The FX Trader: Heavy CB calendar next week, including Powell’s swan song.

The latest

Key levels soon for some USD pairs as rebounding crude oil and US treasury yields have been driving a USD bounceback all week. The bearish case for the US dollar, outside of the rangebound USDJPY, remains intact but the USD rally this week is taking key pairs into pivotal territory where fresh sellers need to come in to avoid a reversal scenario. Crude oil prices and US treasury yields have ratcheted back higher and the headlines from the Middle East are worse than worrisome, both USD supportive, while the energy is tepid for the overall USD bounce as risk sentiment is in la-la land amidst the runaway enthusiasm for global equities – especially AI-linked names that are on fire. Big earnings for Mag7 are up next week.

NZD bounce fades despite yield support for the currency. NZ might be one of first victims if Hormuz Strait closure continues. The New Zealand dollar got a smart boost early this week on a hot Q1 CPI print that drove a strong surge in short NZ rates as the RBNZ is seen changing its tune and catching up with global peers in eyeing rate hikes. And yet, while the rate move has held, the NZD rally has faded. This is a sign around the edges that global energy supply concerns are weighing on the risk sentiment axis within currencies. The NZ economy is at huge risk within weeks if fuel supplies tighten further. Diesel is the worst pinch-point, with some estimating only three weeks of onshore supplies. Fishing fleets are already vastly reducing activities and transport/logistics and the large agriculture sector there would also feel the pinch if shortages worsen.

CHF techs interesting over next days to couple of weeks. The Swiss Franc was initially a safe haven on the breakout of war in Iran as EURCHF pushed all the way to 0.9000 in the first two weeks of the conflict, clearly raising official concern and pushback. But the rally since the lows seemed due to market forces and pre-dated the comeback in global equities. Why? A bit difficult to root out the causes, but I suspect the weakness in gold has played a role as well as Switzerland’s very low yields and a dark horse factor, which could be the risk of capital outflows from Switzerland from the wealthy that hold assets in Switzerland, but are based in the Middle East and Asia. Whatever the case, EURCHF ramped back to within shouting distance of its 200-day moving averagein late March - keeping an eye on the highs of that run if the rally resumes. And the USDCHF situation is very interesting, as I cover below.

Five G10 central bank meetings next week: Powell’s Swan Song at the FOMC? and guidance on incoming hikes from BoJ, BoE and ECB

• Bank of Japan (Tuesday): This meeting has the most potential to shock. Market observers watching closely for how Ueda and company guide for the June meeting, (currently priced at 60% likely to produce a hike), with additional huge focus on observations on the currency as we bump up close to the critical 160.00 level in USDJPY. The Bank’s best approach for effective intervention would be to shock the market with a rate hike, but this isn’t Governor Ueda’s usual style. The BoJ did shock on the hawkish side back in July of 2024 with a larger than anticipated hike (with a titanic impact back then, it should be noted.).
• Bank of Canada (Wednesday): Little drama expected here, with Bank of Canada not seen moving off its 2.25% policy rate until possibly September or October – watching for wording around any urgency on inflation, but Canada is quite well insulated from the price and especially supply-shocks of other economies from crisis of global supplies.
• FOMC (Wednesday): No expectations of drama. This should be, and most likely will be Powell’s last meeting as Fed Chair, with the “most likely” needed in that sentence because of the outside risk that Kevin Warsh is not approved in time for the June FOMC meeting. Powell’s term as Fed Chair ends May 15. The forward expectations for Fed rates are entirely flat through the end of this year and we are awaiting the transition to a new era at the Fed under Chair Warsh and how he will coordinate policy with Treasury Secretary Bessent and vice versa. Geopolitics, risk sentiment and incoming US data the week after will likely weigh more heavily than this meeting.
• ECB (Thursday): ECB members generally guiding for rate tightening as long as energy prices threaten higher inflation – market will be looking for level of urgency as well as offsetting language around the concerns for the growth outlook that suggest a reluctant hike cycle. With a June ECB hike about 80% priced and two hikes more than fully priced through the September meeting, the hawkish bar feels a bit high.
• Bank of England: Ditto on the ECB observations, although with no pressure on sterling, the BoE ought to keep its urgency low - two fully 25-bp hikes are priced for the three Jun-Sep BoE meetings – that’s the baseline. It’s a fractious MPC and we may see hawkish dissents wanting an immediate hike.

Chart focus: USDCHF
USDCHF is in rather neutral territory here technically, though it is structurally rather USD bullish after having launched the full reversal in February and March of the sell-off sequence into sub-0.7700 levels. The throwback sell-off caught support at the classic 61.8% Fibo retracement, establishing an important support line for the bullish case. From here, that key local low is the bull-bear line (drop below and technical outlook clouds or turns bearish locally), while a rally that starts to poke back above 0.8000 again in the coming days/weeks starts to complete an inverse head-and-shoulders formation with the neckline at 0.8042, supposedly pointing to a technical target north of 0.8450. Let’s see.