's woes and Le Pen's moderation, he still leads the polls. Her campaign materials included a picture with Russian President Vladimir Putin, and her condemnation of the war has a limited mitigating effect. Moreover, Macron's active campaigning has helped him shore up left-leaning voters, who prefer a capitalist that champions human rights over a populist who is tough on them.  As this "poll of the polls" shows, Macron is en route to win 54% of the vote, beating Le Pen by 8 points – and that gap is widening, not narrowing. The magazine gives him 87% chance of winning reelection.  Source: The Economist Three scenarios While a broad share of support for the far-right would provoke soul-searching in Europe, it would be enough for markets to stage a relief rally. As mentioned in the outset, investors are far from fully pricing in a return of the pro-market leader of one of Europe's most important countries.  1) Easy Macron win: In case Macron wins easily as described here, EUR/USD would rise, breaking one or perhaps two resistance lines if other factors also align. As results are due out on Sunday before markets open, the pair would open the new week with a gap, that would likely hold throughout Monday until other factors come along. High probability.  2) Tight race: If exit polls show a gap of less than 5% between both candidates, EUR/USD could open lower, perhaps losing one support line,  as investors would price the chance of Le Pen prevailing. The mix of uncertainty and low volume during the Asian session would trigger extreme volatility, shaking the common currency until the result is clear. Medium probability. 3) Le Pen win: If the far-right candidate ascends to the Elysee, it would be a major shock, no matter the market's cautious pricing. EUR/USD would tumble three or four support lines, and could drag down other currency pairs such as GBP/USD. Worsening French-British relations would weigh on both currencies. Such a scenario would likely play out only in the early hours of Monday rather than in exit polls on Sunday. Low probability.  Final Thoughts While a Le Pen presidency would have profound political and economical implications, the probability is low – similar to a Trump victory in 2020 rather than 2016 – and Macron will likely prevail. Five more years of economic liberalism in one of the Western world's more protective countries would be market-friendly and boost the euro. 

Outlook: The data today is housing starts and permits, never inspiring in FX. A couple of other things are holding attention. St. Louis Fed Bullard said the FOMC shouldn’t rule out rate increases of 75 basis points. This seems to be a generality and not a call to arms for 75 bp in May, but is still a shocker. Secondly, the dollar/yen has zoomed past the previous high (125.86 from June 2015) and is now at the highest since April 2002, literally 20 years ago. The all time high on our eSignal data base is 135.16 from December 2001. The much longer Reuters data base remind us that the dollar/yen was 250-300 during the 1980’s and broke below 200 around 1985. See the chart. Various Japanese officials, including FinMin Suzuki, have been muttering about a too-weak yen as destabilizing, etc., leading to some muted chatter about intervention. Overnight he said “the Japanese currency was weakening rapidly and indicated that the impact of the moves could be harmful for the economy,” according to Bloomberg. “We are monitoring moves in the foreign exchange market with a strong sense of vigilance.” Language that includes “watching carefully” is language that usually precedes intervention—but the day before, he had said “the market determines the FX rate.” Suzuki will join G7 and G20 in Washington tomorrow and will also hold separate meetings with the US. There is a hint that he may talk to TreasSec Yellen about the yen, a cousin to asking permission to intervene and perhaps inviting the US to join, but we doubt it. The last time we had coordinated intervention was when the yen crashed following Fukushima and before that, April 1998. But today what we have is not a crisis—it’s policy divergence. It would be a wild departure for Yellen to have anything to do (or say) about intervention when the solution to “the problem” is obvious. And is it really a problem? There is a small element of “don’t throw me in the briar batch, Br’er Fox.” After all, Japan has a trade deficit in goods, for which a weaker yen can only be good, even if it messes up corporate planning, as BoJ Gov Kuroda complains. Bloomberg credits the Bullard comments about 75 bp as the trigger for this latest runup, which may be true but not useful. The trend was formed when the Fed dropped “transitory” inflation and started loudly favoring big hikes and at the same time, Japan affirmed it’s sticking to curve control and intervened modestly to hold the 10-year JGB under 0.25%. We seldom see such a textbook-perfect case of policy divergence driving a currency. Bloomberg also says today is “the 13th day of yen falls against the dollar, the longest run of losses in Bloomberg data starting in 1971.” Again, perhaps true but definitely not useful. The most interesting thing of all is Fed Bullard speaking realistically about the neutral rate, which some point out implies a return of the Taylor Rule. The Taylor Rule got back-burnered during QE, but some adherents have been saying all along it’s the right idea that we should not be neglecting. Wikipedia has an excellent summary, by the way. More than one generation of economics students and countless Fed researchers have written about the Taylor Rule, which has multiple variations, including soft and hard versions. But the essence is that when inflation goes up by 1%, the Fed should raise the nominal interest rate by more than 1% in order to keep the real rate positive. Considering the number of hikes now contemplated for this year, we will end the year just under a positive real rate. And that’s assuming two hikes of 50 bp each and no increase in inflation. Bullard said the Fed should get rates to 3.5% by year-end and thence to a neutral rate of about 2.4% "expeditiously." And oh, yes, talk of recession is premature. The return of the Taylor Rule is a welcome development to reality-checkers and a headache for the Fed, which is going to have a devil of a time with QT. But Bullard is now the hero of the “sane and reasonable” crowd. If we assume Bullard is right—again—the US may be on the path to normalizing the vast divide between financial conditions and the real economy. It can’t possibly go smoothly but removing government interference in markets is generally a Good Thing from the point of view of properly determined prices. (It can be a bad thing from a fairness or humanitarian point of view.) So, while bond yields in other places are rising alongside the US but lacking this much clarity, notably the ECB, the US is the leader, so to speak, even if it was others who technically raised rates first. This can only benefit the dollar, if not...

EUR/USD - 1.0774 Euro's selloff from last Thursday's peak at 1.0923 to a near 2-year bottom at 1.0758 in post-ECB suggests medium term downtrend remains in force and as 1.0830 has capped subsequent recovery, yesterday's retreat to 1.0771 on broad-based usd's strength due to rally in U.S. yields suggests consolidation with downside bias remains, below 1.0758 would yield 1.0730/35. On the upside, only a daily close above 1.0834 signals a temporary trough is in place and risks stronger gain to 1.0860/70. Data to be released on Tuesday  New Zealand business NZ PSI, GDT price index, Japan industrial production, capacity utilization. Canada housing starts, U.S. housing starts, building permits and redbook.

If the current market phenomena were to star in a Shakespeare drama, they would be ideal candidates for the Three Witches. Can you guess who would play who? Have you ever heard of Shakespeare’s mythological characters, the Three Witches? They are depicted as prophets who represent evil, darkness, chaos, and conflict. If you look at the market today, you will find ideal candidates for these dark roles. However, while rising commodity prices and inflation have a casting win in their pocket, there is no certain actor to play the third witch. Would the recession stand a chance? No Easter eggs today – instead, here is a story that may provide food for thought. (Credit: Macbeth meets the three witches; scene from Shakespeare's 'Macbeth'. Wood engraving, 19th century. Wellcome Collection. Public Domain Mark). Let’s start by representing an economic cycle with its different phases: Global commodity prices – in particular energy prices – surged at a fast pace following the COVID crisis. Notably, as major central banks responded to the economic slowdown by printing money, rising levels of inflation were observed as a result of accommodating monetary policy combined with accelerating oil and gas demand. The context was tight supply and high volatility triggered by (geo-)political unrest around the world (crises, wars, etc.). In fact, those inflationary periods of surged prices (foremost, fuel prices are often those pulling the trigger) are usually followed by a sudden drop in consumer confidence and, therefore, a sudden fall in demand, which may lead to a recession phase. To predict those phases, some analysts tend to spot the inverted bond yield curves. In one of its articles, Investopedia explains The Impact of an Inverted Yield Curve as the following: “The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term.” Now let’s have a look at the mystic US government yield curves over the past 30+ years: US 10 YR in Orange versus US 2 YR in Blue. US 30 YR in Red versus US 5 YR in Indigo. (Source: TradingView) The inversion of yield curves – typically with a two-year rate higher than the ten-year rate or even a five-year rate higher than the thirty-year rate – has occurred prior to each of the last US recessions. This phenomenon also briefly happened last week and lasted for almost two trading days. (Credits: Small Exchange, Inc. Newsletter Apr 11, 2022) As you can see, the above charts demonstrate that US treasury yield curve inversions may sometimes be followed by a sudden drop in equity prices. Alternatively, David Linton was also showing how big falls in bonds were preceding big falls in stocks in a recent tweet: (Source: Twitter) Okay, now let’s ask ourselves a few questions. Do you think that the Federal Reserve (Fed) will be able to tighten its monetary policy as planned? Will stocks collapse? Will this trigger a recession? If so, when? In what phase of the economic cycle do you think we are? 3, 4 or in between, maybe? The first speculative scenario Growth will continue for now, and so will demand... However, as soon as the Fed begins to tighten as planned, the S&P will plummet. So, the Fed will either be forced to stop to prevent a crashing stock market and falling risk sentiment from hitting growth, or just go ahead with tightening to keep inflation at bay and face the consequences. In the latter case, Powell loses his job... The second speculative scenario Following ongoing inflation, there could be a recession with a collapse in demand in about 6 months or so. On the energy side, despite the drop in demand, prices shouldn't drop too much as they might still be supported by limited supplies. Any ideas about a projected time horizon? Regarding the Fed, I don't believe much in rate hikes. If they do so, they will plunge off their looming debt cliff. Maybe the Fed could keep communicating about future hikes if the markets are crashing. However, if they do any actual hikes, I bet they would probably be tiny ones, just to show some signals, but in the end, the actual rates wouldn't be much changed. J. Powell seems to be pretty much stuck. (Source: Giphy) Anyway, it is a moment of truth for central banks. Let me know what you think in the comment section. That’s all, folks, for today. I hope...

Outlook: The calendar is skimpy this week with most of the interesting data coming from the housing market, although now that mortgage rates are over 5%, we have some extrapolating to do. Because of the holiday, which seems to be getting stronger every year–we didn’t get Good Friday off in banking in decades past–we may have missed really quite good US data last week. The Empire State manufacturing survey jumped to 24.6 in April from -11.8 when a mere 1% was forecast. March industrial output rose by 0.9%, double the forecast, and capacity utilization is at 78.3%, the highest since 2007. This bodes well for the PMI due Friday. And weirdly, the University of Michigan's preliminary April consumer confidence survey showed a rise when a drop was forecast. Trading Economics has this: “The University of Michigan consumer sentiment for the US unexpectedly jumped to 65.7 in April of 2022 from an eleven-year low of 59.4 in March, preliminary estimates showed. Figures also beat market forecasts of 59, with the expectations index surging by 18% to 64.1. “Perhaps the most surprising change was that consumers anticipated a year-ahead increase in gas prices of just 0.4 cents in April, completely reversing March's surge to 49.6 cents. The current conditions gauge also increased to 68.1 from 67.2. Meanwhile, inflation expectations were unchanged for both the year-ahead (5.4%) and the five-year outlook (3%). Nonetheless, the April survey offers only tentative evidence of small gains in sentiment, which is still too close to recession lows to be reassuring. There are still significant sources of economic uncertainty that could easily reverse the April gains, including the impact on the domestic economy from Putin's war, and the potential impact of new covid variants increased while the inflation outlook was steady.” We usually don’t pay much attention to the Michigan survey, in part because the number of participants is quite low (we couldn’t find the latest number, which tells you something right there). In years past it was something like 1500, pitifully small for an influential survey. The survey makers themselves are a bit biased, as shown by the translated remark that April gains can easily be reversed. The site itself has an addendum on the political party breakout of responses. We admit it’s possible the US consumer is capable of ignoring risk and uncertainty but it’s a little harder to grasp that inflation expectations are steady at 3% for the 5-year outlook. Everybody knows about the price of gas and food. Is it possible they believe the government/Fed will tame inflation? This is, by the way, consistent with the 5-year breakeven at 3.33% and the 10-year at 2.89% (from FRED as of April 14). And notice that nobody is trumpeting on the front page that the negative 2/10 yield curve reading (-0.05% on April 1) has reversed and as of late last Thursday, tit had risen to +0.36%. We will hear less take of “inevitable and imminent” recession this week. Okay, it may not last, but it’s a warning that extrapolating a couple of weeks of data out 12-36 months is ridiculous. A ray of light about Europe and potentially the euro: yesterday Italian PM Draghi gave an interview to a newspaper–his first since Feb 2021--saying Europe can reduce energy dependence on Russia quicker than previously estimated, according to Bloomberg. “Diversification is possible and feasible relatively quickly, shorter than we imagined just a month ago.” This is after Italy secured gas from Algeria. He said “We have gas in storage and will have new gas from other suppliers,” and it would help a lot if people just turned down the thermostat. “Europe continues to finance Russia by purchasing oil and gas, among other things, at a price that has no relation to historical values ​​and production costs.” Talking to Putin is a waste of time–it doesn’t work, as we see. This comes ahead of a showdown on payments for gas. Bloomberg points out “…there is an increasing risk that Putin’s demand for gas payments in rubles will lead to a de facto gas embargo in Europe as lawyers in the bloc draft a finding showing payments in the Russian currency would violate sanctions.” If we expect US data to be fairly resilient, as Friday’s PMI will show, and expect the Fed minutes on Wednesday to affirm the commitment to a 50 bp hike at the May meeting, US yields should continue to rise. Yield differentials do not always determine a currency’s fate and we have had periods where the correlation simply isn’t there, but it seems to be in effect these days. Japan remains committed to curve control and the ECB is wavering indecisively, so that leaves the Anglo countries to lead the way not only to higher rates but also the end of QE and an...

EUR/USD struggled to register any meaningful recovery and languished near the two-year low. Dovish ECB, the Ukraine crisis weighed on the euro and acted as a headwind amid a stronger USD. Bets for a more aggressive Fed policy tightening, elevated US bond yields underpinned the buck. The EUR/USD pair languished near the 1.0800 mark through the Asian session on Monday and remained well within the striking distance of the two-year low touched in reaction to a dovish European Central Bank decision last week. In fact, the ECB left its key policy rates unchanged and reaffirmed that rate hikes would only come sometime after the Asset Purchase Program (APP) is concluded in the third quarter. This disappointed some investors anticipating a more hawkish tilt amid the record-high inflation. Apart from this, growing worries about the potential economic fallout from the Ukraine crisis continued to act as a headwind for the shared currency. On the other hand, the US dollar stood tall near its highest level since April 2020 and continued drawing support from expectations for a faster policy tightening by the Fed. The bets were reaffirmed by comments from New York Fed President John Williams on Thursday, saying that a half-point rate rise next month was a very reasonable option. This was seen as a further sign that even more cautious policymakers are on board for bigger rate hikes at upcoming meetings. Apart from this, inflation fears exacerbated the recent rise in the US Treasury bond yields, which, along with a softer risk tone further underpinned the safe-haven buck. That said, relatively thin liquidity conditions on the back of a holiday in Europe held back traders from placing aggressive bets and might help limit deeper losses, at least for the time being. Nevertheless, the bias seems tilted firmly in favour of bearish traders and supports prospects for a further near-term depreciating move. In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD price dynamics. Traders will further take cues from developments surrounding the Russia-Ukraine saga and the broader market risk sentiment to grab some short-term opportunities. Technical outlook From a technical perspective, the post-ECB swing low, around the 1.0760-1.0755 region, now seems to act as a pivotal point. Some follow-through selling should pave the way for a fall towards the 1.0700 mark before spot prices eventually drop to the 2020 low, around the 1.0635 area. On the flip side, attempted recovery might now confront immediate resistance near the 1.0850 region. Any subsequent move up could attract fresh selling near the 1.0880-1.0885 zone and remain capped near the 1.0900 mark. The next relevant barrier is pegged near the 1.0935-1.0940 area, which if cleared decisively might prompt some near-term short-covering move.

Arguably the most important data next week is the flash PMI.   It is not available for all countries, but for those generally large G10 economies, the preliminary estimate is often sufficiently close to the final reading to steal its thunder. Moreover, and this applies to high-frequency data more broadly, given the overshoot of inflation in most counties, with some exceptions, notably in Asia, central banks appear to be on set courses.  The near-term data are interesting if you are into that kind of thing, but the Federal Reserve and the Bank of Canada seem committed to bring the policy rate to neutral expeditiously.  The hawkish chord struck by the Bank of Canada has the market favoring 50 bp moves at its next two meetings.  It is difficult to see the market getting more aggressive even though March CPI (April 20) likely accelerated above 6.0% (from 5.7%).  The housing market (existing home sales and housing starts) appears to be holding up better than in the US.  However, February retail sales look weak after a strong January.   The Fed funds futures market has nearly priced in three 50 bp hikes and 3 quarter-point moves before the end of the year.  Perhaps, it is fairer to say the market is split whether there will be a third 50 bp move or whether the Fed reverts back to 25 bp moves. One way those concerned about the pro-cyclicality of the Fed's course have expressed it is to say that the central bank will continue to hike until it breaks something. The swaps market is consistent with this being around 3%.   It is reasonable to expect that the first thing to break will be the interest rate-sensitive sectors, which also follows from the fact that the market in part because of the anticipation of what the Fed will do.  The housing market is particularly interest-rate sensitive.  The average 30-year fixed-rate mortgage rose to 5% last week for the first time in more than a decade.  Mortgage applications have fallen for five weeks through April 8.  Upcoming reports are likely to show that March housing starts, permits, and existing home sales weakened.   The market expects the ECB to stop purchasing net new bonds in June and deliver the first hike in July. Expectations for the Bank of England have been dialed back.  It is expected to go slowly, raising the bank rate by 25 bp a clip for the next several meetings. The Reserve Bank of Australia is expected to begin a fairly aggressive tightening cycle after next month's election.  The cash rate futures have almost a 190 bp higher rates priced in by the end of the year.  The Reserve Bank of New Zealand has lifted its cash target rate four times since its cycle began in October.  There had been three 25 bp moves and then, last week, a 50 bp hike.  The swaps market has priced in another 170 bp before the end of the year.  The Bank of Japan and the Swiss National Bank are a different kettle of fish.  The Swiss National Bank's deposit rate remains at minus 0.75%.  Its 10-year bond yields less than 0.8%.  March CPI rose 2.2% year-over-year, and the core rate increased 1.4%.  It is standing put for the foreseeable future.  The pressure on the BOJ comes from two sources.  First, the rise in global rates has pulled the 10-year JGB yield to near the 0.25% Yield-Curve Control cap.  There is something to be said of the IMF's advice to target a shorter maturity.  Second, headline inflation in Japan has been rising, but it has been primarily because of fresh food and energy.  In March 2021, the year-over-year rate of headline CPI was -0.4%.  It is expected to have risen to 1.0% in March 2022 when it is reported at the end of next week.  A year ago, if fresh food and energy were excluded, Japan's CPI was flat.  Last month, it was expected to be at -0.8%.   Starting with the April report, the core rate is going to rise. Moreover, it will turn positive as last year's cuts in wireless services prices drop out of the 12-month comparison. As a result, real interest rates are going to fall further.   It is common for observers to argue about a race to the bottom, with everyone seeking weaker currencies.  But this is not true.  What is true is that central banks typically want the currency to be consistent with its monetary policy thrust. A stronger currency may dilute efforts to ease financial conditions, for example. Similarly, a weaker currency when financial conditions are tightening is counterproductive.   Nor do businesses always want a weaker exchange rate.  Consider Japan.  The yen has fallen to its lowest level against the dollar in 20 years.  A Reuters survey recently found that three-quarters of Japanese firms say that the yen's weakness hurts their business.  A common fear...

Summary Activity in the industrial sector of the economy broadly improved in March. More recent disruptions, such as closures of key Chinese factories and the continued conflict in Ukraine, pose near-term headwinds to U.S. manufacturing, but today's report is the latest sign of incremental improvement in supply chains. Production resilient in face of new supply disruptions Industrial production rose 0.9% in March, more than double the gain expected by the consensus, while past data for February were also revised higher to show an equivalent 0.9% gain in output. Remarkably, this improvement in production comes amid new supply disruptions during the month with fresh lockdowns at key Chinese factories and the continued war in Ukraine. The data signal incremental progress in manufacturing amid slowly improving supply as manufacturers were able to continue to chip away at backlogged orders last month. Manufacturing output rose 0.9% after a 1.2% gain in February. Production was led by a 7.8% surge in motor vehicles, reflecting some payback from the near 5% decline a month prior. Auto assemblies jumped 23% last month to 1.86 million, which marks the highest number of vehicles assembled in a single month since the start of 2021 (chart), a marked improvement in an industry that has been the poster-child of supply chain issues. Elsewhere, rising output was fairly broad-based across the manufacturing sector (chart), with 14 of the 20 major industries reporting gains. The largest decline came from primary metals production (-1.7%), but encouragingly all categories that reported a decline in March posted sizable gains a month earlier (+1% or higher). Utilities production inched modestly higher, up 0.4% in March, likely reflecting the fact that March was a bit warmer than average across most of the country. Mining output rose 1.7%, marking the sixth consecutive monthly increase and the highest gain in five months. The recent momentum here likely reflects increased drilling activity in the United States amid sanctions against Russian oil and gas. Manufacturing activity in March clearly demonstrated progress in supply, but global supply chains still remain a far cry from functioning normally. As seen in our Pressure Gauge below, which broadly tracks high-frequency measures of supply chains, there has been some improvement in the pace of activity (slower gain in order backlog, quicker delivery times and declines in prices) but levels still remain way above pre-pandemic norms. Production may again falter in the near-term amid disruptions as producers still have difficulty procuring inputs, but the past couple of months of data demonstrate notable progress. After two-years of headache for manufacturers, we take today's report as the latest positive sign for improvement in the productive sector of the economy. Download The Full Economic Indicator

- Quiet markets with bulk of global centers closed for holiday. - French and Italian final March CPI readings reinforced concern over the region's inflation outlook. Asia - China PBoC Monthly MLF Setting left the 1-year Medium-Term Lending Facility unchanged at 2.85% (not expected). - More speculation that China could cut RRR to support the real economy, cites official [in line]. - China military said to conduct drills around Taiwan aimed to target the wrong signal sent by US regarding Taiwan (Note: Several US officials are visiting Taiwan including Senator Menendez (D-NJ) and Senator Graham (R-SC). Russia/Ukraine - Russia Defense Min confirmed its flagship of Black Sea fleet, Moskva had sunk while being towed to port in stormy weather (Note: 1st Russian loss of a flagship since the Russian-Japanese war of 1904-1905). Europe - ECB policymakers saw a July rate hike as still possible after its April meeting. Consensus seemed to be growing for 25 basis point hike in Q3 as several ECB officials sought an earlier end to bond buying program. Speakers/Fixed income/FX/Commodities/Erratum Equities - Europe closed for Easter Holiday. Speakers - ECB Survey of Professional Forecasters raised its inflation outlook while cutting the growth forecast for the 2022 and 2023 period. Raised 2022 HICP (EU Harmonized CPI) from 3.0% to 6.0% and raised the 2023 HICP from 1.8% to 2.4% (**Note: ECB Mar Staff forecast is 2.1%). Survey cut 2022 GDP growth from 4.2% to 2.9% and also cut the 2023 GDP growth forecast from 2.7% to 2.3%. - ECB's Simkus (Lithuania) stated that saw no reason not to consider rate increase. - German Fin Min Lindner said to have approved €2.47B package for LNG terminal. - Poland PM Morawiecki said to back Glapinski: for a 2nd term as central bank governor. - Russia Deputy Chairman of the Federation Council Klimov said to have noted that special military operation in Ukraine would end pretty soon and would not stretch the conflict out. - BOJ said to likely lower economic growth and raise inflation forecast for FY22 at its next Quarterly Outlook (due Apr 28th). BOJ to stress its resolve to keep monetary policy ultra-loose to underpin a fragile economic recovery. - China Industry Ministry said to be sending teams to Shanghai to ensure resumption of production and work of key industrial companies. - President Biden said to nominate Michael Barr as Fed Vice Chairman for Supervision. Currencies/Fixed Income - EUR/USD hovering around 1.08 area after Thursday’s surprisingly dovish ECB decision in regards to its future policy. Dealers zeroed in on Lagarde’s comment that ECB planned to raise interest rates "some time" after the asset purchase program was expected to end in the third quarter. Pair slowly drifted higher as French and Italian final CPI data reinforced reports that ECB policymakers saw a July rate hike as still possible after its April meeting. Consensus seemed to be growing for 25 basis point hike in Q3 as several ECB officials sought an earlier end to bond buying program. - JPY currency (yen) dropped to a new two-decade low against the USD at 126.68 as robust US data and hawkish Fed comments reaffirmed the divergence in policy between Fed and BOJ. Economic data - (FR) France Mar Final CPI M/M: 1.4% v 1.4% prelim; Y/Y: 4.5% v 4.5% prelim; CPI (ex-tobacco) Index: 109.70 v 109.69e. - (FR) France Mar Final CPI EU Harmonized M/M: 1.6% v 1.6% prelim; Y/Y: 5.1% v 5.1% prelim. - (CN) Weekly Shanghai copper inventories (SHFE): 88.7K v 96.6K tons prior. - (IT) Italy Mar Final CPI M/M: 1.0% v 1.2% prelim; Y/Y: 6.5% v 6.7% prelim; CPI (ex-tobacco) Index: 109.9 v 108.8 prior. - (IT) Italy Mar Final CPI EU Harmonized M/M: 2.4% v 2.6% prelim; Y/Y: 6.8% v 7.0% prelim. - (PL) Poland Mar Final CPI M/M: 3.3% v 3.2% prelim; Y/Y: 11.0% v 10.9% prelim. - (RU) Russia Narrow Money Supply w/e Apr 8th (RUB): 14.72T v 14,89T prior. - (TR) Turkey Mar Central Gov't Budget Balance (TRY): -69.0B v +69.7B prior. - (IT) Italy Feb General Government Debt: €2.737T v €2.714T prior (record high). - (IS) Iceland Mar International Reserves (ISK): 880 v 891B prior. Fixed income issuance - None seen. Looking ahead - (PE) Peru Feb Economic Activity Index (Monthly GDP) Y/Y: No est v 2.9% prior. - (PE) Peru Mar Unemployment Rate: No est v 8.9% prior. - 07:00 (IL) Israel Mar CPI M/M: 0.8%e v 0.7% prior; Y/Y: 3.7%e v 3.5% prior. - 07:30 (IN) India Weekly Forex Reserve w/e Apr 8th: No est v $606.5B prior. - 08:00 (RO) Romania Central Bank (NBR) Mar Minutes. - 08:30 (US) Apr Empire Manufacturing: +1.0e v -11.8 prior. - 09:15 (US) Mar Industrial Production M/M: 0.4%e v 0.5% prior; Capacity Utilization: 77.8%e v 77.6% prior; Manufacturing Production: 0.6%e v 1.2% prior. -...

While USD/JPY achieved March lows at 114.00's, USD/CAD traded 1.2400's and 1000 pips higher. Add EUR/JPY March lows at 124.00's and viewed is USD/JPY's explanation on a rampage higher to match USD/CAD and EUR/JPY. Naturally, EUR/JPY followed USD/JPY higher. EUR/JPY is a highly neutral currency pair trapped between EUR/USD and USD/JPY yet more neutral when viewed against USD/CAD in a highly close exchange rate relationship. Once EUR/JPY traded and crossed above USD/CAD around 128.00's, EUR/JPY was off the the races for 900 pips. EUR/JPY's historic position since WW2 is to forever trade above USD/JPY and competitive to USD/CAD. USD/CAD serves as the signal pair to EUR/JPY as much as NZD/USD is positioned to inform in regards to EUR/USD and GBP/USD. Exactly, 2 separate currency markets exist as EUR/USD and GBP/USD vs AUD/USD and NZD/USD. EUR/USD's 167 pips led the way yesterday as usual for EUR/USD while GBP/USD as the laggard currency to EUR/USD traded 113 pips. USD/CAD's 120 pips fairly matched EUR/JPY at 93 pips and GBP/USD in a currency market battle for superiority. NZD/USD lagged EUR/USD by a 65 pip trade day yesterday while AUD/USD managed 71 pips. USD/JPY today trades 126.47 and USD/CAD trades 1.2596 or 51 pips. The second trade signal occurred when USD/JPY traded above USD/CAD. This allowed a free long trade to EUR/JPY. USD/JPY now trades competitive to USD/CAD which means USD/JPY's rampage is done and must now trade dead ranges alongside USD/CAD as easy profits are finished. Traders must earn today's pips rather than given freely by Mr. Market. Focus now shifts to JPY cross pairs to lead the way forward for USD/JPY and USD/CAD as 137.00 EUR/JPY trades 1000 pips above USD/JPY, USD/CAD and 2800 pips above EUR/USD. GBP/JPY as the preferred short, trades 3800 pips above USD/JPY, 3900 above USD/CAD and 3400 pips above GBP/USD. To the second currency market, AUD/JPY trades 1900 pips above AUD/USD or 1/2 to GBP/JPY 3800 and NZD/JPY 1700 pips trades above NZD/USD. Historic leadership since the 2008 crash imposed by correlations experienced the 2nd side of the currency pair as positive correlations which means USD/JPY will lead JPY cross pairs lower rather than USD/CAD. While USD/CAD provides currency markets with a signal to its perfect opposite GBP/USD, USD/CAD historically lacks leadership abilities. In certain short periods when spreads between GBP/USD and USD/CAD are wide then both GBP/USD and USD/CAD share the ability to reduce spreads. But neither are leader currencies. Current spreads run 500 ish pips and fairly normal for the USD/CAD and GBP/USD relationship. Which means no big moves expected as both trade normal ranges. Major change to the currency trade lineup is instituted the 24 hour trade and the past 2 weeks of trades are viewed and posted prior and seen at btwomey.com. Yesterday 8 currency pairs traded to profit 500 ish pips. Every EUR/USD pip traded yesterday was known, seen and traded for profit.

USD/CHF skyrocketed yesterday, breaking above the 0.9375 key barrier, which had been preventing the pair from moving higher since March 18th. This, combined with the fact that there is an upside line supporting the price action taken from the low of March 31st, paints a positive short-term picture in our view. At the time of writing, the rate seems to be oscillating slightly below another key resistance zone, at around 0.9460, marked by the peak of March 16th. That zone stopped the rate from climbing higher back on April 1st, 2021, and July 16th, 2020, as well. The bulls may decide to take a break after testing that zone, or even before that happens, thereby allowing a downside correction. However, we see a decent likelihood to use the 0.9375 territory as a rebound zone this time, which could encourage them to climb above the 0.9460 obstacle. Such a break could carry larger bullish implications, perhaps paving the way towards the 0.9555 area, defined as a support by the high of June 12th, 2020. Taking a look at our short-term oscillators, we see that the RSI turned down and exited its above-70 zone, while the MACD, although above both its zero and trigger lines shows signs that it could top soon as well. Both indicators detect strong upside speed, but also hint a potential slowdown, which supports the notion for a setback before the next leg north. On the downside, we would like to see a clear dip below 0.9325, marked by the low of April 14th, before we start examining a bearish reversal. This could confirm the break below the upside line taken from the low of March 31st, and perhaps initially target the low of April 12th, at 0.9287. If the bears get encouraged to add to their positions, then a break lower could see scope for larger declines, perhaps towards the low of April 5th, at 0.9237. Slightly lower lies the 0.9195 barrier, marked by the low of March 31st, which could get tested in case the 0.9237 zone doesn’t hold.

EUR/USD The Euro maintains negative tone and probes again through key support at 1.0806, following Thursday’s 1.10% fall after dovish ECB’s stance that pushed the pair to the lowest levels since May 2020. Subsequent bounce and failure to register close below 1.0806 level after dipping to 1.0754, sidelined immediate downside risk but kept bears firmly in play. Technical studies on daily and weekly chart remain in bearish setup and support negative scenario for firm break of 1.0806 pivot that would unmask another key support at 1.0635 (Mar 2020 low). Fundamentals also work in favor of bears, as high uncertainty over the conflict in Ukraine, ECB remaining on hold while other major central banks already started to tighten its monetary policies and lack of unity between EU members in voting for a complete ban on imports of Russian energy, continues to weaken the sentiment. Brief consolidation above 1.0806 is likely to precede final push lower, with limited upticks (ideally to be capped by falling 10 DMA, currently at 1.0876) to offer better selling opportunities. Only break through 1.0820/30 resistance zone (tops of this and last week) would ease downside pressure and allow for stronger correction. Res: 1.0820; 1.0858; 1.0876; 1.0930. Sup: 1.0806; 1.0757; 1.0716; 1.0661. Interested in EUR/USD technicals? Check out the key levels