010519 Fed M

US-China trade talks now set. FOMC and BoE ahead.

Forex 4 minutes to read
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John J. Hardy

Global Head of Macro Strategy

Summary:  The latest US dollar sell-off has been partially arrested by news of impending US-China trade talks in Switzerland. Elsewhere, the euro recovered from the brief German political chaos as Merz required two votes to be elected Chancellor. FOMC and BoE up next.


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This is a new brief update format I will occasionally use just to flag key notes for the day ahead.

US-China talks set for later this week in Switzerland. This is the first time the two sides have agreed to negotiations and the news was greeted positively overnight for the US dollar, although the rally back-up was relatively modest, suggesting some kind of thaw/détente is already priced in. The move to formal talks together with a raft of easing measures from the PBOC overnight suggests China is keen to move talks forward, seeming to abandon its tough stance that it would only sit down to talks if the US lifted the tariffs.

FOMC rate decision/Fed presser tonight. No rate cut is priced for tonight, and about 30% odds for a cut are priced for the June 18 meeting, so the market will look closely at hints of rhetoric shift. I lean with medium-low conviction for the Fed to indicate a slightly dovish tilt, but with data dependency (setting up high reactivity to incoming US data like jobless claims, etc.) But headline risks from the US-China trade talks will prove more dominant later this week. I wish Powell would admit that the old forward guidance policy using the economic and “dot plot” rate projections only feeds the Fed’s lack of credibility and would scrap the whole business, but that is unlikely.

BoE tomorrow. A 25-bp cut is priced for today, but forward guidance hotly anticipated, as the June meeting is priced near 50/50 for an additional move. I lean for a dovish surprise, with EURGBP staging an interesting comeback yesterday after the fuss over Merz failing and then passing his vote.

Chart: EURUSD
EURUSD has consistently found support every time it has dropped below 1.1300 and has remained quite stable here despite the unprecedented German Bundestag stumble yesterday in failing to vote Merz to the Chancellorship on the first try before he later passed the vote. Then the news of the US-China talks overnight only mashed the rally back 50 pips before the price action rebounded higher. It feels like buyers are impatient on the dips. The FOMC meeting today is a key event risk to get behind this market, as are the first headlines from the US-China trade talks (and US-EU talks negotiations for that matter). A close above the 1.1400-1.1425 zone could set the focus back higher for the next objective above the 1.1573 top, with no real chart points above until the psychological round level of 1.2000.

07_05_2025_EURUSD
Source: Saxo

FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.

The CNH momentum has petered out further but CNH direction remains a focus now that the rubber is hitting the road in US-China trade negotiations later this week. The only strong directional signal in the major currencies remains the US dollar down and, if we include precious metals, gold up.

07_05_2025_FXBoard_Main
Source: Bloomberg and Saxo Group

Table: NEW FX Board Trend Scoreboard for individual pairs.

The only new “trends” (note that the “Age” is the number of days the new trend has registered in the model) in the major FX pairs are in USDCNH and in a couple of the JPY crosses, which we have suggested are low quality indications for now. Do note the EUR rally struggling near the breaking point versus sterling and now in EURJPY as well.

07_05_2025_FXBoard_Individuals
Source: Bloomberg and Saxo Group

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