Redator

Overview: The greenback is under pressure. It is off against nearly all of the world's currencies after falling in North America yesterday. Reports that Israel may be planning a strike against Iranian nuclear facilities has contributed to the broad risk off moods and helped lift July WTI to new highs since early April. While the greenback is not benefiting from the risk-off, gold has extended its gains to about $3300. Still, the dollar is off its lows and North American leadership is await. While equities were mostly higher in the Asia Pacific region, Europe's Stoxx 600 is snapping a four-day advance. It is off nearly 0.5%. The S&P 500 ended a six-day rally yesterday, and US index futures are off around 0.75%. Bond markets are not offering a haven today. European benchmark 10-year yields are up 6-8 bp and the 10-year US Treasury yield is up five basis points to 4.54%. Monday's high in response to the Moody's downgrade before the weekend was closer to 4.56%. The US Treasury auctions $16 bln 20-year bonds today, and the demand for this tenor is not typically as for the 10-year or 30-year. USD: It is as if Monday's buying in the North American session, following the sell-off in Asia and Europe ostensibly on Moody's downgrade, exhausted the dollar bulls. They were unable to match the strength yesterday and returned toward the session lows near 100.00 in late dealings. It was sold to almost 99.40 today, a two-week low in early European trading. It recovered to around 99.80 where sellers pounced. Support is seen in the 99.00-25 area. It must close above 100.00 to stabilize. EURO: The euro held support near $1.1220 in the North American session yesterday and by late trading it had recovered to set a marginal new session high near $1.1285, which is around the 20-day moving average, as well. It reached nearly $1.1355. It pulled back in early European turnover and found support near $1.1310. The next technical target may be the month's high near $1.1380, which is also the (61.8%) retracement of the decline from the April 21 high for the year (~$1.1575). CNY: The dollar was turned down from the CNH7.2265 area, overshooting marginally the 200-day moving average and the (61.8%) retracement of the losses since the May 9 high (~CNH7.2528). It tested the CNH7.20 area, which held initially. A consolidative tone is threatened. The PBOC set the dollar's reference rate at CNY7.1937 (CNY7.1931 yesterday). JPY: The dollar fell to a fresh eight-day low yesterday around JPY144.10 and settled below the 20-day moving average (~JPY144.60) and below Monday's low (~JPY144.65). It took out JPY144.00 before finding support slightly below JPY143.50. Nearby support is seen near JPY143.25, though more formidable support may not be found until closer to JPY142.00. There are reports suggesting that in the trade talks the US is seeking a stronger yen. Turning to Japanese trade balance, in 2023 and 2024, it reported a cumulative trade deficit of about JPY15 trillion. It recorded a bilateral surplus with the US of about JPY17 trillion. The April figures released earlier today showed an overall deficit of nearly JPY116 bln deficit. The median in Bloomberg's survey anticipated a JPY215 bln surplus. Export growth slowed on a year-over-year basis (2% vs. 4%), while imports fell 2.2%. Japan may be one of the countries that US Treasury Secretary Bessent warned would face April 2 "Liberation Day" tariffs if there are not negotiations in good faith. Japan was the first to begin negotiations with the US, but the talks seem to have stalled. Japan wants all the tariffs on the table, including the auto tariffs, but that is not what the US is offering. Moreover, Prime Minister Ishiba has seen his support dwindle and there is an upper house election in late July, after the 90-day postponement of the so-called reciprocal tariffs. GBP: Yesterday, the Bank of England's chief economist warned against easing policy too quickly and today the UK reported a surge in CPI. It helped lift sterling to a new three-year high near $1.3470 before being taken a little below $1.3400 where new bids were waiting. The jump in household utility bills fueled the largest rise in the UK CPI in two years. The 1.2% increase in April was larger than all of Q1 25 (~0.6%). The Bank of England may have been able to look through it, but core prices rose 3.8% year-over-year, up from 3.4% in March and 3.2% at the end of last year. Service prices are 5.4% higher from a year ago. They finished last year up 4.4% year-over-year. The swaps market has the next cut fully discounted for November and has about 36 bp of cuts this year priced in compared with 41 bp yesterday and 45 bp at the end of last week. Meanwhile, tomorrow, the May flash composite PMI is seen below the 50 boom/bust level for the second consecutive month. It was above 50 all of 2024. CAD: The greenback consolidated in the lower end of the recent trading range, which was established on May 12 (~CAD1.3895-CAD1.4015). It has been pushed to CAD1.3880 today. The 20-day moving average is near CAD1.3885, which is also the halfway point of the rally since the May 6 low (~~CAD1.3750). The next retracement (61.8%) is near CAD1.3850. The end of the carbon tax saw the headline CPI fall 0.1%, and given the base effect, the year-over-year rate fell to 1.7% (from 2.3%). This was a little firmer than the Bank of Canada projected. And perhaps more importantly, the underling core measures were more than expected (averaging 3.15% vs 2.85% in March). The market more than halved the odds of a June rate cut to about 1-in-4. Meanwhile, a 10-day rally has lifted the Toronto Stock Exchange Index to a record-high. It is the longest streak since 2021. The index is up a modest 5.3% year-to-date. AUD: The Australian dollar traded below $0.6400 yesterday in response to what was perceived to be a dovish cut by the central bank. However, the broader pullback in the US dollar helped it recover to almost $0.6425 in the NY afternoon. The gains have been extended to almost $0.6460 today. The week's high, set Monday, near $0.6465, offers initial resistance. It pulled back to around $0.6435 in early European turnover. A close below $0.6425 would disappoint the late longs. MXN: The peso extended its gains yesterday to new seven-month highs. The greenback reached almost MXN19.25. Recall, last Friday's high was near MXN19.5660. The peso finished higher yesterday, the 11th session in the 14 this month. Yesterday's resilience persisted even after news reports of more political violence (two aides of Mexico City Mayor Brugada were killed). Mexico reports March retail sales today. The dollar is consolidating in a narrow range (~MXN19.26-MXN19.3050), as it waits for North American leadership. With Q1 GDP already reported, today's report is unlikely to have much impact. That said, retail sales are expected to slip (-0.1%) for the first time since last October. Tomorrow's reports are more important, especially the CPI for the first half of May. Disclaimer

Human vs. System Human vs. System: Can Emotion-Free Trading Bots Really Deliver More Consistent Results? Ask any seasoned trader what derails trades the fastest, and most won’t say “bad analysis” or “wrong indicator.” The answer’s almost always the same: emotion. Fear of losing. Greed for more. The urge to win back what was lost. These reactions turn strategy into chaos, and over time, they drain accounts faster than any market dip ever could. It’s easy to follow a plan when everything’s calm. But in the middle of a fast moving market, logic slips. You start seeing threats that aren’t there, or chasing moves that have already nhappened. That moment, where the plan breaks and emotion takes over, is where most traders go wrong. And it’s also where systems have the edge. The Human Problem Humans are wired for survival, not trading. That’s why even traders with solid plans find themselves skipping entries, bailing early on winners, or doubling down on losses they should’ve walked away from. Missed setups, overtrading, revenge trades-most of it stems from emotional decisions that feel urgent in the moment but make no sense in hindsight. You see price moving fast? Your brain floods with panic. You just took a loss? Now you want it back. These reactions aren’t flaws. They’re human. But in trading, they’re expensive. What Bots Bring to the Table This is where structured, algorithmic trading systems come in. Most trading bots operate using pre-set rules based on technical indicators, like moving averages, RSI, or candlestick formations. These rules are triggered when specific market conditions are met. That’s automation. Pivozon takes it further by layering AI-based filtering on top of those rules. It doesn’t just follow signals, it evaluates them. It can analyze recent price behavior, filter out setups that look unstable, and prioritize trades with stronger probability. ForexEKO is more pattern-based, relying on chart structure and price formations. It identifies when a breakout setup is forming and aligns entries with key levels. The logic is clean, consistent, and not influenced by past outcomes. That’s something very few humans can match, especially under pressure. Bots don’t care about your last trade. They don’t trade out of frustration. They just follow the rules, and that level of consistency can change the outcome across an entire trading month. When the Market Goes Wild Let’s say you’re watching Gold during a heavy news cycle, during a major economic release or central bank announcement. The candles spike, retrace, spike again. As a manual trader, that kind of movement is hard to sit through. You either jump in too early or pull out too soon, especially if the last few trades didn’t go your way. Now picture the same scenario with a bot running. Pivozon’s in a trade that still meets its conditions. It holds. No second-guessing. No reacting to the noise. If the conditions break, it exits. If they don’t, it rides the move. That calm, mechanical behavior is exactly what most traders struggle to maintain on their own, and it’s where bots excel. Over 20 trades, the bot follows the same logic every time. A human, depending on mood or confidence, might only follow through on half. That difference adds up fast. The Missing Piece That said, bots aren’t foolproof. They don’t read sentiment. They don’t adjust for breaking news or unexpected events unless they’re programmed to stop during them. A system might still take a trade right before a major release. Not because it’s reckless, but because it doesn’t know any better. That’s where the human eye still matters. You know when to pause the bot. You know when to avoid high-impact events or tweak parameters based on current conditions. Bots don’t replace you, they support you. They take the emotion out of execution, but you still need to steer the bigger picture. The best results often come from a hybrid approach: structure from the system, judgment from the trader. That combination offers both stability and flexibility, something no fully manual or fully automated setup can provide on its own. So, Do Bots Deliver Consistency? Yes, but with a caveat. Bots offer consistency in execution, not perfection in outcome. They’re ideal for traders who want to remove impulse and bring structure into their routine. They don’t chase trades, and they don’t tilt after a loss. That alone can change the entire trading experience, especially for those building discipline. Used smartly, bots aren’t just tools. They’re a safeguard against your own worst instincts. Not because you’re weak, but because no one trades well in panic mode. Systems like Pivozon and ForexEKO give you space to trade clean, even when the market doesn’t.

Overview: US stocks and bonds recovered from yesterday's sell-off in Asia and Europe. The Swiss National Bank President Schlegel expressed the views of many Americans when he said on Monday that "There is currently no alternative" to US Treasuries, "and it's not foreseeable that there will be an alternative." The 10- and 30-Treasury yields finished 3-4 basis points lower, stocks closed higher. Yet the tug-of-war continues, and the dollar was sold again in Asia Pacific and Europe today. Among the G10 only the Antipodean currencies are weaker, following Australia's dovish rate cut. Emerging market currencies are mixed. Following the weekend elections, the Romanian leu is the weakest (~-0.75%), while the Polish zloty is the strongest (~0.25%). After yesterday's US equity recovery, most of the large Asia Pacific bourses rallied. South Korea and India were notable exceptions. Europe's Stoxx 600 managed to settle higher yesterday and is extending those gains today. If it settles higher, it will be the fourth consecutive gain. It has only fallen three times so far this month. US index futures are around 0.20%-0.45% lower. A poor 20-year auction weighed on long-term Japanese bonds, but the 10-year yield rose a little more than one basis point to approach 1.50%. Australia's benchmark 10-year yield tumbled a dozen basis points to around 4.40%. European yields are 1-2 bp lower, while the 10-year US Treasury yield is little changed near 4.45%. Gold is steady, holding above $3200 but below yesterday's high (~$3250). July WTI is little changed near $62. USD: The Dollar Index set the session low yesterday in early North American turnover a little above 100.00. It trended higher through the remainder of the session and reached 100.50. The gains were marginally extended in Asia Pacific turnover today before sellers reemerged and in early European activity slipped to through yesterday's low but still held above 100.00. The daily momentum indicators are getting stretched. Afterall, it bottomed a month ago. This week's US data are not key to the markets. US participants seemed to be less swayed by Moody's downgrade, the last of the three large rating agencies to downgrade the US than Asia and Europe. US Treasury Secretary Bessent also warned that some countries may face the same so-called reciprocal tariffs they did in early April. Yet he seems to try too hard to spin the administration's ad hocery into "strategic uncertainty." Beijing has warned that the new US attempt to dissuade the use of Huawei AI chips was a provocation that undermines recent trade talks and seemed to threaten unspecified retaliatory action. Meanwhile, at least half a dozen Fed officials speak today after five yesterday, including Atlanta Fed President Bostic. The derivatives market consolidates last week's move, which pushed the next Fed cut into Q4 from Q3. For the first time in three months, the Fed funds futures are beginning to question whether two cuts will be delivered this year, as the median Fed projection in March showed. Bostic, for one, suggested he is leaning toward one rate cut this year. EURO: The euro peaked yesterday near $1.1290 in early North American turnover. It trended lower and reached about $1.1225 in the NY afternoon, holding slightly above the pre-weekend high (~$1.1220). It frayed the four-week downtrend found near $1.1260 yesterday but settled below it. The euro held below $1.1280 today as it consolidates in the upper end of yesterday's range, and below the 20-day moving average, which is not settled above for two weeks. The eurozone's current account jumped by nearly 51 bln euros in March. brings the Q1 current account to about 131.76 bln euros from almost 109 bln euros in Q1 24. It is larger inconsequential today: Q1 GDP is history, and the focus is on the euro being among the most attractive alternatives to the dollar. Yesterday, the EC cut its eurozone growth forecast to 0.9% this year from 1.3% in November. It shaved next year's GDP projection to 1.4% from 1.6%. The risk is that both are optimistic. The median forecast in Bloomberg's survey is for 0.8% growth this year and 1.1% next. The IMF's recently minted forecasts put growth at 0.8% this year and 1.2% in 2026. CPI is seen falling to 2.1% this year from 2.4% last year and to 1.7% in 2026. The IMF's CPI projections are 2.1% and 1.9%, respectively. The ECB's staff will update its forecasts next month. CNY: The dollar reached a six-day high against the offshore yuan near CNH7.2265 today. It bottomed last week near CNH7.1790. The next notable chart area is CNH7.2350-80. The PBOC set the dollar's reference rate at CNH7.1931 (CNY7.1916 yesterday), the first increase in three sessions and only the fourth higher fix this month. Separately, reports suggest that has been an increased demand for yuan from Chinese exporters and investors. Onshore banks reported the first decline in foreign currency deposits in April from a three-year high in March. Chinese banks matched the PBOC's recent 10 bp cut in the key repo rate and cut the loan prime rates to 3.0% and 3.5% for the one-year and five-year tenors, respectively. After the disappointing April data, pressure is likely building for stronger efforts to support the domestic demand. JPY: The dollar has been sold to an eight-day low today slightly above JPY144.00. The 20-day moving average is near JPY144.50, and the dollar has not settled below it for two weeks. The JPY144.25 area corresponds with the (50%) retracement of the greenback's gains since the eight-month low on April 22, a little below JPY140. It is meeting resistance near JPY144.50 in the European morning. Poor reception at the 20-year JGB auction sparked a sharp sell-off in long-term Japanese Government Bonds today. The 30- and 40-year yields jumped a dozen basis points to new record highs. The BOJ is also trying to survey the market on how quickly it should reduce its purchases of government bonds. Japan reports April trade tomorrow. Consistent with the seasonal pattern, the surplus is expected to narrow from March. Japan's trade deficit averaged JPY532 bln a month in Q1 25 compared with an average shortfall of almost 620 bln a month in Q1 24. Despite the contraction in Q1 GDP, Prime Minister Ishiba rejected calls for tax cuts and pushed back against calls for additional government spending amid rising borrowing costs. Debt servicing costs about a quarter of the government's annual budget (compared with about 17% in the US). GBP: Sterling made a marginal new high for the month yesterday, by about 2/100 of a cent. It was greeted by sellers who drove it from a little above $1.3400 to about $1.3345 in the North American afternoon. It recorded an outside up day, trading on both sides of last Friday's range and settling above its high. It is trading in about a half-of-a-cent range below $1.3400 today. The Bank of England's Chief Economist Pill expressed concern that rates are being cut too fast and advocated a more "cautious" approached. He had dissented at the last meeting that cut rates. Households saw a jump in energy and water bills last month and this will see the April CPI jump by around 1%. The median forecast in Bloomberg's survey sees the year-over-year rate rise to 3.3% from 2.6% in March. The core rate may rise to 3.6% from 3.4%. The swaps market sees no meaningful chance of a cut at next month's central bank meeting, and the odds of an August cut are around 75%. The year-end rate is seen near 3.75%, from the current 4.25% target, the upper end of expectations since early April. CAD: The greenback eased to a three-day low, slightly below CAD1.3920. It recovered to around CAD1.3965 before stalling. This kept the consolidative tone intact. For the fifth consecutive session, it remained within the range set last Monday (~CAD1.3895-CAD1.4015). So far today, it is confined to a roughly CAD1.3930-CAD1.3970 range. Canada reports April CPI today. The median forecast in Bloomberg's survey is for a 0.2% month-over-month decline, which would be the first decline of the year. There were four months in 2024 that the CPI fell. Even with the 0.2% decline in April CPI, the annualized increase in the first four months of the year would be 3.9%. It fell in the last four months of 2024. The VAT holiday and its conclusion have been the main driver of the rebound. The underlying core measures are expected to be little changed, slightly below 3%. AUD: The Australian dollar was bid yesterday ahead of today's much-anticipated quarter-point rate cut by the central bank today. The Reserve Bank of Australia's cash target rate now sits at 3.85%. The central bank delivered a dovish cut, as Governor Bullock revealed that the debate was over a 25 bp or 50 bp cut. The central bank reduced its growth and inflation forecasts, and the new projections showed scope for 65 bp Q2 26. The market had discounted a year-end target rate of 3.34% yesterday and cut it to 3.16% today. This year's GDP forecast was reduced to 2.1% from 2.4% and the CPI projection was cut to 3.0% from 3.7%. The Aussie held slightly below yesterday's high (~$0.6465) and was sold to about $0.6410. Since the low was set, it has held below $0.6430 as it consolidates. MXN: The dollar remained below MXN19.50 yesterday and sellers pushed it to new seven-month lows late in the session near MXN19.30. Follow-through selling today has seen it dip below MXN19.26. The peso was the best performing currencies in Latam yesterday and so far, this month, it is only being bested by the Argentine peso (2.85% vs. 1.80%). The US dollar settled below its lower Bollinger Band (~MXN19.3560) for the second time in the past four sessions. Still, there is little chart support ahead of the MXN19.00-10 area. Mexico reports March retail sales tomorrow. A slight increase is expected. Wednesday's CPI report for the first half of May be more important. The headline CPI is expected to rise to 4% for the first time this year. The core rate may edge a little closer to 4%, which is the upper end of the target range (for both the headline and core rate: 3% +/- 1%). Banxico meets next on June 26 and the officials held out the possibility of a the fourth consecutive 50 bp rate cut. Disclaimer

Is the Moody’s U.S. Downgrade a Red Flag or Not? Why Falling Stocks and Rising Bond Yields Are a Red Flag for Markets Under different circumstances, Moody’s downgrade of U.S. sovereign debt might have been shrugged off. But this time, it triggered a sell-off in U.S. bonds, stocks, and the dollar as the new week opened. It’s a textbook case of the adage: “It’s not the news, it’s the market’s reaction to it that matters.” The market had been pricing in optimism—higher stocks, a firm dollar, and demand for bonds. The downgrade caught that mood off guard. Was Moody’s downgrade the trigger? Or did it merely highlight deeper vulnerabilities—such as ballooning U.S. fiscal deficits and rising uncertainty around tariffs and governance? A Brief History of U.S. Sovereign Debt Downgrades S&P Downgrade – August 5, 2011 • Downgraded U.S. debt from AAA to AA+ • Triggered by debt ceiling standoff and long-term fiscal risks • First-ever downgrade of U.S. sovereign debt • Market reaction: Stocks fell; U.S. Treasuries rose due to safe-haven demand Fitch Downgrade – August 1, 2023 • Downgraded from AAA to AA+ • Motivated by political dysfunction, rising deficits, and governance concerns • Increased market volatility • Fed and Treasury officials rejected Fitch’s reasoning Moody’s Downgrade – May 18, 2025 • Downgraded from Aaa to Aa1 • Cited rising deficits, political gridlock, and risk from extending the 2017 tax cuts • Aligns Moody’s with earlier downgrades by Fitch and S&P Why This Is a Bad Mix for Markets Rising bond yields, falling stocks, and a weakening dollar are a concerning trio. They signal a potential flight from U.S. assets. This echoes the market’s reaction after Trump’s “Liberation Day” tariff shock, which triggered a similar panic and raised alarms in the White House, leading to a 90-day pause in implementing reciprocal tariff rates. One difference here is the sell-off was not self-induced but a reaction to a third party action (i.e. downgrade). Bad mix: Bonds d0wn (yields up), stocks down, dollar down (EURUSD up) – CFD feed US 1 HOUR 10 YEAR = high yield) – May 19 US500 (SP500) 1 HOUR – May 19 EURUSD 1 HOUR – May 19 What Do Rising Bond Yields Mean? Bond yields tend to rise when: • Interest rate expectations increase, In this case, it is not clear what path the Fed will take given its forecasts of weaker employment and higher inflation due to the impact of tariffs. While there is little chance of a Fed rate hike, debate is how many rate cuts it will make given the uncertainty over the impact of tariffs, especially on inflation • Government borrowing continues to increase, expanding supply of bonds • Investors demand higher returns for holding riskier debt • Higher yields push up borrowing costs for consumers and corporations alike In this case, the Moody’s downgrade reminded markets of fiscal vulnerabilities, pushing yields higher. What Do Falling Stocks Signal? Stock declines usually suggest: • Concerns about future corporate earnings or economic outlook • Recession risk or uncertainty over the Fed’s policy direction • A shift in investor sentiment away from risk assets Why Is It a Dangerous Combination?: When both bonds and stocks fall :• Stagflation fears grow (slow growth + high inflation) • Monetary policy error risks increase: The risk of a policy error by the Fed is greater than normal depending on what side of its mandate (stable prices and maximum employment) it eventually responds to.. • No safe haven: Normally, bonds rise when stocks fall. If both drop and the dollar weakens too it reflects a loss of confidence across the board For Traders and Investors: What to Watch • For forex traders: If U.S. bonds and stocks fall together, it’s often a bearish signal for the dollar • For investors: Monitor the correlation. A parallel drop in bonds and equities is a market red flag Moody’s downgrade may not have told us anything new but the market’s reaction did. It exposed fragile confidence in the U.S. economy, driven by fiscal concerns, tariff policy uncertainty, and global headwinds. While the current move could be a one-off, the combination of rising yields and falling stocks is worth watching closely. It may not signal crisis yet, but it’s certainly flashing yellow. Take a FREE Trail of The Amazing Trader – Click HERE

Overview: Moody’s took away the US AAA rating before the weekend. It was the last of the big three rating agencies to do so. We do not think there is fresh information content in its belated decision, but participants in Asia and Europe have reacted by selling the US dollar and US assets. The 30-year bond yield is above 5% and the 10-year yield is near 4.50%. The S&P 500, which rose by over 5.25% last week, its second-best week of the year, is set to snap a five-day advance. It is poised to gap lower. The greenback is broadly lower. Nearly all the G10 currencies are at least 0.5% higher against the dollar but the New Zealand and Canadian dollars are trailing. Nearly all the emerging market currencies are firmer too, with the Philippine peso and Taiwanese dollar the notable exceptions. The MSCI Asia Pacific Index rose for the fifth consecutive week but began this week on a heavier tone. It fell for the third consecutive session. None of the large bourses escaped the pressure. Europe's Stoxx 600 also has a five-week advance in tow. It is off about 0.65% in late European morning turnover. The sharp rise in US Treasury yields triggered a global bond sell-off. The Antipodean 10-year rates rose 7-8 bp. The 10-year Japanese government bond yield rose nearly four basis points to 1.48%. European benchmark yields are 5-8 bp higher, with peripheral yields rising faster than the core. Gold is offering a haven today and is a little better than 1% higher near $3240. July WTI remains in last Thursday's range (~$60-$62.50). USD: The Dollar Index settled firmly last week, before Moody's downgrade. It had reached a three-day high and posted a bullish outside day. Moody's move came almost 14-years after S&P first took away the US AAA rating and nearly two years after Fitch's move. Although there seems to be little new news in the Moody's downgrade, the Dollar Index has been sold through last week's lows near 100.25 to about 100.15. Near-term risk may extend to 99.50. And still, late yesterday, with minor adjustments that sped up some Medicaid-related cuts, a House committee passed the White House-sponsored budget after some last-minute negotiations yesterday, which is going to pile on more debt. In what is a subdued week for US data, the Index of Leading Economic Indicators are due today. Most of the components of the index have already been released so it is little wonder that the markets do not often react to it. Still, the LEI has fallen for the past three months. In fact, it only rose in two months last year after falling every month in 2023 and all but one month in 2022. The Philadelphia Fed's non-manufacturing survey is due tomorrow. Like the business outlook survey released last week ( -4.0 vs. - 20.4 in April). it may improve from the -42.7 reading in April, the poorest since the pandemic. EURO: The euro settled at three-day lows but has returned bid. A down trendline off last month's high (~$1.1575) comes in near $1.1260 today. The euro has been bid through it in the European morning. A move above the $1.1285 area targets $1.1320 and possibly $1.1380. That said, intraday momentum indicators are overbought. There two data points of note this week are on Thursday when the German IFO survey and preliminary May PMI are released. The market remains confident of an ECB rate cut next month and has another cut discounted in H2, which, together, would bring the deposit rate to 2.75%. Some ECB officials have suggested that it is around the neutral rate. Meanwhile, reports indicate that the ECB is encouraging member banks to reduce their dollar funding needs; to de-risk from the possibility that in the next crisis, the US does not grant access to the swap lines (though it is a Fed not Treasury decision, and Chair Powell has indicated its commitment). One way to do this is reduce holdings of dollar-denominated assets. A possible offset may arise from reports that the US is preparing to retract capital rules adopted in the post-Great Financial Crisis period, and in particular the easing of the Supplementary Leverage Ratio. There is some talk in the press that the new plan, which Treasury Secretary Bessent has called a "high priority" that the measure may include granting Treasury bonds an exemption. Currently, large US banks are required to hold 5% of Tier One capital under the SLR. That is higher than in other high-income countries. CNY: The six-month low the dollar recorded last week (~CNH7.1790) may hold for a while. The greenback is trading with a slightly firmer bias against offshore yuan. It reached CNH7.2180. The 200-day moving average is near CNH7.2235. The PBOC set the dollar's reference rate at CNY7.1916 (CNY7.1938 Friday), the lowest since April 3. China has already released the most important high-frequency data of the week. Despite the myriad of reforms announced, the property market remains depressed (property sales -1.9% year-to-date, year-over-year), property investment weakened (-10.3% YTD YOY, vs -9.9%), and house prices (new and used) fell at a faster rate sequentially. April retail sales slowed (5.1% YOY vs. 5.9%), as did industrial production (6.1% YOY vs. 7.7%). Tomorrow, the banks will likely pass through the 10 bp cut in the key seven-day repo rate to the loan prime rates. Still, without more fiscal support the Chinese economy may struggle. After expanding 1.2% quarter-over-quarter in Q1, growth may slow below 1% this quarter, which would be the weakest since Q4 23. JPY: After it recorded new lows for the week ahead of the weekend, slightly below JPY145, the greenback caught a bid that lifted it back to new session highs in North American through JPY146.00. Today it has extended last week's pullback and approached JPY144.65. Initial support may be in the JPY144.25-45 area. With Q1 GDP reported before the weekend (-0.2% quarter-over-quarter), the March tertiary index (-0.3%) was not so important. Wednesday's April trade balance may be more notable. It may report a third consecutive monthly trade surplus for the first time since February-April 2021. Meanwhile, the US said it is close to a trade agreement with Japan, but we have not seen confirmation by Tokyo. That means it could be subject to the tariff regime President Trump said will be announced in the next 2-3 weeks. The first national election under Prime Minister Ishiba's term (started last September) will be held in July. Half of the seats of the 248-seats upper chamber of the Diet will be contested. Ishiba and his cabinet do not enjoy strong public support and a poor showing in the election will likely spur a stronger leadership challenge last in October. GBP: Before the weekend, sterling traded on both sides of Thursday's range, and today, it has trading on both sides of last Friday's range. It reached $1.3400 in the European morning. The near chart area of note is the three-year high set late last month near $1.3445. Meanwhile, the UK and EU struck a new tentative agreement on defense and security. Also, the UK agreed to extend fishing rights until 2038 in exchange for agreements on energy cooperation and agricultural standards. The UK's market-sensitive high frequency data is in the second half of the week. The highlights are the CPI, flash PMI, and retail sales. That said, there is little chance of back-to-back cuts by the Bank of England, which means no cut next month. The Monetary Policy Committee will have more data in hand when it meets in August. The odds of an August cut were pared to a little less than 75% from almost 85% a week ago. CAD: The CAD1.4000-20 area continues to frustrate US dollar bulls. That area capped the greenback several times last week. The US dollar is trading softer against the Canadian dollar today but so far has held the pre-weekend low near CAD1.3935. A break of it could target CAD1.3900. Tomorrow is the data highlight of the week for Canada: April CPI. Given the base effect, a 0.2% month-over-month decline the median forecast in Bloomberg's survey calls for will push the year-over-year rate to around 1.6% from 2.3% in March. The underlying core measures, which the central bank puts weight on, have crept up this year but were still below 3% in March (2.6% at the end of 2024). The swaps market has seen a small increase in the chances of a Bank of Canada rate cut at its June 19 meeting to around 67%, virtually unchanged over the past week. AUD: The Australian dollar traded in an almost 1.5-cent range last week and settled a little below the middle of it. The three-day low recorded ahead of the weekend (slightly below $0.6390) and the falling momentum indicators make for a heavier technical tone. Today's gains, on the back of the broadly weaker greenback have been limited so far to almost $0.6450 area. A move above there could see $0.6460. The first thing tomorrow, the Reserve Bank of Australia is widely expected to deliver the second cut in the easing cycle that began in February. The quarter-point cut will bring the cash target rate to 3.85%. During the market turmoil early last month, the futures market briefly toyed with the idea of a half-point move but calmer conditions have encouraged a less aggressive view. The market is pricing in two more cuts in H2 25. The swaps market is pricing a terminal rate of about 3.25%. MXN: After being sold to a seven-month low near MXN19.30 in the middle of last week, the greenback stormed back to MXN19.5660 ahead of the weekend. It stalled near the 20-day moving average (~MXN19.57), which has not closed above since April 11. Sellers appeared ready and drove the dollar down to around MXN19.47. The dollar slipped through the pre-weekend low to almost MXN19.4150 today. The peso resilience remains impressive given the aggressiveness it is cutting rates and the multifaceted challenge by the US. Of the 13 sessions this month coming into today, the peso has fallen in only three. There are two questions that will be tentatively answered with this week's high-frequency data, which begins in earnest in the middle of the week. First, is what kind of momentum did the Mexican economy enjoy at the end of Q1. The March retail sales on Wednesday and the IGAE economic activity (similar to a monthly GDP reading) the following day will be useful. The second question is about the price pressures, which seem to have picked up though not sufficiently to deter the central bank's third successive 50 bp rate cut last week. Indeed, Banxico's forward guidance put the market on notice that another half-point cut is likely as the central bank has grown more concerned about the growth outlook. The implied 12-month overnight rate in the swaps market fell to 6.55% at the end of last week from 7.28% at the end of the previous week. Disclaimer

The dollar traded choppily last week but settled higher against all the G10 currencies. It finished the week on a firm note. The messy upside correction for the dollar may continue. Despite disappointing retail sales and manufacturing output, and softer than expected CPI and PPI, the market has pushed the next Fed cut into Q4 from Q3. Most of the other G10 central banks will likely (again) cut before the Federal Reserve. Halfway through the quarter, the Atlanta Fed's GDPNow Tracker has Q2 growth at 2.4%, which if accurate, would probably be the best in the G10. Still the 90-day reduction of US (and Chinese) punitive tariffs has seen shipment orders surge, and imports, with knock-on effects on consumption, inventories (business investment) may again distort the underlying economic signals. Nearly 14 years after S&P took away the US AAA rating, and almost two years since Fitch did, Moody's matched the move after the markets closed Friday. There was a wobble in the thin post-equity close activity, but we suspect that Moody's move will be seen as a belated catch-up move without real implications of the US creditworthiness. Foreign investors have boosted their holdings of US debt since the S&P and Fitch's decision. Still, the greater US debt servicing costs and the budget the administration is seeking, which failed to pass a House committee last week underscores we nearly everyone recognizes, the US deficit and debt are on an unsustainable trajectory. The Reserve Bank of Australia is expected to cut is cash target rate for the second time this year early next week. The futures market discounts another two cuts this year. Chinese banks may shave the loan prime rates after the recent cut in the seven-day repo rates. While Canada is expected to see a fall in the headline year-over-year rate of inflation back below 2%, higher energy and water fees will drive UK inflation sharply higher. Mexico reports inflation for the first half of May, but the central bank's forward guidance last week signaled that the bar to another half-point cut is low. The preliminary PMI are among the surveys that will be released next week, and the Federal Reserve Chair Powell highlights the divergence between the real sector "hard" data, and the weaker "soft" survey data. US Drivers: The dollar sold off broadly from around mid-January through at least late April. US yields have risen for the past three weeks, and many economists have downgraded the chances of a recession following the US-China 90-day de-escalation agreement. Once again, the market diverged from the forward guidance of the Federal Reserve, but has re-converged, despite the softer the expected inflation readings and disappointing real sector data (April control/core measure of retail sales and a contraction in manufacturing output). Indications that authorities will likely announce a revision to the Supplemental Leverage Ratio appear to help support the US Treasury market and blunt the impact of the ECB's encouragement of member banks to reduce their dollar funding needs. Data: Federal Reserve Chair Powell continues to argue that the real sector data has not shown the weakness of the survey reports. The week ahead sees more survey data (several regional Fed surveys and the preliminary May PMI). These may pose headline risk, but the point is that real sector data are more important, and new and existing home sales, which will be released, are not mission critical. Prices: The Dollar Index rose for its fourth consecutive week. It retraced nearly (61.8%) of its decline from the late March high (~104.70) to the late April low (97.90). It posted a bullish outside up day ahead of the weekend by trading on both sides of Thursday's range and settling above its high. The momentum indicators are still rising but getting stretched. Still, it does not necessarily prevent a retest on the 102.00-102.10 area. The trendline off the lows is found near 100.15 at the start of the new week. EMU Drivers: The market has already discounted a strong chance (~90%) that the ECB cuts rates in June and maybe even another time before the next Fed cut is fully discounted. Many attribute the euro's relative resilience to portfolio re-allocation decisions. Recalling that the euro rallied more than 14% from early February through late April, the subsequent pullback has been thus far limited to about 4.3%. Data: Wage data and the preliminary May PMI are the highlights, though Germany's IFO survey may also draw some attention. This is not the data that will dissuade the market against its belief that the ECB will cut rates again next month. Prices: The reaction of the US-Sino 90-day cooling off period saw the dollar jump and the euro slump to $1.1065 at the start of last week. This nearly met the (61.8%) retracement of the leg up from the March 27 low (~$1.0735) found near $1.1025. Since the low last Monday was recorded, the euro has not been above $1.1265. It settled last week poorly. The single currency fell to a three-day low before the weekend near $1.1130. It looks vulnerable to more selling pressure and a return to the recent lows. China Drivers: Chinese officials continue to manage the exchange rate so that it is broadly stable against the dollar. The onshore yuan has risen by around than 1.3%% against the US dollar so far this year, making it among the weakest in the region, though the Indian Rupee is up less than 0.2%. That said officials appear to have introduced slightly more flexibility into the exchange rate by moving the dollar's daily reference rate by a little more than it had been. Data: After reporting April inflation last week, the high-frequency data cycle turns to the real sector--retail sales, industrial production, surveyed unemployment, as well as some indications on the property market and house prices. The year-to-date, year-over-year, way of reporting the data is expected to show some improvement in the pace but the recent rate cut and reduction in reserve requirements reflects the recognition that the economy needs more support if the 5% growth target is to be achieved. The property sector continues to bleed. Given the 10 bp in the seven-day repo rate the prime lending rate will likely be adjusted to match it. Prices: The offshore yuan set a six-month high against the dollar on May 13 (~CNH7.1790). It recovered to almost CNH7.2160 the following day and remained in the range for the past two sessions. The greenback closed firmly ahead of the weekend near CNH7.21. We suspect there may be scope for additional near-term USD gains, perhaps toward CNH7.2230-50, which houses the 200-day moving average and the (61.8%) retracement of the dollar's fall from the May 9 high (~CNH7. 2530). The rolling 60-day correlation of changes in the offshore yuan and the Dollar Index is near 0.25, its weakest since April 2022. The PBOC has reduced the dollar's reference rate in 11 of the past 14 sessions. The lower reference rate caps the dollar's upside (raising floor for the yuan). Japan Drivers: The exchange rate has continued to trade less influenced (correlation) with the US 10-year yield and this has corresponded to a period of elevated volatility. Three-month implied volatility has not been below 11%, where the 200-day moving average is found, for over a month. A year ago, it was near 9.5%. Arguably, it remains more about the broad dollar movement. Data: Japan's April trade balance may be of some interest as we get our heads around the impact of the tariffs. Given the strong seasonal patterns, it is likely the surplus narrowed from JPY559 bln in March. Exports rose by 2.3% in the first 20 days of April (year-over-year), which is slower than the 4% pace in March. Autos and steel were among the industries that saw weaker exports. The April CPI at the end of the week will likely show a more modest increase than the Tokyo CPI a few weeks ago, primarily because of the different weightings of the components in the respective indices. Several factors drove the Tokyo CPI jump, but the two that seem to account for most of the rise are a technical adjustment after last year’s tuition waiver and an unexpected jump in rent prices (biggest gain in 30 years). The BOJ already had the Tokyo CPI in hand when it met recently. Despite the contraction in Q1 GDP, the swap market finished last week discounting about 17.5 bp of tightening this year. While it was the least last week, it was also a little more than four basis points higher than the prior week. Prices: The dollar was slightly firmer against the yen last week. It was the fourth consecutive weekly gain. The greenback's high at the start of the week was near JPY148.65. It stopped short of the halfway mark of this year's range (~JPY149.40) and the 200-day moving average (~JPY149.70). It set new lows for the week ahead of the weekend, slipping briefly below JPY145.00, but recovered in the North American session to almost JPY146.10. Re-establishing a foothold above JPY146.35 would improve the near-term technical tone, though we note that the momentum indicators are getting stretched. UK Drivers: Sterling record a three-year high in late April near $1.3445. It has been moving broadly sideways, holding above $1.3200. The trade agreement with the US, which does not seem to be particularly impactful, although all the details have not been worked out. The Bank of England has cut rate rates twice this year and the bar to a cut in June seems high. Data: April CPI and retail sales, and the preliminary PMI are unlikely to impact the outlook for next month's meeting. Given the rise in household energy and water bills, inflation is likely to be strong. The median forecast in Bloomberg's survey is for a 1.1% month-over-month increase. Retail sales were robust in Q1, rising 1.6% in volume terms quarter-over-quarter, Wage growth is outstripping inflation, but consumer confidence dropped in April and the latest YouGov polls shows Prime Minister Starmer's support has fallen to its lowest level, mostly due to the erosion of support from his Labour Party. Excluding gasoline, retail sales may have slowed. Turning to the PMI, recall that in April, the composite fell to 48.5 (from 51.5). That matches the lowest since October 2022. The manufacturing PMI has been below the 50 boom/bust level since the start of Q4 24. The services PMI in April stood at 49.0, the least since January 2023. Bloomberg's survey found economists expect a sequential improvement in the PMI. Prices: Sterling was sold to about $1.3140 last Monday, meeting the (38.2%) retracement objective of the recovery from the April 7 low (~$1.2710) to the best level since February 2022 (~$1.3445). It reached $1.3360 in the middle of last week before being bogged down in consolidative activity in the last two sessions (~$1.3250-$1.3335). It settled last week near the lower end of the range. The downside correction does not appear complete. Nearby support is seen near $1.3225 and then last week's lows. The momentum indicators are still falling, and the five-day moving average remains below the 20-day moving average. Canada Drivers: The Canadian economy is vulnerable. The private sector lost nearly 75k jobs in the March-April period. Employment in the goods sector fell by 31k jobs in April, or 1.6%. Inflation is poised to ease. The risks of a cut next month by the Bank of Canada is increasing. Consistent with our hypothesis that rather than idiosyncratic factors, exchange rates are being broadly driven by the US dollar. The rolling 30-day correlation of changes in the exchange rate and the Dollar Index is at a new high for the year, a little above 0.70. Data: Two important high-frequency data points are due in the coming days. The first is the April CPI. A sharp drop is expected as the consumer carbon tax was eliminated, and oil prices fell. The Bank of Canada expects the year-over-year rate to fall to 1.5% (from 2.3% in March). The second report is March retail sales. They fell by 0.6% in January and another 0.4% in February. Preliminary data from StatsCan suggest retail sales recovered by around 0.7% in March, helped perhaps by consumers moving ahead of the tariffs. Vehicle sales jumped to the best March sales since 2018. Prices: The US dollar set a range Monday against the Canadian dollar (~CAD1.3895-CAD1.4015) that confined the price action for the rest of last week. It met sellers again ahead of the weekend as it approached CAD1.40. Still, the greenback managed to settle slightly higher on the week to record its first back-to-back weekly gain since the end of February. A move above CAD1.4020 targets the CAD1.4080 area. Australia Drivers: Over the past 30 and 60 sessions, changes in the Australian dollar and China's CSI 300 are about as correlated as is exchange rate and the S&P 500 (~0.60 and ~0.50 for 30- and 60-days, respectively). Still, it more correlated with the Canadian dollar (0.75 over the last 30 sessions and 0.72 over the last 60 session). The correlation with the Dollar Index is around 0.52 over the past 30 sessions and 0.55 over the past 60 sessions. Data: The Reserve Bank of Australia meets on May 20. It started the easing cycle in February with a quarter-point cut to 4.10%. The futures market has another quarter point fully discounted in the week ahead, and four cuts between now and the end of the year. The derivatives market sees the terminal rate near 3%. The flash May PMI is due the following day. The composite stood at 51.0 in April. It finished last year at 50.2 and was at 52.1 in May 2024. Prices: The Australian dollar initially was sold on last weekend's US-China agreement and tested this month's low slightly below $0.6360. It recovered to probe the $0.6500 area where it was turned back, like the previous week. The Aussie settled lower for the second consecutive week for the first time since the first half of January. A break of the $0.6355 area could spur the next leg down in the correction, which could target the $0.6285-$0.6300 area. Mexico Drivers: Given that the US push for re-shoring challenges the essence of Mexico's modernization, the peso has been unexpectedly resilient. It has allowed the central bank scope to cut interest rates by 150 bp so far this year despite inflation moderation stalling so to respond to the economic weakness. The peso remains, though, a risk-sensitive currency. The rolling correlation between the peso and the S&P 500 is near 0.70, the upper end of where it has been for the past two years. The US is threatening to tax worker remittances, which is often the largest source of hard currency revenue for Mexico, more than tourism and net exports. President Sheinbaum is trying to resist, but her options seem limited. The central bank delivered the widely expected 50 bp cut last week, and contrary to our expectations, signaled that it still saw scope for additional half-point cuts. Data: With the first estimate of Q1 GDP behind it (0.2% quarter-over-quarter) March retail sales are of little consequence. The revisions to Q1 GDP are also not very consequential. Instead, the focus is om the CPI for the first half of May. Both the headline and core rates are barely inside the 3% +/- 1% target range. At the end of the week Mexico reports April trade figures. Mexico's exports rose by 7.4% in Q1 25, the strongest quarterly showing since Q1 23. Some of the increase was likely influenced by the US tariffs. Seasonally, April tends to be a difficult month for Mexican exports. They have fallen in 14 of the past 20 years in April. Prices: The dollar was sold to a seven-month low against the peso in the middle of last week, slightly above MXN19.30. It recovered, as it did more broadly, and reached a three-day high ahead of the weekend, near MXN19.56. A move above the MXN19.57 area lifts the greenback's tone, but the more important hurdle was last week's high near MXN19.6650. The momentum indicators have turned up, and given the fundamental backdrop (weak US consumer sentiment and potential pullback demand, the US economic nationalism, the weak Mexican economy, risk of another 50 bp cut before the Fed cuts), we suspect the risk is more a move toward MXN19.90-MXN20.00. Disclaimer

Highlights include UK-EU Summit, China Activity Data, PBoC LPR, RBA, Global PMI Data, Inflation from Japan, Canada and the UK Newsquawk Week Ahead Highlights : 19th-23rd May 2025 MON: Canadian Holiday (Victoria Day), EU-UK Summit; Chinese Industrial Output (Apr), Retail Sales (Apr), House Prices (Apr), EZ HICP Final (Apr) TUE: PBoC LPR, RBA Policy Announcement, Norges Bank Financial Stability Report; EZ Current Account (Mar), Consumer Confidence Flash (May), Canadian CPI (Apr), German PPI (Apr), New Zealand Trade (Apr) WED: Japanese Trade Balance (Apr),UK CPI (Apr), US MBA (w/e 12th May) THU: ECB Minutes (Apr), CBRT Inflation Report; Australian Flash PMIs (May), Japanese Flash PMIs (May), UK PNSB (Apr), EZ, UK & US Flash PMIs (May), US Initial Jobless Claims (w/e 17th May), Canadian PPI (Apr) FRI: EZ Negotiated Wage Rates (Q1), Japanese CPI (Apr), German Detailed GDP (Q1), UK Retail Sales (Apr), US New Home Sales (Apr), Canadian Retail Sales (Mar) EU-UK SUMMIT (MON): Representatives are meeting in London for a Brexit reset summit. Ahead of the gathering, the European Council has outlined the blocʼs priorities as defence/security. As usual for such meetings, fishing and youth mobility will draw significant headline attention and often serve as a barometer for the tone of talks, as they are typically the issues with the greatest divergence of views. The EU is sending Commission President von der Leyen, Council President Costa and diplomat Kallas to the summit. From the UK, PM Starmer will be the main representative. Thus far, the main sticking points are reportedly on the mentioned points of fishing, according to Bloomberg. Overall, officials from both sides have been upbeat on signing a deal of some form to improve relations, but it remains to be seen how far this will go, what concession(s) either side may have to give and, perhaps most importantly, if it has any implications for UK-US and/or EU-US talks. CHINESE ACTIVITY DATA (MON): China will release April activity data on Monday, including Industrial Production, Retail Sales,Fixed Asset Investment, and the national Unemployment Rate. The release will be the first full data set to capture the economic impact of Aprilʼs tariff escalation, though sentiment has since improved following the temporary 90-day tariff truce announced last week, potentially tempering the importance of the series. In terms of prior readings, Industrial Production Y/Y printed at 7.7% in March, Industrial Production YTD at 6.5%, Retail Sales Y/Y at 5.9%, Retail Sales YTD at 3.61%, Fixed Asset Investment YTD at 4.2%, Unemployment Rate at 5.2%, and House Prices Y/Y at -4.5%. For April, both Industrial Output and Retail Sales are seen moderating to 5.5%. Desks expect the data to reflect tariff-related disruptions, particularly in export-linked manufacturing and private-sector investment. However, the recent easing in trade tensions may limit downside pressure in upcoming prints. While the rollback of US tariffs on China to 30% (from 145%) offers temporary relief, analysts suggest structural challenges in consumption and property remain unresolved. Any weakness in retail or employment figures may strengthen the case for further easing measures. PBOC LPR (TUE): PBoC will announce Chinaʼs Loan Prime Rates next week which are expected to be reduced by 10bps with the 1- year LPR (the rate most new loans are based on) currently at 3.10% and the 5-year LPR (reference for mortgages) currently at 3.60%. Expectations for reductions are not much of a surprise given that PBoC Governor Pan had announced sweeping measures to ease policy earlier this month including a 50bps RRR cut and 10bps cut to the policy interest rate with the 7-day Reverse Repo lowered by 10bps to 1.40% and the Standing Lending Facility reduced by 10bps for all tenors. Pan also announced they will lower re-lending rates, interest rates on structural policy tools, and the personal housing provision fund rate all by 25bps, as well as guide commercial banks to lower deposit rates. Pan also stated that China will use multiple policy tools to make dynamic adjustments and is to set up CNY 500bln in re-lending loans for elderly care and service consumption, while the total quota of two monetary policy tools to support capital markets was optimised to CNY 800bln and there were additional CNY 300bln of funds each for tech financing and Rural/SME lending. As such, the RRR cut was estimated to have released CNY 1tln in long-term liquidity, while Pan also stated that the 10bps cut in the policy interest rate is expected to drive down the Loan Prime Rates RBA ANNOUNCEMENT (TUE): The RBA is expected to cut rates at its policy meeting next week with money markets pricing in a 98% likelihood for the Cash Rate to be lowered by 25bps to 3.85% and just a 2% chance for rates to be maintained at the current level of 4.10%. As a reminder, the RBA decided to maintain the Cash Rate at the last meeting in April which was unanimously expected given that the central bank had just delivered a cut at the prior meeting in February and voiced cautiousness regarding future cuts. The language from the central bank provided very little clues regarding future policy adjustments as it noted that the outlook remains uncertain and underlying inflation is moderating, while sustainably returning inflation to target is the priority and the boardʼs assessment is that monetary policy remains restrictive. RBA also said that monetary policy is well-placed to respond to international developments if they were to have material implications for Australian activity and inflation. It also noted the continued decline in underlying inflation is welcome but there are risks on both sides with the board cautious about the outlook and it acknowledged inflation could move in either direction. Furthermore, the minutes from that meeting revealed the RBA thought it was not yet possible to determine the timing of the next move in rates nor was it appropriate at that stage for policy to react to potential risks. However, it stated that the May meeting would be an opportune time to reconsider with the decision not predetermined. Governor Bullock commented during the post-meeting press conference that the Board had not made up its mind on a May move, was not endorsing the market path on future rate cuts and did not open the door to a May rate cut. Nonetheless, the market is heavily anticipating a cut next week to support the economy and ease the burden on borrowers, with big 4 bank NAB even calling for a jumbo 50bps move, while recent data releases including contractions in household spending and building approvals, as well as Copyright © {{ copyright-year }} Newsquawk Voice Limited. All rights reserved. Registered Office One Love Lane, London, EC2V 7JN, United Kingdom · Registered Number 12020774 · Registered in England and Wales. newsquawk.com · +44 20 3582 2778 · info@newsquawk.com inflation residing in the RBAʼs 2-3% target, supports the case for the RBA to resume it rate reductions. CANADA CPI (TUE): The April release will be published on Tuesday. The previous data for March showed the rate of headline CPI easing to 2.3% Y/Y (prev. 2.6%), driven by lower gasoline and travel prices; core CPI eased to 2.2% Y/Y (prev. 2.7%). The Bank of Canada’s meeting minutes, released at the end of April, noted that the Governing Council agreed price pressures beyond April were hard to predict. Members favouring a rate cut highlighted the need for timely action, citing lags in policy transmission, anchored inflation expectations, muted near-term inflation risks, and economic weakness. Those favouring no change warned a further cut could be premature due to potential inflation pressure from tariffs. Money markets are currently pricing almost two 25bps rate reductions from the BoC by the end of the year, with the first fully discounted move seen by July. UK CPI (WED): Aprilʼs release is expected to see a marked jump. Upside is expected to be driven by price hikes at various utility providers, tax increases and then the usual setting of index prices in April; inflationary effects from the tariff situation are factoring into this. The BoE expects this dynamic to continue in the months ahead and inflation to hit 3.7% by September, partially driven by the aforementioned factors. Thereafter, the BoE looks for inflation to fall back to target; in the meantime, the May forecasts look for inflation to be at an average of 3.4% in Q2 and 3.5% in Q3. For April, Pantheon expects the headline figure to increase to 3.6% Y/Y (prev. 2.6%), surpassing the latest BoE forecast of 3.4%. On the BoEʼs peak forecast of 3.7% in September, Pantheon believes risks are skewed to the upside as upcoming cost pressures could spark follow-up price increases. Back to April, Pantheon expects Services to tick up to 5.1% Y/Y (prev. 4.7%). Metrics will be digested by an increasingly divergence MPC; however, we will receive both the May and June CPI series before the June 19th policy announcement, an announcement that is expected to see rates unchanged with the focus instead on August for the next potential cut, as it stands markets ascribe around a 55% chance of a 25bps cut. ECB MINUTES (THU): Aprilʼs meeting saw a 25bps cut as expected and the old language around restrictiveness was removed. This took the ECB to the top end of its 1.75-2.25% neutral rate estimate. Accompanying forward guidance was unsurprisingly noncommittal, though the statement did highlight increased uncertainty and an associated confidence impact that is “likely to have a tightening impact on financing conditions”; on this, participants were attentive to any hints around an offsetting policy response (i.e. dovish action). Just after the meeting, sources reported the decision to cut was unanimous. Lagarde didnʼt add too much, aside from stressing no argument was made for 50bps or other stimulus, though she made the point that they are viewing tariffs as a demand shock. From the Minutes, we are attentive to whether 50bps was discussed at all (Lagarde said there was no argument for it), whether there were any relatively firm views on a June cut expressed as sources have suggested, and if any opposition to the decision to remove language around restrictive was expressed. As usual, the Minutes will be regarded as stale and likely even more so than normal given recent significant tariff developments. Try Newsquawk free for 7 days EZ FLASH PMI (THU): The Eurozone releases its Flash PMIs for May on Thursday, Manufacturing expected at 49.5 (prev. 49.0), Services at 50.3 (prev. 50.1) and Composite at 50.8 (prev. 50.4). The prior readings saw Manufacturing at 49.0, Services at 50.1, and the Composite at 50.4. While Aprilʼs data showed only mild improvement, recent survey indicators such as Sentix and ZEW have rebounded, suggesting the initial wave of pessimism following the US “Liberation Day” tariffs may have moderated. Oxford Economics notes the strong Q1 German industrial output was driven by front-loaded US demand in autos and pharma, raising the risk of a Q2 correction as that temporary boost unwinds. The temporary 90-day tariff truce between the US and China has also eased market anxiety around global trade spillovers, though uncertainty around US-EU trade relations remains elevated, with US Treasury Secretary Bessent recently suggesting progress was slow. From a policy perspective, the ECB is widely expected to cut rates in June, a weak PMI print would likely reinforce that view. UK FLASH PMI (THU): The UK will release Flash PMIs for May on Thursday, Manufacturing is seen at 45.9 (prev. 45.4) and Services at 49.5 (prev. 49.0). UK PMIs saw a sharp deterioration in April, with the Composite PMI at 48.2 (exp. 50.4, prev. 51.5), marking the first contraction in private sector output since October 2023. The Services PMI came in at 48.9 (exp. 51.5, prev. 52.5), while Manufacturing dipped to 44.0 (exp. 44.0, prev. 44.9), its lowest level in nearly three years. S&P Global cited falling domestic and external demand, with new orders declining for a fifth consecutive month and export business contracting at the fastest rate since May 2020. With the US-China 90-day tariff truce now in place, desks expect some relief on trade sentiment, but domestic cost pressures and demand fragility persist. A sub-50 composite print in May would reinforce the narrative of a stalling UK recovery and potentially support some expectations for a summer/late-summer BoE rate cut. JAPANESE CPI (FRI): Japan will release national CPI data for April on Friday, the core Y/Y is expected to tick up to 3.4% (prev. 3.2%). The prior national figures showed Core CPI Y/Y at 3.2%, headline CPI Y/Y at 3.6%, and M/M CPI at 0.3%. Desks expect the April data to reflect residual effects from the reduction in energy subsidies and fresh fiscal year price hikes, particularly in food and education. Tokyo CPI — considered a leading indicator — accelerated to 3.4% Y/Y (vs. exp. 3.2%, prev. 2.4%), while the “corecore” index (ex-fresh food and fuel) jumped to 3.1% (prev. 2.2%), raising pressure on the BoJ. While policymakers kept rates steady at the May 1st meeting, recent commentary suggests a readiness to hike further if inflation remains sticky. However, global risks, especially from US tariffs and softening external demand, may limit the BoJʼs near-term scope. It was reported that Japanʼs top trade negotiator Akazawa could travel to Washington next week for a third round of trade talks, according to Reuters source UK RETAIL SALES (FRI): The first hard data read on the sector under Trumpʼs tariffs, an April series which follows a strong Q1. For April, Investec expects further growth in sales volumes but at a more moderate pace than seen last time, forecasting 0.3% (prev. 0.4%) M/M; attributing much of this expected upside to good weather and the increase in the National Living Wage. In terms of other leads, the Barclaycard consumer spending report for the period saw the largest uplift in card spending since June 2023, driven by favourable weather and the Easter period. Elsewhere, NIQ/GfK Consumer Confidence fell in the month amid an increase in multiple utilities and concerns around renewed high inflation. Overall, the Retail series is expected to remain robust but with a slightly slower pace of sales volume growth as the favourable influence of good weather is offset by utility increases and price concerns. Copyright © 2025 Newsquawk Voice Limited. All rights reserved. Registered Office One Love Lane, London, EC2V 7JN, United Kingdom · Registered Number 12020774 · Registered in England and Wales. Copyright © {{ copyright-year }} Newsquawk Voice Limited. All rights reserved. Registered Office One Love Lane, London, EC2V 7JN, United Kingdom · Registered Number 12020774 · Registered in England and Wales. newsquawk.com · +44 20 3582 2778 · info@newsquawk.com newsquawk.com · +44 20 3582 2778 · info@newsquawk.com Join GTA for FREE – Click HERE

Overview: While the US dollar is a little softer today against the G10 currencies, it remains mostly within Wednesday's range. The yen is a notable exception. It made a new high for the week despite the contraction in Q1 25 GDP. Most emerging market currencies are firmer. The markets have not reacted to a statement from President Trump that his administration lacks the capacity to negotiate with all the parties so in the next 2-3 weeks, the US will simply set the tariff rates. Asia Pacific equities ended the week on a mixed note. Europe's Stoxx 600 is up about 0.6%, the fourth daily advance this week. US index futures are up about 0.25%. European bonds are rallying. The 10-year benchmark yields are off 4-5 bp today. The US 10-year Treasury yield is down almost four basis points to slip below 4.40%. Note that the ECB's pressure on its member banks to reduce dollar funding needs could lead to sales of USD assets, but the impact has been offset by signals that the US will lower the Supplemental Leverage Ratio, which will incentivize banks to hold more Treasuries. Gold staged an impressive recovery yesterday, rallying from $3120 to $3240. Follow-through buying lifted it to around $3252 today where sellers drove it back through $3200. It is hovering near there in late European morning turnover. July WTI is consolidating within yesterday's broad range and is trading mostly between $60.80 and $61.80 today. USD: The Dollar Index is in a narrow range (~100.50-80) and remains inside Wednesday's range (~100.25-101.15) for the second consecutive session. Today's data do not have much market-moving ability. This includes housing starts and permits, NY Fed services survey, and the March portfolio capital report (TIC). After an 11.2% plunge in March housing starts, a modest recovery is expected. Perhaps, the market may be most sensitive to the preliminary May University of Michigan consumer confidence survey and inflation expectations. Consumer expectations may have improved a little. The one-year inflation expectation stood at a lofty, even though it seemed exaggerated at 6.5% in March. The 5–10-year inflation outlook was at 4.4%. In comparison, the two-year breakeven (difference between the inflation protected security and the conventional note) is about 2.65%, while the 5-10 year breakevens are around 2.35%-2.40%. Meanwhile, the month-over-month increase in the April CPI was a smidgeon less than expected and the PPI actually fell. In nine of the 10 sessions through Wednesday, the market downgraded the chances of a September cut. However, odds increased after yesterday's soft retail sales (decline in the control measure, which excludes autos, gasoline, building materials and food services) and contraction in manufacturing output. A week ago, the Fed funds futures market had priced in about 66 bp of cuts this year and now a little less than 57 bp. Once again, the market deviated from the Fed's guidance and has converged again with it, rather than the other way around. Turning to the TIC data, many column inches have been recorded this year discussing capital flight from the US. Yet, note that in the Jan-Feb period, the TIC data showed a net inflow of about $338 bln compared with a net outflow of around $59 bln. In March 2024, the US recorded a net inflow of almost $98 bln. The concern became acute in April, for which the TIC data will not be available until mid-June. EURO: The euro has been confined to about a two-cent range this week between around $1.1065 and $1.1265. It is trading today in about a 20-tick range on either side of $1.12, where options for nearly 4 bln euros expire today. The eurozone reported a March trade surplus of 36.8 bln euros, widening from the February 24 bln euro surplus. This puts the Q1 surplus at about 61.6 bln euros. The surplus in Q1 24 was around 58.2 bln euros. Some observers see a seasonal pattern favoring a wider surplus in March, but in the last 20 years, the surplus widening on 13 March's. That said, the surplus has widened in eight of the past 10 March's. CNY: The dollar's recovery from the low for the year set Tuesday near CNH7.1790 has been stymied near CNH7.2160. The greenback is has remained within Wednesday's range (~CNH7.19-CNH7.2160). The PBOC set the dollar's reference rate at CNY7.1938. (CNY7.1963 yesterday and CNY7.2095 a week ago). It was set lower for the fourth time this week. Many observers, including ourselves, think that China came out ahead in last week's trade talks. The US dropped (for 90 days) the reciprocal tariffs announced in early April, as Beijing required to hold the talks. Still, the sectoral tariffs, the de minimis tariffs (54% instead of 120% and $100 fee), and the planned port charges remain in effect. Taking advantage of the 90-cooling off period has seen a surge in container bookings from China to the US, pushing up shipping costs. Walmart indicated that despite the lower tariffs, it plans on raising prices shortly. Meanwhile, the US has stepped up its efforts to block other countries from taking Huawei chips. India appears to have been emboldened by China and is threatening to retaliate for what it says are really "safeguard" tariffs and not really national security protections in the steel and aluminum tariffs. Meanwhile, the US administration says a trade deal with India may be near. Brazil and China signed over around 30 sectoral and investment agreements with China this week and Colombia has reportedly signed a memorandum of understanding (MOU) with China's on the Belt Road Initiative. In the region, Venezuela, Ecuador, Chile, Peru, Bolivia, and Panama have formally joined the BRI. JPY: After rallying to JPY148.65 on Monday, its highest level since April 3, the dollar has unwound the gains and set a new low for the week today slightly below JPY145.00. There are options for $735 mln that expire today. The four-day decline has seen the greenback retrace (38.2%) of its gains since the eight-month low was recorded on April 22, near JPY139.90. The (50%) retracement is near JPY144.25. Counter-intuitively, the yen's gains came despite a disappointing Q1 GDP. Japan reported a 0.2% contraction in Q1 GDP after a 0.6% expansion in Q4 24. Consumption was flat after Q4 consumption was revised from zero to 0.1%. Business spending jumped 1.4% after a 0.8% increase in Q4 (initially a 0.6% increase). Inventories contributed 0.3% after dragging GDP lower by 0.3% in Q4. Net exports cut growth by 0.8% after adding 0.7% in Q4 24. On a more positive note, March industrial production was revised to 0.2% from an initial estimate of a 1.1% decline. The swaps market has about 16 bp of tightening discounted for this year, down a few basis points from this week's high. GBP: Sterling continues to consolidate inside Wednesday's range (~$1.3255-$1.3360). The down trendline drawn off the recent highs comes in near $1.3360 today. A move above there would re-set the sights on $1.3400-45 area. On the other hand, a break of the $1.3225-50 area could signal a return to the $1.3140 area. Although yesterday's first reading of Q1 GDP was better than expected (0.7%) and the strongest since Q1 24 (0.9%), which itself was the best since the end of 2021, the momentum may have stalled as the quarter wound down. Attention next week turns to Q2 data, with April CPI, retail sales, and the preliminary May PMI. The swaps market sees little chance of back-to-back rate cuts, which nearly rules out a cut next month. The market shaved the odds of a cut in August to about 72% from nearly 97% at the end of last week. CAD: For the third time this week, the greenback was greeted by sellers when it poked above CAD1.40. Chart resistance is seen in the CAD1.4015-20 area. It settled near CAD1.3960 yesterday and was sold to about CAD1.3935 before finding new bids. Still, the momentum indicators are still moving higher, and this suggests that despite the frustration, there is scope for another try higher. However, a break of the CAD1.3890-CAD1.3900 area would weaken the technical outlook. Canada also reports its March portfolio flows today. In the first two months of the year, Canada reported a net inflow of C$1.5 bln. In the Jan-Feb 2024 period, Canada recorded net inflows of C$9.2 bln. In March 2024, Canada saw C$14.7 bln capital inflows. AUD: After being turned back from a slight push above $0.6500 on Wednesday, the Australian dollar fell a little below nearly $0.6390 yesterday. That has held today, and the Aussie has recovered to about $0.6435. The momentum indicators have only recently turned lower, suggesting scope for further Aussie losses. We suspect that the downside correction can continue and target the $0.6300 area. There is little doubt in the market mind that the Reserve Bank of Australia will cut its cash target rate next week by 25 bp to 3.85%. Moreover, the market is confident of another cut in Q3 and Q4. MXN: As widely expected, Mexico's central bank cut is overnight target rate by another 50 bp to 8.50%. It is the third cut this year and the seventh consecutive cut. The central bank is not done and suggested that "more adjustments of a similar magnitude" was possible. This is a bit more dovish than we and the market expected. The US dollar made new highs for the session on the announcement to nearly MXN19.52 but has come back offered today, returning to the MXN19.4500 area in the European morning. The swaps market has almost another 125 bp of Banxico cuts discounted over the next 12 months. The peso has appreciated by about 7% this year, of which a little more than 5% took place this quarter. Disclaimer

Overview: There has been little follow-through dollar buying today after its recovery in North America yesterday. The greenback is softer against most of the G10 currencies. The Antipodeans are lagging alongside the Norwegian krone, perhaps weighed down by the sharp drop in oil prices following President Trump's indication and a deal with Iran may be near. Switzerland reported stronger-than-expected Q1 GDP, and the franc is the strongest of the G10 currencies followed by the Japanese yen. Most emerging market currencies are firmer. The handful of exceptions in China, India, Thailand, and Russia. Equities are struggling today. Most of the large bourses in the Asia Pacific region fell. India, Australia, New Zealand, and Singapore managed to eke out gains. Of note, Japan's Topix, which snapped a 13-day advance yesterday, saw more profit-taking today. Europe's Stoxx 600 is off for the second consecutive session. Yesterday's loss ended a four-day advance. The S&P 500 and Nasdaq futures are a little more than 0.5% lower. European 10-year yields are mostly a couple basis points lower, while the 10-year Treasury yield is three basis points lower near 4.50%. Gold extended yesterday's losses and fell to almost $3120, its lowest level since April 10. It has recovered to almost $3177. It must retake $3200 to stabilize the tone. The prospect of a deal with Iran sent June WTI to a new low for the week near $60.50. The next area of chart support may be around $59.60. USD: The Dollar Index reached almost 100.25 yesterday in Europe, a three-day low, but was bid in North America to new session highs, and recovered to nearly 101.15, leaving a potential bullish hammer candlestick pattern in its wake. DXY held trendline support off the late April and early May lows found near 99.90 today, which is also about where the (50%) retracement of the gains since the April 21 low is found. However, there has been no follow-through buying today. DXY was capped near 101.00 and retreated to around 100.60. There is a slew of US data today, and something for everyone. There are two Fed surveys (NY and Philadelphia). There are two real sector reports (retail sales and industrial production), price data (PPI), and March business inventories. Note that the Chicago Fed's model on real-time spending warns that retail sales, excluding autos may fall by 0.6%. The median in Bloomberg's survey calls for a 0.3% gain. The Atlanta Fed GDP Now sees the economy tracking 2.3% growth here in Q2 and will update its findings after today's reports. The postponement of the harshest US and China tariffs have prompted economists downgrade the risks of a US recession and upgrade forecasts for Chinese growth this year. Fed Chair Powell discusses the policy framework review. There is no Q&A, and the Fed chair will likely stay away from topics he avoided at the post-FOMC press conference, like is relationship with the president. EURO: The euro reached a three-day high near $1.1265 in the European session yesterday, and during the North American session, it was sold back to $1.1165. The high met the (61.8%) retracement objective of the leg down from last week's high (~$1.1380) and the (38.2%) retracement of the larger move since the year's high was set on April 21 (~$1.1575). The euro held yesterday's low today and recovered to around $1.1230. The eurozone revised Q1 GDP to 0.3% from 0.4%. Separately, it reported that the second consecutive rise in the aggregate industrial production was greater than 1%, for the first time since August-September 2022. It soared 2.6%, well above the median forecast for a 2% increase. CNY: The dollar rose for the first time yesterday in four sessions against the offshore yuan. It recovered from a six-month low on Tuesday (~CNH7.1790) to about CNH7.2160 yesterday. It is consolidating quietly today in the upper end of yesterday's range and has traded between about CNH7.2030 and CNH7.2155. The next technical target is in the CNH7.2230-50 area. The yuan has gained about 0.85% against the dollar here in May, making it the third best performing currency in the region after the Taiwanese dollar (~5.7%) and the South Korean won (~1.5%). The PBOC set the dollar's reference rate at higher for the first time this week (CNY7.1963 vs. CNY7.1956). It is the third higher fix in the past 13 sessions. JPY: The dollar traded in a nearly two-yen range yesterday and settled a little above the middle of it near JPY146.80. It briefly traded through Monday's low (~JPY145.70) late in the European morning and traded above JPY147 early in the NY afternoon. It settled near JPY146.75 yesterday and has not traded above it today. Instead, it was pushed back to JPY145.50. A move above JPY146.30 would help steady the tone. Japan will provide is first estimate of Q1 GDP on Friday. A small contraction is expected. There may have been three drags: public consumption, private investment, and net exports. Consumption and inventories may have been offsets. Meanwhile, Nissan announced it will close seven factories (out of 17 globally) and lay off 20k employees, which is 11k more than it previously announced following the poor earnings released on Tuesday. GBP: Sterling saw a five-day high near $1.3360 a little before the North American session began yesterday, but trended lower subsequently and fell to about $1.3255, to record a new session low in the North American afternoon. It is trading in a $1.3260-$1.3305 so far today. Q1 GDP was reported. It expanded by 0.7%, a little better than the market and the Bank of England expected. Consumption improved sequentially (0.2% vs 0.1%), though not as much as anticipated. Total business investment showed unexpected strength (5.9% vs. -1.9% in Q4). Government spending surprisingly fell by 0.5%. Economists had expected another 0.5% increase, the same as in Q4 24. March GDP rose by 0.2%, but industrial output fell by 0.7%, with manufacturing off 0.8%. Services output rose 0.4% and construction improved by 0.5%. The trade deficit narrowed with and without the precious metals trade. CAD: On yesterday's pullback, the US dollar held above Monday's low slightly below CAD1.3900. It recovered to CAD1.3985. It is trading firmly in the upper end of yesterday's range. It has been confined to a narrow CAD1.3960-90 range so far today. The greenback needs to surmount the CAD1.4015-20 area that capped it on Monday and Tuesday to lift the technical tone. Canada's high-frequency data today includes manufacturing and wholesale sales and existing home sales. They are not typically drivers of the Canadian dollar or Canadian interest rates. Tomorrow's March portfolio flow report may be of some interest. In the first two months of the year, Canada reported net inflows of about C$1.45 bln. This compares with $9.2 bln in the first two months of 2024 and $11.1 bln in Jan-Feb 2023. AUD: The Australian dollar briefly poked above $0.6500 yesterday holding below last week's six-month high near $0.6515. It was turned back and fell to almost $0.6420 in the North American afternoon. It has failed to get much traction and has been sold slightly through yesterday's lows to $0.6415 despite the stronger employment data. A break of the $0.6400-10 area will re-target this week's low in the $0.6355-60 area. The 89k increase in jobs was more than three-times what was expected and follows a 36.4k increase in March. Of those jobs, 59.5k were full-time positions (12.2k in March). For the fifth consecutive month, the unemployment rate is holding between 4.1% and 4.2%. This is particularly impressive given the rise in the participation rate to 67.1% from 66.8%, a three-month high. Still, the market is confident of that the Reserve Bank of Australia will cut rates next week and deliver two more cuts before the end of the year. MXN: The combination of the resilience of the Mexican peso, which set new highs for the year yesterday, weak economic impulses, and inflation within target range, even if barely, allows Banxico to deliver its third consecutive half-point cut later today. The dollar fell to nearly MXN19.30 yesterday in North American turnover before recovering to around MXN19.39. It has been confined to a narrow range of about MXN19.36-MXN19.40. It has hardly been able to re-enter the lower Bollinger Band (~MXN19.3725). A 50 bp cut today would bring the overnight target rate to 8.50%. We suspect that the central bank may signal a more moderate pace of easing, while keeping policy restrictive. The swaps market is pricing in a year-end rate between 7.25% and 7.50%. Disclaimer

Are Tariffs a de facto tax hike that raises prices for consumers? Are Tariffs 1 Bad Hidden Tax Hike on Consumers? Since President Trump brought tariffs back into the spotlight, a heated debate has emerged: Are these import taxes truly about protecting American jobs, correcting trade imbalances, or are they simply a way to raise government revenue? While the political messaging varies, the economic impact remains clear. tariffs function as a hidden tax hike on consumers. What Are Tariffs and How Do Tariffs Work? A tariff is a government-imposed tax on imported goods, typically calculated as a percentage of the item’s value. While the tax is officially paid by the importer, that cost doesn’t stop there. It’s passed along the supply chain, from wholesalers to retailers and ultimately hits the consumer in the form of higher prices. Do Tariffs Raise Prices? When a tariff is levied, importers face increased costs. These costs are rarely absorbed entirely. Instead, businesses pass them on, resulting in more expensive products at the checkout line. Here’s a simple breakdown of the process: 1. Tariffs are applied to imported goods. 2. Importers pay the tariff to the government. 3. The cost is passed along to wholesalers, manufacturers, or retailers. 4. Retailers increase prices to maintain profit margins. 5. Consumers pay more in the form of higher prices 6. Government revenue rises but at the expense of household budgets. This process mimics the effects of a traditional tax increase, especially for goods with few domestic alternatives. Are Trump Tariffs Hidden Taxes on Consumers? Absolutely. While not labeled as such, tariffs are a regressive form of taxation. Like sales taxes, they disproportionately affect lower-income households that spend a greater share of income on goods. Unlike sales taxes, tariffs are buried in the supply chain, making them harder for the public to trace. Tariffs shift wealth from the private sector (consumers and businesses) to the public sector (government revenue) without directly announcing it as a tax hike. Trump Trade and Tariff Policy:- Good or Bad? Tariffs vs. Taxes Traditional taxes, like income or sales taxes, are openly legislated and visible to the public. In contrast, tariffs are often disguised as trade policy, making them politically easier to implement but economically equivalent to tax increases. For example, President Trump’s tariffs on goods from China and other countries have raised billions in revenue (e.g. estimated $16 bln in April). This is,money that ultimately came from American shoppers, not paid by foreign companies. The only way this would be mitigated would be if US retailers or foreign suppliers reduced their profit margins to limit some of the price increases. The Irony of Modern Tax Policy Current U.S. tax policy discussions is centered on making the the 2017 tax cuts permanent. Ironically, while officials frame this as “cutting taxes,” making those cuts permanent before they expire at year end only prevents a future tax hike. In other words, what is described as a tax cut bill is only maintaining the status quo. Meanwhile, tariffs act as a tax without the same level of scrutiny despite raising costs for nearly every consumer. No matter how the government tries to spin it, an increase in tariffs is a de facto or hidden tax hike on the average consumer. The main difference between tariffs and other types of taxation is latter is out in the open while the former de facto tax is hidden. For example, an increase in income and/or sales taxes is visible to the public. When income taxes or sales taxes are raised it is transparent to the public. On the other hand, the cost of tariffs to the public are often buried in trade policy announcements. In any case, both result: in a tax on consumers and more revenue flowing to the government. Tariffs Are Taxes in Disguise No matter how they are packaged, tariffs act as indirect taxes. They generate government revenue, increase consumer prices, and reduce purchasing power. Understanding this helps put the current Trump tariffs and trade policy in perspective, which is a tax hike in disguise. In an era of global trade and complex supply chains, consumers deserve transparency. Whether through tariffs or traditional taxes, the end result is the same, more money out of your pocket and into government coffers. Take FREE Trial of The Amazing Trader – Click HERE

Overview: The US dollar is extending yesterday's pullback after Monday's sharp rally. Monday's rally had met or approached several technical targets, but the momentum and news stream, including the downgrading of US recession forecasts, the pushing out of the next Fed rate cut into Q4 seemed to favor further dollar gains. Against many pairs, the greenback has given back all of Monday's gains or nearly so. The dollar is weaker against nearly all the world's currencies. The South Korean won has strengthened the most following talk that the currency was discussed in bilateral trade talks with the US. It is up nearly 1.8%, followed by the Japanese yen, which is up almost 1.2%. Equity markets are mixed today. In Asia Pacific, Hong Kong's Hang Seng was up 2.3% and the index of mainland shares that trade there was up 2.5%. China's CSI 300 itself was up 1.2%. Taiwan's Taiex soared 2.1%, while South Korea's Kospi rose 1%. Most of the bourses in the region rose. However, the Stoxx 600 in Europe is threatening to snap a four-day advance and US index futures are trading with a heavier bias. European benchmark 10-year rates are mostly 1-2 bp lower, though UK Gilts are flat. The 10-year US Treasury yield is off a couple of basis points to 4.45%. It traded to 4.50% for the first time yesterday since the peak near 4.60% about a month ago. Despite the continued pressure on the dollar, gold is trading quietly inside yesterday's (~$3216-$3265) range. Monday's low was about $3207. After reaching a 2.5-week high yesterday a little below $64, June WTI is trading heavier today below $63. USD: The Dollar Index continues to unwind Monday's gain scored in reaction to the US-Chinese 90-day de-escalation. After peaking near 102.00 on Monday, it frayed 101.00 in late turnover yesterday. Follow-through selling today has seen 100.30. The immediate risk now extends toward 100.00. The losses come even as the market pushes out the next Fed cut into Q4 from Q3. For the first time in three months, the Fed funds futures are no longer fully discounting a cut by the end of Q3. Moreover, after the agreement with China, many economists reduced the odds of a recession. Meanwhile, the "big beautiful" budget bill is progressing through the House of Representatives. Making permanent the 2017 tax cuts and extending them will and getting rid of the tax on overtime pay and tips will cost an estimated $4 trillion over the next decade, while the spending cuts are worth about $1.5 trillion. The House could send the bill to the Senate next week, and the narrower Republican majority warns of some compromises. EURO: The euro recovered from Monday's low (~$1.1065) to approach $1.1200 yesterday. Follow-through buying today lifted it a little through $1. 1260, the (38.2%) retracement of the euro's losses since the April 21 high. The next push above there targets the $1.1300-20 area. Meanwhile, the strong German (3.0%) and Spanish (0.9%) figures for March industrial production point to a firm aggregate report tomorrow. The highlight remaining this week is the EC's updated economic forecasts due at the end of the week. The EC's previous forecast saw the eurozone economy growing by 1.3% this year, while the ECB has it at 0.9%. The EC had inflation this year at 2.1% while the ECB's forecast was at 2.3%. CNY: The dollar recovered from a six-month low near CNH7.1790 yesterday and managed to settle (slightly) below CNH7.20 for the first time since last November. It reached CNH7.2160 earlier today but is straddling CNH7.20 now. Yesterday, the PBOC set the dollar's reference rate below CNY7.20 for the first time since April 7. Since the greenback is allowed to trade in a 2% band around the fix, the lower reference rate ostensibly caps the greenback's upside. It set the dollar's reference rate lower for the third consecutive session. today. It was set at CNH7.1956 today (CNY7.1991 yesterday). That the offshore yuan is trading stronger than the onshore yuan lends credence to ideas that the speculative selling pressure on the yuan has subsided. In light of the 90-day de-escalation of Sino-American trade tensions, many economists have downgraded the chances of a US recession and upgrade China's growth prospects. Note that the US tariff on de minimis products from China was reduced from 120% to 54%, plus there is a flat fee of $100 per shipment, which still seems prohibitive, goes into effect today. Lastly, China's lending figures were released. Year-to-day, aggregate lending is running almost quarter faster than last year (CNY16.34 trillion vs CNY12.74 trillion. JPY: After reaching JPY148.65 in response to the US-China agreement on Monday, the US dollar pullback to JPY147.45 yesterday and to JPY145.60 today. Monday's low was near JPY145.70. A break of JPY145.30 could signal a move toward JPY144.30. Japan's producer prices rose 0.2% in April for a 4.0% year-over-year pace. This is the slowest of the year but matches last year's high. Meanwhile, trade talks with the US seem to be going poorly. The weakness of the Japanese economy, the uncertainty about the US tariffs keeps the BOJ on the sideline, but hawkish comments by the BOJ's Uchida may have encouraged the market to boost the chances of a hike before the end of the year. The 18 bp of tightening now discounted in the swaps market for year-end. Still the perceived delay in the move may have been a driver of the 10-year yield, which jumped from 1.25% last Monday to nearly 1.50% yesterday before profit-taking kicked in. It is near 1.46% now. The high set in late March was near 1.60%. GBP: The (38.2%) retracement of sterling's rally from the April 7 low (~$1.2710) came in near $1.3165 and was met on Monday. Sterling recovered from Monday's low near $1.3140 to almost $1.3310 yesterday. It reached $1.3360 today. Follow-through buying could target the $1.3400-40 area. The UK will report Q1 GDP tomorrow. The Bank of England projected a 0.6% expansion in Q1. It had practically stagnated in H2 24. The median forecast in Bloomberg’s monthly survey was for a 0.3% expansion prior to the BOE's update last week. CAD: For the second consecutive session, the greenback ran into offers near the 200-day moving average against the Canadian dollar (almost CAD1.4020). The US dollar pulled back to about CAD1.3930 yesterday and to almost CAD1.3900 today. Monday's low was near CAD1.3895. A push through there could target CAD1.3850. Canada reports March building permits today--hardly a market-mover even in the best of times. After rising 2.9% in February (following a 4.3% decline in January and 12.1% surge in December) a small decline (~-0.5%) is expected. Housing starts and manufacturing and wholesale sales are due tomorrow. They also typically do not capture the market's attention. AUD: The Australian dollar led the G10 currencies higher yesterday with around a 1.6% gain. It recouped in full Monday's losses. Monday's high was near $0.6460, and yesterday, it made a new high, almost $0.6480. It tested $0.6500 today and looks poised to challenge $0.6515, the high for the year set last week. Above there, the $0.6550 area corresponds to the (61.8%) retracement of the sell-off from last September's high (~$0.6940). Australia reports April employment data tomorrow. Australia jobs growth stalled in Q1, rising by about 6.5k after 90k increase in Q4 24 and nearly 112k in Q1 24. Full-time employment has fared a bit better. It grew by 22.5K in Q1 after about 36.5k in Q4 24 and 33.3k in Q1 24. The unemployment rate has been bouncing between 3.9% and 4.1% over the past year. MXN: The dollar unwound Monday's gains against the Mexican peso yesterday. The broad pullback of the dollar and the risk-on mood (e.g., rising equities) saw greenback sold to MXN19.3765 a new low for the year. It peaked near MXN19.6650 on Monday. We had identified the MXN19.37 area as a possible target, but there is little to hang one's hat on until closer MXN19.10. Today, the dollar has been pushed a little through MXN19.35. Mexico's central bank meets tomorrow. With inflation holding (just) inside its 3% +/- 1% target range and the peso's relative resilience; the central bank is widely expected to deliver its third half-point cut of the year. This would bring the target rate to 8.50%. The risk is that the rate cut is accompanied by a statement that suggests Banxico will moderate the pace of its easing going forward. The swaps market appears to be discounting 25 bp cuts at the next two meetings (June and August). The dollar approached BRL5.60 yesterday, its lowest level since the year's low was set early April near BRL5.5935. There is little chart support below there until last October's bottom near BRL5.40. Disclaimer

Overview: The capital markets are continuing to digest the implications of the US-China 90-day cooling off period. There were dramatic moves yesterday, and with a few exceptions, a consolidative tone has emerged today. The domestic US political focus is shifting to the budget, while the May CPI is due today, and it is expected to be little changed. The dollar is softer against the G10 currencies but the Canadian dollar. While there was no follow-through dollar buying after yesterday's surge, the pullback has been rather shallow. Against emerging market currencies, the dollar is mixed. Most of the Asian currencies weakened, though not the Chinese yuan, central European currencies and the Mexican peso. Asia Pacific equities advanced, but there were two notable exceptions: Hong Kong and mainland shares that trade there were off around 2%. The other exception is India, where its main indices are around1.5% lower in late trade. Europe's Stoxx 600 is up about 0.2% after yesterday's 1.2% surge. US index futures are pulling back by 0.3%-0.5%. European benchmark 10-year yields are 2-3 bp higher, while the 10-year US Treasury yield is off a couple of basis points to around 4.45%. Gold has stabilized. After holding $3200 yesterday, it recovered to almost $3266 today and is hovering above $3250 in late morning turnover in Europe. June WTI reached $63.60 yesterday and recorded a low near $61.65 today. It has recovered and is near $62.40. USD: After yesterday’s outsized move, the Dollar Index is consolidating today in the upper end of yesterday's range. It reached nearly 102.00. The 102.10 area is the (61.8%) retracement of the leg lower from late March (that began near 104.70). The 102.60 area is the (38.2%) of this year's decline, and the 103.00 area is the measuring objective of the possible head and shoulders bottom that was forged in recent weeks. Beijing had appeared to demand the end of the so-called reciprocal tariffs as a precondition for talks and that seems to be what has happened, more or less. The US kept the 10% "universal tariff" and the tariff as punishment for fentanyl and China backtracked on its retaliatory tariffs, for 90 days. The US reports April CPI today. The median forecast in Bloomberg's survey anticipates a 0.3% rise in both the headline and core rates. Given the base effect, the year-over-year rates are expected to be steady at 2.4% and 2.8%, respectively. A 0.3% increase in the headline rate puts the annual rate through April at about 2.7%, down from 3.9% in the first four months of 2024. A 0.3% rise in the core rate translates into 3% annualized rate, down from 4.5% in the first four months of last year. The market has already pushed the next Fed fund into September. Lastly, today the US Court on International Trade hears a case challenging the presidential authority to impose tariffs under the International Emergency Economic Powers Act (1970), which does not explicitly grant the president tariff authority. EURO: The euro retraced nearly (61.8%) of its advance since late March (~$1.1055). The $1.1025 area is the (38.2%) retracement of this year's rally. It is consolidating in quiet turnover. It reached $1.1125 but the upside momentum faded. The odds of June ECB rate cut have been trimmed to about 85% from nearly 93% before the weekend. The swaps market is now discounting about 45 bp of easing in the remainder of the year, down from almost 62 bp ahead of the weekend. The possible head and shoulders topping pattern has an initial measuring objective that would bring the euro to around $1.0950. Germany reported improvement in the ZEW survey. The expectations component collapsed in April (-14.0 March and 51.6 in February) but bounced back in May to 25.2. Although the assessment of current conditions weakened for first time this year (-82.0 vs. -81.2). CNY: The US dollar peaked before the weekend near CNH7.2530 and slipped below CNH7.20 yesterday. Last week's low, which was its lowest since last November was near CNH7.1845. It took out briefly today, with the dollar slipping below CNH7.18. The PBOC set the dollar's reference rate at CNY7.1991 (CNY7.2066 yesterday). With the exception of the first two days back from the extended May Day holidays, the PBOC has continued to change the dollar's daily reference rate by slightly more than it had been previously. Today's adjustment of 0.1% is the largest change since April 7. It is still small, and perhaps too small for many observers, but we suspect it is a signal of slightly more flexibility. The only concession China seemed to have made in the weekend talks was to promise (again) to stem the flow of fentanyl and lifted its ban on Boeing planes, JPY: The dollar reached almost JPY148.65 yesterday. It has eased to JPY147.65 today and is knocking on JPY148 in the European morning. The next important chart area is in the JPY149.40-70 area, which houses the (50%) retracement of this year's decline and the 200-day moving average. Tomorrow's PPI is not typically a market mover. The highlight of the week is the first estimate of Q1 GDP. The median forecast in Bloomberg's survey anticipates a small contraction. The swaps market has about 18 bp of tightening discounted for this year, which is around twice as much as a week ago. GBP: Sterling was sold to $1.3140 yesterday. It slightly overshot the (38.2%) retracement of its rally from the April 7 low (~$1.2710) to the April 28 high (~$1.3445) that was found near $1.3165. It is bid near $1.3220 in Europe. The UK reported average weekly earnings slowed slightly to 5.5% in March (from 5.7%), while the measure excluding bonuses moderated to 5.6% from 5.9%. The ILO measure of unemployment ticked up to 4.5% from 4.4%. The number of payrolled employees fell (-33k) for the third consecutive month (and the fifth month in the past six). CAD: The US posted a bullish outside up day against the Canadian dollar yesterday by trading on both sides of last Friday's range and settling above its high. The greenback approached CAD1.4020 to toy with the 200-day moving average. By rising above CAD1.4005, the US dollar took out the (38.2%) retracement of the leg down from the April 1 high (~CAD1.4415) to the last week's low (~CAD1.3750). The greenback remains firm today, having pulled back to only CAD1.3960 before recovering. The (50%) retracement is closer to CAD1.4085. The odds of another rate cut next month have eased to around 62% from almost 67% after the employment report at the end of last week. The unemployment rate r0se to 6.9% from 6.7%, a new post-pandemic high, and a whopping 31k loss of manufacturing employment. AUD: The Australian dollar was turned back from $0.6460 yesterday and frayed $0.6360 and posted an outside down day. However, there was no follow-through selling today. The $0.6360 level held, and it recovered to almost $0.6420. The $0.6435 area may offer a sufficient cap. A break of $0.6350 to strengthen the corrective forces. The five-day moving average slipped below the 20-day moving average, and the momentum indicators have only recently turned lower. The futures market remains confident that the Reserve Bank of Australia will cut the overnight cash rate by a quarter-point when it meets next week. However, the market trimmed the extent of the cuts this year to about 83 bp from 106 bp a week ago. MXN: The US dollar traded on both sides of its pre-weekend range yesterday and settled above last Friday's high (~MXN19.5480). This is potentially a bullish key reversal for the dollar. Last week's position adjustment that lifted the greenback to around MXN19.78, stalled in front of the 20-day moving average. Yesterday, it frayed the 20-day moving average, which is found a little below MXN19.63 today. It is consolidating and the dollar eased to MXN19.5650 so far today. Yesterday, Mexico reported a 0.9% decline in March industrial output. While it was not as large of a decline as expected (median forecast in Bloomberg's survey was -1.4%), it was third decline in four months. The weakness of the economy now seems to be more salient for policymakers than inflation, which is slightly inside the target range. Banxico meets Thursday and is widely expected to deliver the third half-point cut of the year. Disclaimer

Overview: The US and China struck an agreement that would lower tariffs for a 90-day cooling off period. The US tariff on China falls to 30% from 145%, while China's tariff on the US falls to 10% from 125%. A new forum was established to allow recurring discussions on economics and trade. The dollar spiked sharply higher on the news but was quickly sold into the rally, and while it remains sharply higher on the day, it is well off its peak. The Japanese yen is weakest of the G10 currencies, and it is off about in late European morning turnover. The Australian dollar, sometimes treated as a G10 proxy for China, is down the least, less than 0.15%. Most emerging markets in Asia and Europe are weaker. The China yuan and Russian ruble are notable exceptions. Equity markets have rallied on the news, but some markets in the Asia Pacific region closed, like Japan and Taiwan closed before the news was announced. The index of mainland shares that trade in Hong Kong rose by 3%. The calming of hostilities between India and Pakistan lifted local markets by around 3.7% and nearly 9%, respectively. Europe's Stoxx 600 is up around 1%, It is the 13th rising session in the past 15 sessions. US index futures are up sharply, with the Nasdaq up near 3.8% and the S&P 500 up around 2.8%. Bonds have been sold. Benchmark 10-year yields jumped seven basis points int Japan and Australia and are up 6-7 bp in Europe. The 10-year US Treasury yield is up five basis points to 4.43%. Before the weekend, the Fed funds futures were discounting nearly 66 bp of easing this year and are now pricing in 57 bp. The rising dollar and yields have sapped demand for gold. The yellow metal is off more than $100 and is approaching last week; slow near $3200. A break targets $3164. June WTI is extending last week's recovery. A week ago, it approached $55 and today it has pushed above $63.00. Resistance is seen near $65. USD: News of the 90-day cooling off period between the US and China on the trade war helped extend the dollar's upside correction we have been anticipating. The Dollar Index rose to almost 101.80 today. We thought potential existed to 102.00-50. Initial support now may be in100.80-101.00. Attention turns to the CPI and the year-over-year rate is expected to be steady. That is not until Wednesday. On tap today is the federal deficit in the first month of the new fiscal year. Due to tax revenues, the budget is in surplus in April, with the exceptions in 2020 and 2021 due to the pandemic. In April 2024, the surplus stood at almost $210 bln. In Q1 25, the deficit was about $596 bln compared with nearly $555 bln. Ideas that DOGE cuts were going to be substantial and lead to a check to American households always seemed like fantasy and even more so now. Rather than the initial promise of $2 trillion in savings, independent auditors put it at around $2 bln and that does not appear to include the loss of tax revenue from the cuts in the IRS auditors. News reports suggest 280k federal workers and contractors have been laid off, but it has yet to be seen in the data. EURO: The euro has been sold to about $1.1085 before stabilizing. We have been looking at a target near $1.1050. It recovered to almost $1.1150. Resistance may be in the $1.1180-$1.1200 area. With a 3% jump in German industrial production in March and a 0.9% rise in Spain's the risk in on the upside for the aggregate figure due on Thursday. Ahead of it is tomorrow's German ZEW survey. The expectations component collapsed in April (-14 vs. 51.6), and we will see if it was a fluke. The current assessment rose in each of the first four months of the year but remains in the trough. CNY: The dollar briefly poked above CNH7.25 ahead of the weekend and was repulsed and sent to new session lows near CNH7.2340. It briefly traded below CNH7.20 today. Last week's low was near CNH7.1845. After setting the dollar's reference rate lower for seven consecutive sessions, the PBOC set it higher in the last two sessions but lowered its again today (CNY7.2066 compared to CNY7.2095 before the weekend) China reported continued deflationary pressures. The April CPI was -0.1% year-over-year, the same as in March, though core prices rose 0.5%, also the same as in March. Producer price deflation deepened to -2.7% from -2.5%. China cut rates last week and the deflation will boost calls for fiscal measures. Separately, China reported a record current account surplus of $165.6 bln in Q1. It reported a $424 bln surplus in 2024 and $263.4 bln surplus in 2023. JPY: The greenback was turned around JPY146.20 before the weekend, its best level since April 10. It was sold to about JPY144.85 before buyers emerged. It overshot out technical objective (~JPY148) to reached nearly JPY148.25, perhaps encouraged by the jump in US rates and the tougher trade stance by Prime Minister Ishiba indicating that Japan will not accept a trade deal that excludes autos, and that it won't sacrifice is agriculture sector to protect autos. Japan reported another large current account surplus for March. The JPY3.7 trillion surplus follows the record JPY4.06 trillion in February. Two-thirds of the decline can be accounted for by the smaller trade surplus (JPY516.5 bln vs. JPY713 bln). GBP: Sterling held support in front of $1.32, a three-week low, before the weekend and recovered to nearly $1.3320. It was sold to $1.3160 today, which meets the (38.2%) correction of the leg up from the April low (~$1.2710). The 50% retracement is near $1.3075. A message the swaps market took from last week's Bank of England meeting is that there was less a chance of a cut at next month's meeting. At the start of last week, the market had about a 70% chance of four cuts this year and now it is discounting about a 10% chance of three more after the BOE's rate cut. This week's data--March/April UK employment report and the first estimate of Q1 GDP, with March details. CAD: The 0.2% rise in the April unemployment rate (to 6.9%) and the 31k loss of manufacturing jobs, concentrated in the auto industry, weighed on the Canadian dollar. It was the only G10 currency that was unable to gain against the greenback before the weekend. The odds of a June rate cut rose to about 60% from less than 50% the previous day. Now it is around. 55%. The US dollar set a new low for the year last Tuesday near CAD1.3750 and approached CAD1.3945 at the end of last week. It is recording an outside day today, having traded on both sides of the pre-weekend range. It reached CAD1.3980 today. The next important chart area is CAD1.4000-20. Above there, the next hurdle is near CAD1.4080. AUD: The week begins slowly with confidence surveys, while the highlight, April's employment report is due Thursday. Last week's high was set on Wednesday near $0.6515, the high for the year. However, it reversed lower and fell to almost $0.6370 ahead of the weekend. It caught a bid and briefly traded above $0.6430 in North America. It spiked to $0.6460 on the details of the US-China deal but was quickly sold to nearly $0.6390 before steadying. Initial resistance may be in the $0.6420 area. Options for A$425 mln at $0.6350 expire today. MXN: With last week's CPI report showing inflation remains within the targeted range even if barely the weakness of the economy justifies a half-point cut at this week's central bank meeting. The resilience of the peso should also give the officials some comfort. The dollar fell to its lowest level in seven months against the peso ahead of the weekend. Initially, the dollar's losses were extended to almost MXN19.42 before the broad demand lifted it to almost MXN19.58. It has traded on both sides of the pre-weekend range and a close above Friday's high (~MXN19.5480) would lift the technical tone. The MXN19.60 area marks the halfway point of the leg down from last week's high near MXN19.7820. Disclaimer

Many seemed optimistic that the weekend trade talks between the US and China will de-escalate the tension. We are less sanguine. Even if the tariffs on both sides were halved, there would still be an effective bilateral embargo. In the larger picture we are concerned that blocking PRC's exports and denying it a direct investment strategy as an alternative will ultimately not lead to significant reforms in Beijing but will strengthen nationalism and create a more determined and aggressive adversary. It was not out of affection for Berlin that Keynes warned against the bleeding of Germany after WWI. It is in a similar realpolitik vein that we encourage caution of what could be a more powerful containment than the more than 60 distinct military bases that the US has in the area. Although the dollar made 3–4-week highs against most of the G10 currencies, the lack of follow-through leaves it within the broader consolidative ranges that have dominated. The Federal Reserve noted that risks had increased on both of its mandates. It clearly and firmly reiterated there was no urgency to adjust policy given the profound uncertainty continuing to arise from US policy. Other central banks, including the ECB, the Bank of England, the Swiss National Bank, the Bank of Canada, the Antipodean central banks, and Sweden's Riksbank are expected to cut rates at least once before the Federal Reserve. The week ahead highlights include what is expected to little changed US CPI readings, Japan and the UK's first estimates of Q1 25 GDP, the UK and Australia's latest employment report, and a 50 bp rate cut by the central bank of Mexico. Meanwhile, leaders in both India and Pakistan appear to prepared to pause hostilities even as they further mobilize. US Drivers: Both macro-economic and technical considerations appear to favor greenback. The resilience of the US labor market means that most of the other G10 central banks, leaving aside the Bank of Japan, will likely cut rates again before the Fed's easing cycle resumes. The dollar sold off from mid-January through late April/early May. A corrective phase appears to have begun. We remain concerned about the a confluence of negative developments in the coming weeks, including the supply shock coming from the effective embargo of Chinese goods with prohibitive tariffs, the boycott of US brands in Canada and Europe, the dramatic reduction in forward booking by tourists, the coming crunch from government layoffs and cooling of immigration, the resumptions of student loan servicing, and the cooling effect of the economic uncertainty amid a precipitous drop in consumer confidence. Yet this may only be evident in the data that is reported in July, and more likely, August. Data: The week ahead features what is expected to be little change in the year-over-year rate of April CPI (2.4%) and firm retail sales, helped by effects to avoid the tariff, and firmer industrial output after the 0.3% decline in March. Housing starts are also expected to rebound after the heady 11.4% drop in March. Between the end of the FOMC meeting and when Fed Chair Powell speaks on Thursday, May 15, nearly half of his colleagues would have already spoken. Prices: The Dollar Index reached a four-week high before the weekend but was unable to sustain the upside momentum. Still, it settled above 100.00 on a weekly basis for the second consecutive week and rose for the third straight week. A move above 101.30-40 signals a continued correction with a 102.00-20 area target. The momentum indicators continue to recover. A break of last week's low (~99.15) would undermine the corrective tone. EMU Drivers: The 14.25-cent euro rally from early February through April 21 is over. The question now is whether it consolidates--moving broadly sideways that alleviates the overbought technical condition or whether it needs a proper correction. Fundamentally, the resilience of the US jobs market means that the ECB will cut again before the FOMC resumes its easing cycle. The widening US two-year premium over Germany often offers the dollar support. It has risen by about 20 bp since the end of April. Data: The US economy contracted by 0.3% in Q1 at an annualized clip, while the eurozone economy grew by about 1.6% annualized. The update this week will provide more details of European growth. Economists project growth in Q2 will be about half of the Q1 pace. The German ZEW survey may draw some attention. The assessment of the current situation has improved in each of the first four months of the year, but at -81.2 in April, it is still dismal. The expectations component collapsed in April, falling from 51.6 to -14.0; from the high since January 2022 to the low since July 2023. Prices: The euro found support ahead of the weekend slightly below $1.12, a four-week low. The five-day moving average fell below the 20-day moving average last week for the first time since early April. The $1.1150 area is the halfway point of the rally since the late March low near $1.0735. The next retracement (61.8%) is near $1.1050. A move above the $1.1300 area would suggest continued consolidation rather than a downside correction. China Drivers: Officials seem to be willing to accept some paring of the yuan's recent gains against the dollar. The US practical embargo against Chinese goods will act as headwind on the economy, even though Beijing is rolling back or selectively not enforcing the tariffs previously announced on some US goods. The point is not to signal a retreat as much as to minimize the self-inflicted harm. Without more stimulus so domestic demand can make up from some of the loss US demand, China risks antagonizing its other trading partners by shifting exports from the US. Data: China's April inflation reports were in line with expectations. Consumer prices fell 0.1% year-over-year, the same as in March. Consumer goods (-0.3% vs. -0.4% in March) and food prices (-0.2% vs. -1.4%) fell for the third month year-over-year. Non-food prices were flat and core (excluding food and energy) rose by 0.5% (that same as in March). It is difficult to see how China will achieve its 2% inflation target this year. It was 0.2% in 2023 and 2024. Still, we note that Switzerland reported April CPI last week and its was zero month-over-month and year-over-year. The core rate was 0.6%. China's producer prices fell 2.7% year-over-year after a 2.5% decline in March. It is the most deflation in six-months. China has been experiencing deflation in producer producer prices since September 2022. China may provide April lending figures and foreign direct investment flows. Aggregate lending in Q1 was about 18.5% higher than Q1 24. Another way to look at it is that through March, the combination of lending from the formal banking system and from the shadow banks, surpassed what was lend through May 2024. Given the tariffs one may not be surprised by news the foreign direct investment into China is weak. Yet, the last time it rose on a cumulative year-over-year basis was in May 2023. The de-risking had already begun but also note that retained earnings count as direct investment. There may be several considerations for handling retained earnings. Cyclical factors, like low interest rates, may influence the decision. Prices: The dollar's high for the week was set ahead of the weekend near CNH7.2530. The upside momentum was not sustained and the dollar pulled back to CNH7.2340. Chart support may be in the CNH7.2225-50 area. On the other hand, push above CNH7.26 could spur a move toward CNH7.30. Japan Drivers: The correlation between changes in the exchange rates and changes in the US 10-year yield remains near the weakest since Nov 2023. On a rolling 30-day basis, it is below 0.20, having spent Q1 between 0.50 and 0.70. The rolling 60-day correlation is below 0.30. It was above 0.60 as recently as early April. The yen is trading a bit more like a risk currency in the sense that the 30-day correlation with the S&P 500 is a little above 0.40, the strongest since mid-2023. Most notable is that the yen's movement has become increasing a function of the dollar's broader changes. The 30-day correlation of the changes in the exchange rate and the Dollar Index is near 0.88, the highest since 2016. Data: Japan reports Q1 25 GDP. It likely slowed considerably after a 2.2% annualized pace in Q4 24. The median forecast in Bloomberg's survey is for a 0.2% annualized pace in Q1 25. Net exports may have been a drag, while private investment and public consumption probably slowed. Industrial output was virtually flat. Japan will also report the March current account, alongside which is a country breakdown of its foreign bond purchases and sales. but the report will not shed light on what some thought was foreign-led selling of US assets in early April. Weekly MOF data showed large bond sales in the week ending April 4 (~JPY2.6 trillion, ~$17.5 bln). The rest of April was nearly flat. In the week ending April 4, Japanese investors were substantial buyers of foreign equities (~JPY1.8 trillion) and were modest net buyers through April 25 (~JPY980 bln). Prices: The dollar reached four-week highs against the yen ahead of the weekend near JPY146.20. It was turned back and fell to almost JPY144.80 in the waning hours of the week's activity. We had thought the bottoming pattern projected toward JPY148, but for the past two weeks the JPY146 area contained the greenback. We are also monitoring a down trendline connecting the January and March highs, which is found near JPY146.90 on Monday and around JPY146.35 at the end of the week. UK Drivers: Sterling and the euro tend to move in the same direction against the dollar. The 30-day correlation of the changes in the two exchange rates is around 0.75. The 60-day correlation is closer 0.80. It has not been below 0.75 this year. After last week's rate cut and official comments, the market discounted a more gradual easing path. It is now pricing in a year end rate around 3.65%, about 10 bp higher on the week (now: 4.25%). The US-UK trade deal does not seem to impact either economy very much, but the consequences seem to be at least two-fold. First, it further pulls the UK from the EU, and second, it may make trade talks with others, who object to the range of tariffs, including the so-called reciprocal tariffs, which the UK was not subject. Data: The key to next month's BOE decision is unlikely to rest on the upcoming data. The highlights are the jobs report and Q1 GDP and real sector data for March. The economy is expected to have grown by 0.3% in the Jan-Mar period after practically stagnating in H2 24. Consumption and business investment look weaker. Manufacturing output may have continued to contract. However, the BOE's forecast was considerably more optimistic with a 0.6% quarterly expansion projected, though nearly stagnating this quarter. Prices: Sterling approached $1.3200 ahead of the weekend, its lowest level since April 17, and recovered to nearly $1.3325. The momentum indicators are falling, and the five-day moving average is now below the 20-day moving average. However, the price action is still consistent with a consolidative phase rather than a correction. Sterling did not trade above $1.3400 last week, and the high was set in late April near $1.3440. Canada Drivers: The Canadian dollar also continues to seem to be more a function of the broader movement of the US dollar. The rolling 30-day correlation with changes in the Dollar Index is above 0.70 for the first time in six months. Sometimes, the Canadian dollar is more of a risk currency with a stronger correlation with changes in the S&P 500, but the 30-day correlation is below 0.30. Data: With the April jobs data behind us and the CPI due later in the month, real sector data this week is mostly from the housing sector (starts and permits, and existing home sales). At the end of the week, Canada reports March portfolio flows. Canada enjoyed net inflows that averaged C$16.0 bln a month in 2024, which was more than the monthly average of 2022 and 2023 combined. That said, net inflows slowed to a trickle in the first two months of 2025 and are the weakest since Jan-Feb 2004. Prices: The 0.2% rise in Canada's April unemployment rate to 6.9% and a loss of 31k manufacturing jobs, the most since January 2009, outside the pandemic, weighed on the Canadian dollar. It was the only G10 currency not to have risen against the US dollar ahead of the weekend. The greenback held above CAD1.3900. The momentum indicators are still favorable and the CAD1.4000-30 area remains a reasonable near-term target. Support is seen in the CAD1.3850-70 area. Australia Drivers: The Australian dollar seemed to benefit from the US dollar's broad weakness and optimism that US-China trade war has reached some sort of extreme tantamount to an embargo. But the push above $0.6500 was repulsed, what seemed like an exhaustive move with a bearish technical sign warned short-term trend followers and moment traders to begin moving to the sidelines. The 30-day correlation between changes in the Australian dollar and the offshore yuan is near 0.50 only slightly higher than with the Dollar Index. Still, the correlations with the dollar-bloc (Australia, New Zealand, Canada) are above 0.75. Data: The last important high-frequency data points before next week's central meeting are the May consumer inflation expectation survey and the April employment report. The Melbourne Institute's consumer survey showed a jump in March to 4.2%, the highest for the year and matching the most elevated reading since last September. Nevertheless, over the past month, the Australian yield has fallen sharply, and the yield curve has steepened (bullish steepening). Meanwhile, overall job growth practically stalled in Q1 (<7k), the weakest quarter since Q3 21. Full-time employment grew by 9k in Q1 25, after 31k in Q4 24 and nearly 132k in Q1 24. Prices: After rising to $0.6515 in the middle of last week, the Australian dollar posted a key downside reversal and fell to almost $0.6370 ahead of the weekend. It recovered smartly and reach almost $0.6435 in the North American session, perhaps encouraged by speculation that the weekend US-China trade talks mark the beginning of the de-escalation. Initial resistance may be found in the $0.6440-60 area. Disappointment with the outcome, of the weekend trade talks, especially if the effective embargo is not lifted, the Aussie can be sold in disappointment with support extending into the $0.6350-$0.6370 area. Mexico Drivers: The peso often trades like a risk currency (30-day correlation of ~0.65 with the changes in the S&P 500) that is also somewhat protected by a still wide interest rate premium. The peso is one of the few emerging market currencies that trade 24 hours a day. It is sometimes used as a proxy for less liquid emerging market currencies. Data: The central bank meeting is on May 15. It cut rates five times last year in quarter-point steps to 10.0%. It has cut another 100 bp this year in two half-point steps (9.0%). The weakness of the economy and the resilience of the peso may give the central bank scope for another 50 bp move. The swaps market is pricing in a terminal rate around 7.25% by this time next year. Prices: After being turned back from almost a three-week high on Tuesday (~19.7820), the greenback was sold to nearly MXN19.4350 ahead of the weekend and it closed below MXN19.50 for the first time since last October. . The next important chart area is near MXN19.37, which corresponds to the (38.2%) retracement of the rally that began last April (~MXN16.26) to the February high (~MXN19.29). A break of that could target the MXN19.00-5 area. Disclaimer

Overview: After recovering impressively yesterday, the US dollar saw some follow-through buying initially but has reversed lower and is paring yesterday's gains against the G10 and most emerging market currencies. East Asian emerging market currencies that had surged have now traded lower for the past three sessions. The main talking point today is tomorrow's trade talk between the US and China. The mutual tariffs are so high that even if they were halved, they would still be prohibitive. China's April trade figures show it was able to more than replace the loss of exports to the US and overall Chinese exports rose. While China has replaced US demand, at least initially, now attention may turn to whether the US can replace Chinese supply. The drying up of container shipments suggests not so quickly. The US economic calendar features nine Federal Reserve officials, but there is little that will be said that would encourage investors to bring forward a rate cut to next month. Asia Pacific equities are mixed, with China, South Korea, and India among the losers, while Japan, Taiwan and New Zealand, the Philippines, and Pakistan markets rising by at least 1%. Europe's Stoxx 600 is up almost 0.5% and is poised to settle higher on the week. US index futures are firm after yesterday's strong gains. The sharp sell-off in US Treasuries yesterday helped drag yields higher today. In Japan and among the Antipodeans, the 10-year yields rose 4-5 bp, and in Europe, they are up mostly 4-6 bp. The 10-year US Treasury yield is little changed near 4.37%. Gold is trading firmer after falling by $125 in the past two sessions after rallying $190 in the first two sessions of the week. June WTI has fully recovered from the drop to nearly $55 on Monday. It is pushing above the 20-day moving average near $60.80 for the first time in a couple of weeks. USD: The Dollar Index reached its best level in nearly four weeks yesterday around 100.75 and settled close to the session high. The gains were marginally extended today to around 100.85 before being knocked back to 100.35 by early European turnover, where it stabilized. A close below 100.00 would be disappointing. There are nine Fed officials that will be speaking throughout the day in a session devoid of economic reports. Still, there seems to be little that can be said that will substantially boost the odds of a cut at the next FOMC meeting in June. Attention next week turns to inflation and both the headline and core CPI look fairly steady. The weekend sees US-China trade talks. Expectations seem to be for de-escalation, but we are less sanguine. Even if the tariffs are cut in half, wouldn't it still be tantamount to an embargo? Even talks with Japan, which have been fast-tracked, are not expected to result in an agreement until next month at the earliest. Japan wants to all the tariffs to be on the table, but the US seems to only want to discuss the so-called "reciprocal tariff." Note that around the time that the postponed tariffs come into effect will coincide with Japan's upper house election in July. Meanwhile, China wants a broad agreement, and its red lines respected. Trump administration officials are still playing down the impact of the effective trade embargo. Treasury Secretary Bessent has suggested China is playing poker with a "pair of twos," i.e., a weak hand, which may risk violating a cardinal principle to not under-estimate a rival. EURO: The euro has broken down, out of what was a choppy consolidation. It slipped briefly through $1.12 today for the first time since April 11 but found bids to lift it back to $1.1260. This former support should act as resistance and a close above there would leave it apparently still rangebound. Still, the euro settled slightly below $1.13 last week, and barring a stronger recovery, it will finish lower for the third consecutive week. In terms of macro data, outside of Germany's ZEW survey next week, the economic calendar is limited to Q1 data in the coming days. CNY: The dollar's broad recovery saw it rise to about CNH7.2470 yesterday and to almost CNH7.2530 today. The next technical hurdle ahead of CNH7.30 may be around CNH7.26. For the second consecutive session, the PBOC set the dollar's fix a little higher (CNY7.2095 vs. CNY7.0273 yesterday), which would seem to be a potential signal of willingness to accept a stronger dollar/weaker yuan. China has shown in the first instance that it was in fact able to replace the drop in US demand. China's exports fell by 21% to the US in April but rose overall by 8.1%, with stronger exports to India, Southeast Asia, and the European Union. Imports from the US fell by nearly 14% but fell only 2% overall. China will report April CPI and PPI early Saturday. According to the median forecasts in Bloomberg's survey the CPI should be steady at -0.1% and the deflation in producer prices may deepen (-2.8% vs. -2.5%). JPY: The dollar posted its highest close in nearly a month yesterday around JPY145.90. The trendline from the mid-January high (~JPY158.90) and late March high (~JPY151.20) comes in today at about JPY147. It has not been able to rise through yesterday's high near JPY146.20 and has retreated to almost JPY145.00. A close below JPY145 would weaken the technical tone. Japan reported slower growth in labor cash earnings (2.1% in March from 2.7% in February). When adjusted for inflation real cash earnings fell 2.1% year-over-year. Last March, they had also fallen by 2.1% year-over-year and in March 2023, they were 2.3% lower. Household spending jumped 2.1% in real terms year-over-year, considerably stronger than expected. It contracted by 0.5% in February. Japan reports its first estimate of Q1 GDP next week. The median forecast in Bloomberg's survey is for a 0.1% contraction, with net exports a drag on growth and offset slightly by a contribution of inventories. Private consumption looks a little better after today's report. It was flat in Q4 24. GBP: Sterling broke down yesterday, lending credence to the topping pattern that appears to have formed. It fell to about $1.3210 today before recovering a little through $1.3270. A close above $1.3260 would suggest further consolidation is likely. As widely expected, the Bank of England delivered a quarter-point cut yesterday (to 4.25%). The market's takeaway is that the easing will be more gradual. The market sees the year-end base rate around 3.64% (from 4.25% now). It settled last week near 3.53%. Next week, the UK reports on jobs data and Q1 GDP and details. The economy is expected to have expanded by about 0.3% after nearly stagnating in H2 24. CAD: The US dollar rose to nearly CAD1.3935 yesterday, its best level since mid-April. It reached a marginal new high today in front of CAD1.3945 before it lost its mojo and was pushed back to CAD1.3910 in European turnover. The next technical area is around CAD1.40. The area houses the 200-day moving average and the (38,2%) retracement of the early April high (~CAD1.4415). The greenback is up around 0.75% this week, which is sustained, would be the best weekly performance since the end of February. April employment data will be released today. Some stabilization is expected after Canada's employment shrank by 32.6k in March. The participation rate may tick up and this may lift the unemployment rate to 6.8%, which would be the highest since 6.9% last November. Canada lost about 46k full-time in Q1 25, which is nearly as many as it had gained in Q1 24. The swaps market straddles the fence on the outlook for the June 4 central bank meeting ahead of today's report. AUD: After posting the key reversal on Wednesday, follow-through selling yesterday saw it hover in the $0.6400 area. Options for A$1 bln expire there today. It fell to almost $0.6370 today before returning to the $0.6400 area. The 20-day moving average, which it has not traded below since mid-April, is there today.. Still, some may not become convinced that a high is in place until the $0.6350 area yields. Although some confidence surveys and the index of wages, labor costs, and productivity are due next week, the highlight is the April employment report next Thursday. Full-time employment grew by 9k in Q1 25 after rising nearly 132k in Q1 24. The unemployment rate stood at 4.1% in March 2025, up from 3.9% in March 2024, which can largely be accounted for by the increase in the participation rate (from 66.5% to 66.8%). MXN: The peso remains resilient, perhaps encouraged by the risk-on environment. The peso rises and falls with the S&P 500. The rolling 30-day correlation of the changes is nearly 0.65, the most since late 2023. Given the carry, it looks as if some large positions that were using maybe the offshore yuan, or other Asian currencies to fund long Latam positions like the peso. And the dollar did rise a bit through MXN19.78 on Tuesday but there were no follow-through gains. Instead, the greenback returned to almost MXN19.51 yesterday and edged a little closer to MXN19.50 today. Despite fraying the area on an intraday basis last month, the dollar has not closed below there since last October. Mexico reported a rise in both the headline and core CPI measures for last month yesterday, but it is unlikely to deter the central bank for delivering another 50 bp rate cut next week. Today's data is limited to April vehicle production and exports. In March, Mexico exports almost 88% of the autos its produced. In March 2024, Mexico exported nearly 95% of its auto production. Disclaimer

Overview: A couple days away from the US-China talks, the two are sitting disputing who sought out the talks. Given the egos, the risk is that the talks are downgraded if not canceled. Expectations ought to be low in any event. On the other hand, the first US trade agreement is expected to be announced with the UK today, though it has not prevented sterling from falling ahead of the Bank of England meeting, which will most likely result in a dovish quarter-point cut. For its part, the greenback is building on yesterday's gains, encouraged by the Federal Reserve's hawkish hold. It is higher against the G10 currencies, and most emerging market currencies. Equities are mostly firmer. Taiwan's Taiex saw a minor loss, but several bourses in Asia including India (~-0.5%) and Pakistan (~-6.8%) and a few smaller ones are under pressure. After falling for past two sessions, Europe's Stoxx 600 is recovering, led by the 1%+ rally in the DAX following a 3% surge in Germain industrial production. The S&P and Nasdaq futures are up by over 1%. Bonds are selling off. European benchmark 10-year yields are around three basis points higher though ahead of the BOE meeting and trade deal announcement, Gilts are flat. The 10-year US Treasury yield is up a little more than four basis points to 4.31%. Gold is falling for the second consecutive session. After dropping almost 2% yesterday, the yellow metal is off nearly 0.8% today to about $3340 in Europe. June WTI is up a little more than 1% today to approach $59. A five-day high was set yesterday, a little above $60. USD: After stopping shy of 100.00 yesterday, the Dollar Index is pushing above it today. A close above 100.00 would discourage the bears, while a move above 100.40 would lend credence to our idea of an upside correction. Reports suggest that the US and UK will announce a trade deal at 10:00 AM ET today. Meanwhile, after President Trump announced on his social media platform yesterday that he will not reduce tariffs on China to ensure successful talks this weekend, China seems to have implied that these are not negotiations but an "engagement." It insists that it is doing so after the US sought it through various channels. Judging from the president's social media posts, this does not set well there. We suspect that the meeting will either be canceled or amount to practically nothing. Meanwhile, US data is of little consequence today. Nonfarm productivity and unit labor costs are not observed directly but derived from the GDP figures. The contraction in Q1 GDP will translate to a decline in productivity and a rise in unit labor costs. Weekly initial jobless claims are expected to have softened after rising in back-to-back weeks for the first time in a couple of months. In any event, the April employment report eased fears that the deterioration of the labor market was accelerating. As widely expected, the Federal Reserve stood pat yesterday and despite pressure from the White House, gave no hint that it was preparing to cut rates at the next month's meeting either. The element of hawkishness came from the seeming move away from the possibility that price increases from tariffs might be transitory. The Fed recognized that there are risks on both sides of its mandate, but this does not mean stagflation as some observers claim. Stagflation might be an appropriate label if both risks materialized. EURO: The euro remained in the upper end of its recent range yesterday but made session lows following the Fed's press conference to almost $1.1290 after it held below $1.1380 earlier. The broader range is about $1.1265-$1.1425. It reached $1.1270 today and is consolidating mostly below $1.1300 in European turnover. The daily momentum indicators are trending lower, but the euro has moved broadly sideways. A convincing break of $1.1260 could signal a two-cent downside correction. Germany reported the first back-to-back increase in industrial production since Jan-Feb 2024. It jumped 3% in March, well above the 1.0% median forecast in Bloomberg's survey, and the most since October 2021. It is not clear how much German factory orders and industrial output was impacted by activity ahead of US tariffs. Moreover, the first estimate of German growth in Q1 was 0.2% after a contraction of the same magnitude in Q4 24. CNY: The dollar settled higher for the second consecutive session against the offshore yuan and appears to have put in a low. Follow-through buying today lifted it a little above CNH7.24. The next technical target is in the CNH7.25-CNH7.26 area. Since around the middle of March, the PBOC has moved the daily reference rate slightly more than it had been but since returning from the extended holiday on Tuesday, the PBOC has returned to the smallest of changes in the fix. However, today's fix was set at CNY7.2073 (CNY7.2005 yesterday), the first higher dollar fix in eight sessions, and the largest change in a month. Meanwhile, most Asian currencies fell today, led by the nearly 0.9% pullback in the Malaysian ringgit. JPY: The decoupling of the exchange rate from the US 10-year yield was underscored by yesterday's price action. The US 10-year yield slipped while the greenback rose by nearly 1.0% against the yen. It recorded session highs in late dealings yesterday at JPY144.00. The dollar is making session highs in the European session slightly below JPY145. The daily momentum indicators are still trending up despite the dollar's pullback from JPY146 last week. Although last week's high is the next immediate target, there may be potential toward JPY148. GBP: Sterling was sold to $1.3280 yesterday after being turned back from $1.3400 on Tuesday and this is still consistent with a top being carved. It posted an inside day yesterday. Reports about the US trade agreement, after striking one earlier this week with India, helped lift sterling initially to about $1.3355, but it has succumbed to selling pressure and tested key support near $1.3260 in the early European turnover. A break of $1.3260 would lend credence to the bearish take. The 20-day moving average is near $1.3295 and sterling has traded below it for the first time since April 10. The measuring objective of the potential topping pattern could bring it toward $1.3050, which is around the halfway mark of the rally from the April 7 low a little above $1.27. The swaps market has no doubt that the Bank of England will announce a 25 bp rate cut shortly. Ahead of today's announcement, the market has about a 60% chance of another cut next month. After today's cut, the market has two more cuts fully discounted and almost a 90% chance of another. The weaker economic performance will pose a formidable challenge to Chancellor Reeves’ fiscal plans. The dismal showing of Labour in the recent local elections warns of the public's impatience. CAD: The greenback recovered against the Canadian dollar yesterday. After setting a new low for the year on Tuesday (~CAD1.3750), the US dollar reached almost CAD1.3840 yesterday. Today, it has reached almost CAD1.3885 and is above the 20-day moving average (~CAD1.3850) for the first time since April 2. We suspect corrective potential may extend toward CAD1.40. It is a quiet session for Canadian data today, but the focus is on tomorrow's job report. After losing 32.6k jobs in March, Canada is expected to have added about 5k jobs last month according to the median in Bloomberg survey. However, the 13 projections ranged from a loss of 40k jobs to a gain of 51k. The Bank of Canada meets on June 4 and the swap market looks split about the outlook. Still, another cut is fully discounted by the end of July when it meets next. AUD: The Australian dollar recorded a bearish key reversal yesterday by making a new high ($0.6515) and then falling through and settling below Tuesday's low (slightly below $0.6440). It is hard to separate the greenback's advance in response to the hawkish hold by the Fed and President Trump's announcement that there would be not pulling back from the 145% tariff on China. Initial support near $0.6400 is holding so far today, but if a larger correction is underway, a move toward $0.6285 initially seems reasonable. The 20-day moving average, which the Aussie has not traded below since April 14 is nearly $0.6395 today. MXN: The peso was unexpectedly resilient yesterday. On Tuesday, the dollar looked like it was breaking out of the extended consolidation. It traded above MXN19.78, its highest level in nearly three weeks. Yesterday, the greenback fell a little below MXN19.56. It is trading in a narrow range between roughly MXN19.56 and MXN19.6230. President Sheinbaum seemed optimistic about her relationship with Trump. Yet Trump's endorsement Tuesday of the USMCA he negotiated in is firm term is a bit disingenuous. The tariffs he has announced appear to violate the treaty. Maybe his comments were misunderstood. The USMCA treaty is to be re-examined next year. Trump said might be unnecessary but that is because of US unilateralism. We suspect that the US might be more interested in two bilateral agreements rather than North American Free-Trade Agreement. Ironically, the peso fared better than the Brazilian real, which fell by about 0.50% yesterday ahead of the central bank's decision to hike the Selic rate by 50 bp to 14.75%. The Deputy Governor of Banxico played up the scope for rate cuts. Mexico's central bank is expected to deliver another 50 bp rate cut next week. Disclaimer

If trade imbalances truly drive protectionist backlash, as many claim, we should have witnessed comparable anti-trade sentiment during the 1980s when America's deficit with Japan reached historic proportions. Yet history reveals a critical distinction: Japan was offered—and wisely seized—an economic escape valve that today's geopolitical climate threatens to deny China. This asymmetry not only betrays a fundamental misunderstanding of how global trade evolved but risks triggering an unprecedented economic disruption. Japan's solution came through a direct investment revolution. Faced with mounting trade barriers and the Plaza Accord's dramatic yen appreciation, Japanese manufacturers transformed themselves from exporters into local producers. Toyota, Honda, and Sony didn't retreat from American markets—they embedded themselves within them. This "build locally, sell locally" approach defused trade tensions while preserving market access and protecting against currency volatility. This strategy wasn't revolutionary but evolutionary, following a path American corporations had blazed decades earlier. By the early 1960s—long before "globalization" entered our lexicon—sales from U.S. companies' foreign affiliates already exceeded traditional exports. American businesses recognized that direct investment offered a strategy to cope with both protectionist impulses and the persistent strength of the dollar. When countries adopted protectionist measures for one reason or another or currency valuations made exports uncompetitive, embedded local production provided strategic immunity. Today's conventional wisdom portrays China as an export-dependent economy whose growth model must inevitably clash with Western interests. This fundamentally misrepresents economic reality. China's exports constitute less than 20% of GDP—lower than Germany (47%), South Korea (43%), and even Canada (32%). The notion that China's prosperity depends primarily on flooding Western markets with goods is simply unsupportable by the data. What's more, Chinese domestic consumption has risen dramatically since the 2008 financial crisis. That consumption hasn't claimed a larger share of GDP reflects not consumption weakness but rather China's continued robust investment—precisely the economic activity that would fuel a direct investment strategy if permitted to deploy internationally. Chinese households are buying more than ever, but investment continues to outpace even this impressive consumption growth. We stand at a critical inflection point. If China is denied the same evolutionary path that Japan followed—and that America pioneered—we will intensify global trade frictions beyond anything witnessed in modern economic history. The stakes extend far beyond tariff rates or trade balances; they encompass the fundamental architecture of the global economy. The narrative linking American inequality to global trade represents perhaps the most pernicious economic misconception of our time. If trade openness caused wealth disparity, we would observe the most "open" economies suffering the greatest inequality. Reality demonstrates precisely the opposite. Denmark, Sweden, the Netherlands, and Germany all maintain significantly higher trade-to-GDP ratios than the United States while simultaneously achieving far more equitable wealth distributions. These countries engage more intensively with global markets yet maintain stronger social cohesion and less extreme inequality. The American paradox—rising GDP alongside widening inequality—stems not from Beijing's policies but from decisions made in American corporate boardrooms and legislative chambers. The United States has never been wealthier than at the end of 2025, with GDP and household net worth at historic highs. The failure to distribute this prosperity equitably represents a domestic policy failure, not an inevitable consequence of global engagement. Other nations have demonstrated that robust international trade and equitable wealth distribution can coexist—indeed, the former often enables the latter through productivity gains and expanded economic opportunity. Two imperatives emerge from this analysis: First, Western economies must permit China to pursue the same direct investment strategy that defused previous trade tensions with Japan. Blocking this evolutionary path won't restore manufacturing jobs or revitalize declining regions—it will simply accelerate economic fragmentation while denying both sides the benefits of continued engagement. The choice isn't between competing economic models but between adaptation and unnecessary conflict. Second, addressing America's wealth and income disparities requires domestic policy solutions rather than trade restrictions. The evidence conclusively demonstrates that inequality stems from internal power relationships, tax structures, labor market institutions, and corporate governance—not from trade agreements or import competition. Blaming foreign competition for domestic policy failures merely distracts from the real work of institutional reform. History offers clear lessons for those willing to learn. The direct investment revolution that transformed Japanese-American economic relations provides a template for defusing today's tensions with China. Similarly, the varied distributional outcomes among trade-oriented economies demonstrate that domestic policy choices—not trade itself—determine who benefits from prosperity. The question isn't whether global economic integration will continue, but whether we'll manage this evolution intelligently or sabotage it through misdiagnosis and misguided remedies. The stakes—for economic prosperity and geopolitical stability alike—could hardly be higher. Disclaimer

Overview: There are five developments to note. First, the US and China will have initial trade talks this weekend in Switzerland. Second, the PBOC cut its key rate by 10 bp and cut reserve requirements by 0.5%. It also announced several other measures to boost lending/relending. Third, German factory orders were stronger than expected, perhaps bolstered by attempts to move ahead of US tariffs. Fourth, after last week’s ruction, most Asian emerging market currencies continued to pullback. The exceptions today were the South Korean won and Philippine peso. Fifth, there has been little market impact from India and Pakistan exchanging strikes. The Indian rupee is weaker (~0.5%). Indian equities are slightly firmer, but Pakistan market slumped more than 2%. It was the third consecutive loss for the Karachi 100 and the largest loss since April 30. The US dollar is mostly firmer against the G10 currencies and most emerging market currencies today. Most Asia Pacific equities posted minor gains today, but Thailand stands out with a nearly 2.5% gain. Europe's Stoxx 600 snapped a 10-day advance yesterday and is trading heavier today. US index futures are up about 0.5%. The highlight of the remainder of the session are the likely rate cuts by Poland and the Czech Republic, while the FOMC will leave policy unchanged, and the central bank of Brazil is expected to hike by 50 bp. European benchmark 10- year yields are 2-3 bp lower, while the 10-year US Treasury yield is a little firmer at 4.32%. Gold is pulling back nearly $200 an ounce over the past three sessions. June WTI is extending its recovery off the $55 area seen at the start of the week and is now near $60. USD: The FOMC meeting is the event of the day. There is no doubt that the central bank will stand pat. Its statement will be adjusted to recognize the contraction in Q1 GDP. Still, Fed Chair Powell's overall assessment is unlikely to be changed much from "the economy is in a good place" and the Federal Reserve has the capacity and will to move as needed. When the Fed met in mid-March, the market had a June cut fully discounted and had two cuts discounted this year and almost a 75% chance of a third cut. It has subsequently pushed out the first cut until July (~93% chance) and has nearly three cuts fully discounted this year. The median Fed projection in March was for two cuts this year. Given the uncertainty still stemming from the administration's policies, look for sparse forward guidance, but no word cues that would suggest a June cut. The Dollar Index posted a bearish outside down day yesterday, setting new four-day lows near 99.20 late yesterday. News that US and China will begin trade talks later this week failed to impact the Dollar Index much and it is trading in a narrow range mostly between 99.30 and 99.60. The (50%) retracement objective of the bounce off the April 21 low (~97.90) is near 99.15 and the (61.8%) retracement is closer to 98.85. EURO: The euro traded on both sides of Monday's range yesterday and it settled above Monday's high, constituting a bullish outside up day. It approached the pre-weekend high to $1.1380 in late turnover. A move above there targets the $1.1420 area. Options for 1 bln euros at $1.1400 expires today. The news of US/China trade talks saw the euro ease to almost $1.1325 but it recovered to nearly $1.1380, helped by stronger than expected Germany factory orders. The 3.6% increase contrasted with the median forecast of a 1.3% gain. The increase in orders was widespread and appears to have been due to efforts to front-run US tariffs. The optimistic camp says the Germany industrial sector is stabilizing, but the pessimists note that the manufacturing PMI, despite not falling this year, remains below the 50 boom/bust level, consistent with continued slowing. Industrial production is due tomorrow. It is expected to rise by 1% after falling 1.3% in February. The market remains confident that the ECB will cut rates at the early June meeting. The swaps market has slightly less than a 50% chance of another cut in July. Note that Poland and Czech central banks are expected to cut rates today. Poland is seen cutting 50 bp to 5.25%. It will be the first since October 2023 and comes as the presidential election on May 18 draws near. The swaps market sees a terminal rate between 3.75% and 4.0%. Since October 2023, Poland's CPI has fallen from 6.6% to 4.2%. The Czech central bank is seen cutting the repo rate by 25 bp to 3.50%. It would be the second cut of the year. The easing cycle began in December 2023 with a 7.0% repo rate. The preliminary April CPI reported yesterday stands at 1.8%. The swaps market sees a terminal rate between 3.00% and 3.25%. CNY: In addition to trade talks with the US, China announced it was easing monetary policy. Specifically, the PBOC cut the key seven-day repo rate by 10 bp to 1.4% and lowered required reserves by 0.5%, which frees up about CNY1 trillion. Several other measures were announced that are aimed at boosting lending/re-lending. The dollar fell by almost 1.1% against the offshore yuan last Friday and Monday. It stabilized yesterday, helped by the little change in the PBOC fix as it returned from the extended holiday. The dollar bounced from about CNH7.20 to CNH7.2350 yesterday but settled in the lower end of the range; below the 200-day moving average (CNH7.2220).and beneath CNH7.21. Today, the dollar fell slightly below CNH7.19 before rebounding and to nearly CNH7.23. The fact that the dollar is trading weaker against the offshore than onshore yuan would suggest limited dollar bullish/yuan bearish speculation. Amid the uncertainty and volatility among Asian currencies in recent days, the PBOC set yesterday's reference rate for the dollar 0.01% from the last fix on April 30. Prior to the holiday, we had been tracking a subtle change in the PBOC's daily fix. It had widened starting in early March and it is possible that PBOC reverts to the narrower adjustments to promote stability. Today's reference rate was set at CNY7.2005 (CNY7.2008 yesterday). Although it was little changed, it is the seventh consecutive session that the PBOC lowered the dollar's fix, which essentially limited the dollar's upside. JPY: The dollar’s rally from its dip below JPY140 on April 22 to a high at the end of last week, a little shy of JPY146.00. With yesterday's pullback to JPY142.35, the greenback has nearly retraced (61.8%) of its rally. A break of the JPY142.00-20 area could spur a retest on the JPY140 area. It held above JPY142.40 today and recovered to JPY143.45, setting the high in the European morning. Nearby resistance is seen around JPY144.00 Japanese markets re-opened today after a long holiday weekend. The market paid little attention to the final services and composite PMI. Recall that the composite PMI slipped to 48.9 in March, matching the lowest reading since the pandemic but it rebounded to 51.2 (51.1 flash estimate). The Japanese economy appears to have nearly stagnated in Q1 The first estimate of Q1 GDP is due on May 16. Whatever gets the BOJ to raise rates, it will most certainly not be the April PMI reading. GBP: Sterling has forged a base in recent days around $1.3260. Yesterday, it jumped higher and briefly poked above $1.34. It may have been helped by reports suggesting that the US and UK may sign a deal this week that includes quotas but also spares the UK the full brunt of the 25% tariffs on autos and steel. Sterling was greeted with sellers that pushed it back to around $1.3350. It held around $1.3380 today before slipping back to almost $1.3320 in the European morning. A break of $1.3300 could re-target the $1.3260 support area. The euro recorded this year's high against sterling on April 11 near GBP0.8740. Yesterday, it traded near its lowest level in a month, around GBP0.8460, and recovered to GBP0.8500. Near-term potential may extend to the GBP0.8500-30 area. The Bank of England meets tomorrow. The swaps market has been discounting with at least 84% confidence of a cut since April 2. The market is pricing in three cuts fully for the remainder of the year and about 80% chance of a fourth. The BOE will update its economic forecasts. Previously, the BOE had the economy slowing to 0.8% from 1.1% in 2024 and anticipated CPI to rise to 3.5% from 2.5% last year. It had projected 2026 growth at 1.5% and CPI at 2.5%. CAD: The US dollar recorded a bearish outside down day against the Canadian dollar by trading on both sides of Monday's narrow range and settling below its low. In fact, the greenback settled below CAD1.38 for the second time this year. It was sold to nearly CAD1.3750 yesterday, its lowest since last October. It is trading firmer today and is poking back above CAD1.3800 in European turnover. Only a move above CAD1.3850 today would be meaningful. Yesterday's goods trade figures are showed a sharp 6.6% drop in Canadian exports to the US the most since the pandemic. Imports from the US fell by almost 3%. Canada's exports to the rest of the world were flattered by gold and oil and jumped by nearly 25%. The net result was Canada reported a smaller than expected goods deficit. An eve of yesterday's Trump-Carney meeting, US Commerce Secretary Lutnick could not resist. He called Canada "a socialist regime" and that been "basically feeding off America." While Trump's bravado says the US does not need anything from Canada, almost 25% of the oil the US consumes comes from Alberta. Trump was clear: the US does not want Canadian-made steel or autos. As it became clear that despite saying he will pursue a better relationship with Carney than Trudeau, Trump had not intentions on easing the tariff burden on Canada, the Canadian dollar pared its earlier gains. AUD: Like the Canadian dollar, the Australian dollar recorded new highs for the move yesterday, edging slighted above $0.6500. It is a new five month high, and the Aussie settled above its 200-day moving average (~$0.6460) for the second consecutive session. A convincing move above $0.6500 targets the $0.6550 area, which is the (61.8%) retracement of the Australian dollar's decline from last October's high (~$0.6940). The Aussie reached $0.6515 before being sold back to $.6465. A close below $0.6440 today would suggest a near-term high is in place. For its part, the New Zealand dollar pushed above $0.6000 but stopped short of the six-month high set last month near $0.6030. The $0.6040 area corresponds to the (61.8%) retracement of the Kiwi's slide since last October's high (~$0.6380). It was stopped ahead of $0.6025 today and has been sold back to the $0.5980 area. MXN: The dollar reached nearly MXN19.7820 in the North American session, its best showing since April 17, but the buying dried up and the greenback returned to almost MXN19.62 before stabilizing. Today's range is about MXN19.61-MXN19.68. The greenback fared better against the Brazilian real. After gapping higher at the open, the dollar reached nearly BRL5.7380. Although it retreated too, it did not enter the opening gap and found support ahead of BRL5.70. Brazil's central bank is widely expected to hike the Selic rate by 50 bp today to 14.75%. The swaps market sees the Selic rate peaking near 15% and falling back below 14% within a year. Mexico reports April CPI tomorrow. The headline and core rate are expected to tick up but still be below 4%, the upper end of the target range. The central bank is more concerned about growth than inflation. It had previously halved this year's growth forecast to 0.6%. The median forecast in Bloomberg's survey puts it at 0.2%. Mexico's modernization has been predicated on direct investment in the off-shore, near-shore, and friend-shore regime. The Trump administration says that will no longer suffice and seeks to impose re-shoring on US and foreign companies. Disclaimer

Overview: China's mainland markets re-opened after the extended holiday, and the by setting the dollar's reference rate little changed from its last fix helped inject a note of stability into the local Asian currencies. Indeed, most of them pulled back today, including the Taiwan dollar and the Malaysian ringgit. The yuan and yen are firmer. In fact, the yen's roughly 0.35% gain puts it atop the G10 scoreboard today, though more broadly, the greenback is mixed. There has been much speculation that the US could announce tariffs on semiconductors as early as tomorrow. While they are coming, we are skeptical about tomorrow. As we note below, the period for public commentary ends tomorrow at midnight. Can there really be a tariff announcement ahead of it? Chinese and Hong Kong equities as did Singapore. Japanese and South Korean markets were still closed today for holidays and re-open tomorrow. Many of the other bourses in the region fell. Europe's Stoxx 600 is snapping a 10-day rally and is off around 0.8% in late European morning turnover. US index futures are under pressure and the Nasdaq futures are off around 1% with the S&P 500 down about 0.7%. Benchmark 10-year bonds are selling off, and yields jumped 6-7 bp in Australia and New Zealand. They are mostly 2-3 bp higher in Europe and the US 10-year Treasury yield is up almost two basis points to 4.36%. Gold, which fell in the past two weeks, is extending yesterday's nearly 3% recovery with another 1.3% gain. The yellow metal bottomed last week near $3200 and has approached $3390 today. June WTI held $55 yesterday and settled near session highs after gapping lower. It is building on yesterday's recovery and is near $58.75 in Europe. USD: For the fifth consecutive session yesterday, the Dollar Index recovered in the North American session and settled near session highs. For the third session, it settled near the 20-day moving average. The consolidation looks constructive from a technical point of view, even if not particularly inspiring provided the 99.40 area holds. The daily momentum indicators are still trending higher, and the five-day moving average has crossed above the 20-day moving average for the first time since the whipsaw in late March/early April. The US reports March trade figures today. We already know from the advanced goods balance that as companies and individuals moved to avoid the tax hike tariffs, imports surged, and we know from the GDP estimate that some the imports into inventory. The trade shortfall stood at $68.55 bln in March 2024 and is expected to be near $137 bln in March 2025. There continues to be speculation about the semiconductor tariff announcement on Wednesday, and over the weekend, President Trump ordered 100% tariffs on movies produced abroad under his emergency powers for which Congress has yet moved to curtail. An effort last week was defeated in the Senate. In the ever-expanding national security umbrella, Trump is claiming movies are covered, though precisely how it is to be implemented is unclear. EURO: The long upper wicks of the euro's candlesticks in the last two sessions appear to reflect that North American trader faded the gains scored intrasession. The five-day moving average is slipping below the 20-day moving average for the first time since early April when it was establishing a foothold above $1.09. Key support is in the $1.1260-65 area. A break would lend credence to the topping pattern, which on conservative assumptions, could project toward $1.1050. The final services and composite April PMI were reported today, but the preliminary estimate is so good that the final reading is of little market significance. Still, both services and the composite PMI were better than initially reported. The services PMI stands at 50.1 (vs. 49.7 initially and 51.0 in March). The composite (production) is at 50.4 (vs 50.1 initially and 50.9 in March). It was 51.7 in April 2024. Recall that last week, the manufacturing PMI was revised to 49.0 from 48.7 initially and 48.6 in March. Separately, Germany's Merz failed to secure a majority in the first vote in the Bundestag, falling six votes shy in a secret ballot even though his coalition has 328 seats. It was a stunning (unprecedented) setback, but ultimately meaningless. If an absolute majority is not achieved in three consecutive votes, a relative majority is sufficient on the fourth vote. And this may explain the limited market impact. CNY: Mainland markets re-opened for the first time this month. In its absence, the offshore yuan has surged as have several currencies in the region. The Taiwanese dollar may have had the largest move but that does not mean it was the epicenter or cause. With the US perceived to be on high alert for the slightest action against its perceived interests, it is understandable why Taiwanese officials have not intervened more robustly. Hong Kong, which is rightfully less concerned, reported intervened in record size before the weekend and yesterday's holiday. Rather, we suggest the outsized move of the Taiwanese dollar reflects a large imbalance of positions. Taiwan's government indicated that in tariff talks with the US, exchange rates were not discussed, contrary to speculation. The dollar settled April slightly below CNH7.27 and traded slightly below CNH7.1850 yesterday, its lowest level since last November. Yet with the mainland back, more stable price action is likely. The PBOC set the dollar's reference rate at CNY7.2008 (CNY7.2014 on April 30). While it was the sixth consecutive low fix, the PBOC did not validate the sharp yuan advance seen in the offshore market. The dollar rose to CNH7.2352 before pulling back. Other currencies in the region have pulled back, but the Thai baht. There was additional intervention today, and Taiwan's central bank confirmed that it was buying dollars in April. The spark may have been speculation of US-China trade talks, wariness ahead of what some expect to be an announcement US semiconductor tariffs tomorrow. We are skeptical. The period for public commentary on the investigation of semiconductor imports expires at midnight tomorrow. JPY: The dollar recorded session lows yesterday in early North American turnover near JPY143.55. It had turned down after approaching JPY146 before the weekend. It reached nearly JPY144.30 in Asia Pacific turnover before it slipped through JPY143 in early European trade. A break of last Thursday's low, slightly below JPY142.90 would sour the technical tone. Japan's market remains closed today for a national holiday. A move back above JPY143.50 would help stabilize the tone. The final services and composite PMI will be released tomorrow. The highlight of the week is March labor earnings and household spending reports at the end of the week. GBP: Sterling traded on both sides of the pre-weekend range yesterday, but the settlement was neutral. Sterling is trading inside yesterday's range. A move above $1.3350 could spur a move toward $1.3375-$1.3400, but the market may be cautious ahead of Thursday's Bank of England meeting. A convincing break of $1.3235 would bolster the technical case that a top is in place. The BOE is widely expected to cut its base rate. The swaps market has about 92 bp of easing discounted between now and the end of the year. A quarter-point cut this week brings the base rate to 4.25%. The terminal rate is seen around 3.50%. CAD: The US dollar has straddled CAD1.38 for the past four sessions. Bloomberg shows it settling once below there and that was at CAD1.3799 on April 30. It is holding above CAD1.3800 so far today. Nearby resistance is around CAD1.3860. Above there, a band of resistance is in the CAD1.3875-CAD1.3900. Canada reports March goods trade balance today. Another monthly shortfall on par with February's C$1.5 bln deficit would offset January's C$3.1 bln surplus. Canada recorded a goods deficit of C$7.15 bln last year and a $612 mln deficit in 2023. Note that Canadian Prime Minister Carney will meet President Trump today. The humiliation of former Prime Minister Trudeau, with references to him being a governor, and allusions to Canada being the 51st state is unlikely to be repeated, but the damage is done. Reports suggest Canadians are boycotting US brands and have dramatically reduced summer vacation plans to the US. AUD: The Australian dollar went into the weekend election with a four-week rally in tow. Indeed, since the end of January, the Aussie has fallen only in three of the 13 weeks. The election results were not particularly surprising, but the Australian dollar rose to a new high for the year yesterday, slightly shy of $0.6500. A break above there could see $0.6550, which is also the (61.8%) retracement of decline since last October near $0.6940. On the other hand, the upward momentum has stalled and a close below $0.6435 today would suggest a topping pattern is still being formed. March building approvals fell for the second consecutive month in March and the 8.8% drop was well more than economists expected (~-1.5%). It is the first back-to-back decline since June-July 2023. March household spending unexpectedly fell by 0.3% to offset in full the February gains. It was the first decline since last September. MXN: The dollar appears to be breaking out of the consolidative phase against the Mexican peso. Last week's range was about MXN19.48-MXN19.70. Yesterday, greenback posted its highest close in two weeks (~MXN19.69), and set session highs list in the session. The dollar has risen to almost MXN19.75 today, its highest level since April 21. A close above MXN19.80 would lift the tone and target the MXN20.00-MXN20.05 area. Mexico's President Sheinbaum revealed that she rebuffed US efforts to use its military to chase cartel members in Mexico. The March CPI will be reported Thursday. The moderation of prices has stalled with both the headline and core inflation reading slightly inside the upper end of the target range (3% +/- 1%), but the central bank’s greater concern appears to have shifted toward weak growth prospects. The central bank meets on May 15 and there is much speculation about another 50 bp cut, matching the size of the two cuts earlier this year. Disclaimer

Overview: The dollar has begun the new week under pressure, though many financial centers are closed today. The upside pressure on Asia Pacific currencies remains notable. The offshore yuan, the Taiwanese dollar, and Malaysian ringgit, the Japanese yen, and Australian dollar are among the strongest currencies today. The ostensible trigger is speculation of US semiconductor tariffs to be announced Wednesday and continued speculation of a "Mar-a-Lago" currency agreement modeled as it were on the 1985 Plaza Accord that drove the dollar lower. Less fanciful is the idea that the US will seek local currency revaluation in trade talks. Many local markets will re-open tomorrow. The Australian dollar is a new five-month highs following a sharp victory for the ruling Labor Party. The equity markets that were open in the Asia Pacific region were mixed. Taiwan, Australia, and the Philippines markets fell. India and Singapore, New Zealand, and Indonesia advanced. European bourses are mixed, while the US index futures are off by 0.65%-0.90%. European benchmark yields are mostly around two basis points lower. With holidays in Tokyo and London, US cash Treasuries have not traded, but the futures show sharply lower yields. After falling 2.4% last week, gold is rebounding. It is up nearly 2% today to push back above $3300. OPEC+ agreement to boost output by another 411k barrels per day in a bid to punish the quota cheaters, sent the June WTI contract to almost $55 after having been turned back from $60 before the weekend. Still, after gapping lower, the contract has recovered to about $57.50 in the European morning. USD: The Dollar Index appeared to have broken out of a bottoming pattern last Thursday but its pullback before the weekend was disappointing and leaves a mixed technical picture in its wake. Still on balance, given the 1) still resilient labor market, 2) a likely hawkish hold by the Fed on Wednesday, and 3) the favorable momentum indicators, we favor a continued upside dollar correction. However, given the pullback in yields today as the equities and oil drop, the Dollar Index is consolidating inside its pre-weekend range. Last Friday's low was was near 99.40. Moreover, there are expectations for an announcement on semiconductor tariffs on Wednesday. Today's final April services and composite PMI are less important the services ISM, and even then, in the big picture, the survey data will have little impact on Wednesday's Fed decision or the next one in June. Soft survey data are par for the course, the key issue is whether it is spilling over into the real sector. The nonfarm payroll report suggests not so much so far and seem appropriately dismissive the heavily distorted distortions in Q1 GDP. EURO: The final April services and composite PMI typically do not draw much attention; the generalization is likely to hold tomorrow. The market is confident that the ECB will deliver another rate cut at its next meeting on June 5. More important for the immediate price action is the status of the technical topping pattern in the euro that seemed to have been undermined by the euro's recovery ahead of the weekend. Th euro is trading inside last Friday's range and is confined to a roughly $1.1295-$1.1350 range. The $1.1260 area must yield to confirm the topping pattern. A move above $1.1400-25 would negate it. CNY: Hopes that the US and China will soon de-escalate the effective embargo against each other, and the US dollar broadly heavier tone saw the greenback fall nearly 1% to below CNH7.21 before the weekend. It fell to its lowest level since last November. It finished below its lower Bollinger Band Follow-through selling saw the greenback slip below CNH7.119 earlier today before steadying. The lower Bollinger Band is around CNH7.2070 today. Recall that the dollar settled near CNY7.2715 before the May Day holiday, and the reference rate was last set at CNY7.2014. After surging before the weekend, several Asian emerging market currencies continues to rise today. The Taiwanese dollar rose for the sixth session and another large move (~2.4% after 3.7% on Friday), muted on the margins by dollar-buying intervention. The Malaysian ringgit rose 1.1% and after a similar gain before the weekend. It is also the fifth consecutive daily advance. Many financial centers are closed today in the region, including Tokyo, China and Hong Kong, South Korea, and Thailand. The first thing tomorrow, Caixin will report its April services and composite PMI. US semiconductor tariffs, and ideas of another Plaza-like agreement, coupled large dollar exposure by financial firms (think Taiwanese life insurers) and exporters appear to be the main considerations. We are skeptical that the US and China are about to enter talks. Neither side appears to have experienced sufficient pain to force a change in position. So far, judging by the seeming US pivots around extreme market turmoil, it appears the US is more sensitive to the pain than Beijing. The US has threatened fresh action against China for buying Iranian oil. If the narrative about container shipments from China is fair, Beijing will likely get a better deal from the US in a few weeks than now. JPY: Last week's dovish hold by the BOJ helped the dollar confirm a bottoming pattern against the yen. And it happened as the dollar appeared poised to correct higher from the technical perspective. From about 10-days before President Trump's second inauguration until April 22, the dollar fell nearly 12% against the yen. The move above the JPY144.00-50 on May 1 lent credence to the head and shoulders bottom pattern that projects toward JPY148.00-50. However, the dollar fell back to around JPY143.75 ahead of the weekend, after it was turned back from almost JPY146. It is holding above the pre-weekend low today, but a break below JPY143.40 may put it at risk. Meanwhile, Finance Minister Kato who brandished the implicit leverage of a large holder of US Treasuries indicated he would not be playing the card in trade negotiations. The signal was sent, just the same. GBP: UK markets are closed for a bank holiday today. Tomorrow's final services and composite PMI will not distract the market from Thursday's Bank of England meeting, which is widely understood to result in a quarter-point rate cut (to 4.25%). The BOE cut rates twice in 2024, beginning in August. After this week's cut, the swaps market is anticipating two and nearly three more cuts this year. If sterling recorded a double top (~$1.3425-$1.3445), the neckline is near $1.3235. It made a marginal new seven-session low today slightly below $1.3260 before stabilizing. A break of the neckline could signal a move toward $1.3035. Alternatively, if sterling were simply retracing last month's rally from almost $1.27 on April 7, the (38.2%) retracement is near $1.3165. CAD: The US dollar fell to a marginal new six-month low before the weekend near CAD1.3760. But as happened a few times last month, US dollar demand quickly emerged, and it settled above CAD1.3800. The CAD1.3860 offers the nearby cap. The swaps market is almost 50/50 for a rate cut at the June 4 Bank of Canada meeting. Today's April PMI is not nearly as important as the employment data at the end of the week. AUD: The Liberals electoral victory was consistent with the latest polls. As was the case in the recent Canadian election, the head of the opposition lost their own parliament seat as overtures to Trump or Trumpian politics were punished. Recall, Australia like others with a free-trade agreement with the US still faced a 10% across-the-board tariff. Unlike last year, when the incumbents in the high-income countries generally lost, the two G10 elections this year have seen them fare better. The Australian dollar made new five-month highs before the weekend near $0.6470 and it closed firmly, even if below the 200-day moving average (~$0.6460). It was lifted to almost $0.6490 today and is the strongest of the G10 currencies ahead of the North American open. The next target is in the $.6500-25 area. MXN: The central bank may find itself between weak growth impulses, even though the economy eked out growth in Q1 (helped by the agricultural sector), and inflation, which may be flirting the upper end of the target range. The market has been favoring a 50 bp cut (to 8.50%) but should the CPI (Thursday) surprise to the upside, it may have second thoughts. Meanwhile, the dollar has forged a floor around a little below MXN19.50. It is holding in a narrow range so far today, mostly between MXN19.55 and MXN19.63. A move above MXN19.75 could signal a breakout, and an initial and conservative estimate is around MXN20.00, which is also near the 200-day moving average. Disclaimer

President Trump says there are trade talks with China. Beijing denies it. Around the time the US reports that the world's largest economy contracted slightly in Q1 (0.3% annualized), US Treasury Secretary Bessent said that the effective embargo was shutting down the China's economy. The week ended with China's Commerce Ministry statement that it was evaluating US overtures for trade talks, which implies the US caved, as the psych-ops continue. Trump and Bessent's call for lower interest rates will get little attention for the Federal Reserve. With a decent jobs report in hand, the Fed has no incentive to either cut rates or signal that it is preparing to cut. The uncertainty remains thick, but not too thick for the Bank of England, for which the market fully expects a quarter-point cut at the upcoming meeting. Sweden and Norway's central banks hold policy meetings and both will standpat. The central bank of Brazil meets and after three consecutive 100 bp hikes, a half-point hike is expected, which would bring the Selic rate to 14.50%. Last Thursday's price action seemed to lend support to the idea that the dollar had forged a bottom and was set to recover. However, the lack of follow-through despite the employment report seemed to undermine the constructive dollar outlook. Still, given the backing up of US rates, pushing out the next cut in Q3 from Q2, resilient labor market, and the position of the momentum indicators, we expect the dollar's upside correction to continue. US Drivers: The seemingly erratic US trade policy sows confusion and uncertainty. President Trump's "Art of the Deal" includes "pivoting" when your adversary does not accede to the initial bold demands. He does not use the word retreat, but whether it was about the firing of Federal Reserve Chair Powell or "playing nice" with China, many investors see it as such. China says it will consider US overtures for trade talks, but we suspect this is part of the feint and parry taking place, which in this instance essentially accuses the US of blinking first. These incentives some to try to wait out a further scaling back of some tariff threats. For other businesses, the uncertainty paralyzes capex and other strategic decisions. Data: With Q1 GDP behind us, recognizably massively distorted, the focus is on Q2 data, beginning with last week's employment data. The April 177k rise in nonfarm payroll growth, which was 37k more than the median in Bloomberg's survey, while the February and March jobs were revised down by 58k. Still, the general take away is that the US economy is still in what Fed Chair Powell calls a "good place." The market slashed the odds of a June rate cut to about 40% from 70% a week ago. The ISM services report this week has downside risks after the weaker preliminary services PMI (51.4 vs. 54.4) regional Fed surveys. Yet, the Fed and Treasury Secretary Bessent seem to be dismissive of soft survey data. The highlight of the week is the FOMC meeting, which concludes on May 7. While the Fed is highly unlikely to cut rates, the market will focus on forward guidance, which is likely to be sparse if anything given the uncertainty and Prices: The US and China have raised tariffs to levels that are an effective mutual embargo. Moreover, the agriculture and energy the US previously supplied have been replaced by other countries, including Brazil and Canada. And, despite the drying up of the container traffic on the west coast gradually crossing the country like a shadow, the greenback appeared to have begun an upside correction in earnest. However, the setback ahead of the weekend despite a constructive jobs report puts it at risk. Still, the Dollar Index settled slightly above 100.00. A break of the 98.85 area weakens the technical tone. EMU Drivers: The euro is a beneficiary of the US dollar's decline. It is the un-cola to the dollar's cola. We suspect some of the euro's gains are the unwinding dollar positions and the increase in dollar hedges. The euro's 14% rally from the early February lows left momentum indicators stretched, and a correction appeared to have been triggered by Trump's "pivot" on Powell and greater confidence that a good part of US tariff threat is bluster and negotiation tactic. Still, at the very least Europe should be prepared for 10% across the board tariff, in addition to some sectoral tariffs. The EU will reportedly present its first trade proposals in the week ahead. Data: The March PPI and retail sales are not important given last week's Q1 GDP estimate. Germany reports March factory orders and industrial output figures. In March, the manufacturing PMI rose to 48.3, its best level since August 2022, though it pulled back in April. Prices: The euro has had a strong run, from almost $1.0140 in early February to nearly $1.1575 on April 21. Just when it looked like a correction was unfolding, buyers emerged near $1.1265 last Thursday, and despite the rise in US rates, lifted the euro new to highs after the stronger-than-expected US jobs data near $1.1380. Resistance is seen in the $1.1400-25 area. A break of the $1.1260 would reinvigorate the downside correction that could extend two cents. China Drivers: Beijing has defied expectations of a significant devaluation to offset the US tariffs. It has maintained stability against the dollar, which we recognize as strategic not simply tactical. It denies the US of competitive advantage against it as the dollar weakens. Indeed, the stability against the dollar means that it has depreciated against most other currencies. The key issue now is how much of the loss of US demand and other countries, where it has outsourced production, will be made up by boosting domestic demand and how much will deflect the exports to other markets. The more it does with the former, the less antagonism it will draw for relying on the latter. Data: April’s trade data will draw attention. The US tariffs on China (and others) will likely be evident after efforts to front-run them may have helped bolster March exports. At the same time, observers are remiss if they do not recognize that China is rejecting US goods (canceling Boeing orders), energy, and a variety of agriculture products, including grains and meat. It has secured alternative supplies, and while this will not boost imports in aggregate, the diversification may earn goodwill from other countries. Aggregate lending in Q1 25 was above 18.5% above Q1 24 levels and in April 2024, lending slowed slightly, which was unusual. The IMF revised down its projection for this year's growth to 4.0% from 4.5%. Prices: The dollar fell sharply against the offshore yuan ahead of the weekend as the greenback sold off broadly. It slipped briefly below CNH7.21, its lowest level since last November, and it settled near the 200-day moving average (~CNH7.2225). Ahead of the holiday, the dollar closed near CNY7.2715, warning of a possibly significant adjustment when the onshore market re-opens on Tuesday. Japan Drivers: What appears to be the unwinding of structural short yen position, perhaps as part of leveraged trade where borrowed yen is used to buy other higher yielding or more volatile assets has seen the correlation of changes in the exchange rate and the US 10-year yield continues to break down. The 30-day correlation was hovering a little above 0.70 earlier this year and now is below 0.15, the lowest since early 2023. On the other hand, the 30-day correlation with changes in the Dollar Index is near 0.88, among the strongest in the past decade. Data: March labor earnings and household spending are the highlights. Adjusted for inflation, Japanese labor earnings continue to fall on a year-over-year basis, and this is one of the factors that limit consumption. Also, there are, arguably, demographic (aging population) and cultural considerations. Japan strikes us to be a better candidate than the US for the stagflation scenario. Last week's BOJ meeting resulted in a cut in this fiscal year’s growth forecast from 1.1% to 0.5%, which is in line with the new IMF's World Economic Outlook that put it at 0.6%. The core CPI forecast was shaved to 2.2% from 2.4%. Prices: The dollar appeared to have carved out a technical bottom pattern against the yen. It projected toward JPY148. The greenback reached almost JPY146 before the US jobs report and then was sold to about JPY143.75. Buyers emerged and sent the dollar back a little above JPY145 late in the North American session, arguably helped by the sharp rise in US rates while the swaps market downgraded the chances of a BOJ hike this year. UK Drivers: Sterling appears to benefit more from the US dollar's weakness than optimism about the UK's economic performance. Also, the delay in the reciprocal tariffs that hit the EU harder than the UK keeps the playing field more level until July. Data: The highlight of the week is the Bank of England meeting on May 8. The market is confident that it will deliver a quarter-point rate cut. The rate cut is fully discounted in the swaps market. The BOE will update its forecast. Growth was seen easing to 0.8% this year from 1.1% last year. It projected growth in 2026 and 2027 at 1.5%. Inflation was forecast to accelerate from 2.5% in 2024 to 3.5% this year and then moderate to 2.5% (2026) and then 2.0% (2027). The swaps market has almost 95 bp of cuts priced in for this year. That is three quarter-point cuts fully expected and an 80% chance of a fourth. As recently as late March, not even two cuts were discounted. Prices: Sterling set a new three-year high last week near $1.3445 before falling into the $1.3260-65 area in the last two sessions, which seemed to attract new buyers. It looked as if sterling's rally from last month's low near $1.2710 was over, and a possible double top had formed. However, there was not follow-through selling ahead of the weekend. Still, sterling settled near session lows. A break of $1.3235 is needed for confirmation that could lead to another couple of cents decline. Canada Drivers: Mark Carney has secured his own popular mandate as Canada's prime minister. He brings a gravitas to the office and will help Canada finally diversify from the US. Closer relations with Europe are the obvious steps. China is encouraging the fissure and is buying a record amount of oil from Canada as it reduces energy imports from the US. Data: There are three high-frequency economic reports due this week. The March trade data is probably the least important. It is dated and may be skewed by the activity to build inventories in the US ahead of the tariff bite. The April IVEY may reflect the uncertainty but also the anxiety of Canadian businesses. Still the consumer boycott of US brands and collapse of forward tourist bookings may help underpin domestic demand. The April employment data at the end of the week is the most important. Canada's labor market has weakened in Q1 25, and this is before the full impact of the US tariffs has been felt. Canada created an average of almost 15k jobs a month in Q1 25, about half of the Q1 24 average. More significantly, Canada lost 82k full-time posts in the February-March, the worst since the early days of Covid. In Q1 25, it lost more full-time positions than in gained in Q1 24. Still, the swaps market has downgraded the likelihood of a rate cut at the June central bank meeting, but the CPI readings and the evolution of the financial conditions may be more impactful. Prices: The US dollar has been consolidating for around three weeks mostly between CAD1.3800 and CAD1.3900. The lower end was taken out last week. A new, nearly seven-month low was set ahead of the weekend near CAD1.3765 but the greenback closed above $1.38. A move above CAD1.3860 would bolster the case for a a technical correction that could extend toward CAD1.40. Australia Drivers: Prime Minister Albanese is expected to lead the Labor to a second consecutive victory, but this appears to have been discounted for some time. Economic activity has softened, and inflation is moderating. The central bank is expected to accelerate its easing cycle. Australia faces a key challenge as the US pushes countries to choose between it and China. The US and Australia have a free-trade agreement that went into effect in 2005, and Australia is integrated into the US global security system, including the intelligence sharing of "Five-Eyes" and the US-UK pact to deliver nuclear submarines. Meanwhile, optimism about the possibility of US-China trade talks and the broad weakness in the greenback ahead of the weekend fueled strong currency gains ahead of the weekend. Data: March household spending is the highlight of the light economic calendar in the week ahead. Australian household went on a shopping spree in Q4 24, with the largest rise in household spending the most since Q3 23. Spending appears to have slowed in Q1 25 but still relatively strong. We suspect this and the still firm underlying core quarterly inflation readings will spur the central bank into a 25 bp cut rather than a half-point cut when it meets later this month, for which there has been some speculation. Prices: The Australian dollar recovered from the mid-week pullback (~$0.6355) to trade at new five-month highs ahead of the weekend near $0.6470. It traded above the 200-day moving average (~$0.6460) for the first time since last November. It settled near $0.6435. The nearby technical objective is around $0.6500, and the $0.6550 area is the (61.8%) retracement of the loss from last October's peak near $0.6940. It takes a break of the $0.6350 area to boost the chances of a downside correction rather than a choppy sideways consolidation. Mexico Drivers: The peso has been unexpectedly resilient in the face of the volatility unleashed by the uncertainty over US trade policy. It has risen almost 6.0% against the dollar this year, in addition to the interest rate pick-up. It has generated a 9.5% return to dollar investors. That said, the peso still trades like a risk currency. On a rolling 30-day basis, the correlation between changes in the exchange rate and the S&P 500 is nearly 0.65, which is the highest since late 2023. Data: Mexico reports April CPI and it looks to have stayed, even in barely, within the target of 3% +/- 1%. Barring a surprise and given the peso's resilience, the central bank is expected to deliver another 50 bp cut when it meets on May 15 (which would bring the overnight target rate to 8.5%). It does not draw much attention from the markets, but Mexico will also report April auto production and exports. In March, Mexico exported around 87% of its auto production. China by contrast exports a little more than 20% of its auto output and is routinely criticized for excess capacity. There are three basic economic development strategies: import substitution, export-oriented, and entrepot (commercial and financial center, e.g., Singapore and Hong Kong). The entrepot model offers limited potential, especially for large countries and those fairly close to other financial/commercial centers. Mexico was forced into the import-substitution strategy by the disruption of the world wars. And although it was initially preferred by the economists and multilateral institutions, the Asian export-oriented approach delivered superior results. Nearly by definition, the export-oriented strategy requires capacity in excess of domestic demand. Prices: The US dollar has been trading in a fairly narrow range in the last couple of weeks around MXN19.60. Given the momentum indicators (turning higher), our bias has been for this to be a base as opposed to a nesting pattern before the next leg down. The dollar rose for the first time in four weeks. It may require a move above MXN19.75 to begin forcing out some of the weak peso longs. Disclaimer