CIBC

FX Flows

FX price action was rather similar to yesterday, demand for $YEN and the YEN crosses lifted several currency pairs higher. Bit of struggle when $YEN broke above 129.00 and printed 129.15 very quickly, think there were some stops triggered. We do suspect that the firmer US$ could have caused by comments from BoJ Wakatabe that came out first in Japanese. Meanwhile, equity and UST yields have kept the pair firm. First resistance 129.34 then 129.77. Option strikes maturing today are far 127.50/55.

Australia’s first quarter GDP came out slightly better than expected, grew 0.8% over the quarter and 3.3% over the year. Our macro strategist Patrick said attributed the data to yesterday’s strong government spending and jump in business inventories. Data failed to boost AU$, it drifted lower on back of US$ strength. There was also small selling of €AU$. Immediate resistance around 0.7200-05, better at 0.7266. There are total of A$1.12bn worth of 0.7171 strikes due today.

Forget the ECB speakers, EUR weakened against US$ and AU$. One FX commentator said there are EUR$ bids beneath 1.0710, this was after the 1.0708 was established. I seem to agree about the orders and I do not think they are linked to option gamma play but from real money accounts. Leveraged names have extended their long positions and minimal change from IMM names. Break of 1.0640 could change the story. Topside resistance just ahead of 1.0800.

Not much action for $CAD, even though common knowledge BoC will raise rates by 50 bps and to sound hawkish. Overnight reports of some OPEC members exploring the idea of exempting Russia from an oil-supply deal. However, Russian Foreign Minister Lavrov: Met with Saudi counterpart and both praised level of cooperation in OPEC+. Take note of near $1bn of 1.2680 strikes due on Friday.

Big day for Canada, actually not really. Everyone expects the BoC to raise rates by 50 bps. Our economics team said the BoC will have to sound hawkish, after all a non-standard 50 bps hike doesn’t come every day, particularly back-to-back. Any admission that the housing market is already responding to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reasons why we think that, after another 50 bps hike in July, the pace of hikes will slow down, and the Bank won’t need to take rates any higher than the 2.5% mid-point of its neutral band to achieve 2% inflation sometime in 2023.

Citi

European Open

A deck shuffle after month-end flows appears in play during the first trading day of June as cross-assets moves don’t appear to run along a single thread. USD firmed as Treasury yields drift higher, though US stocks futures are a touch firmer on the day and USDCNH climbs. USDJPY risk reversals continue to gain attention in option space. THB is the worst performer in Asia with current account worsening and fast money chasing the move higher, while TWD unwinds part of the blistering two-day rally.

Looking ahead, we note that Fed quantitative tightening is due to commence from June 1 at a monthly pace of USD30bn in Treasuries and USD17.5bn of agency debt and MBS. The US also sees ISM manufacturing data and Fedspeak. EUR will see a series of ECB speak, although given the topics, headline risk remains low. NOK sees DNB/NIMA PMI Manufacturing, while GBP listens to BoE’s Hauser. CAD sees a rate decision today where Citi Economics expects a 50bps hike to 1.5%. Over in EM, we see a flurry of PMI prints. BRL will see trade balance prints, HKD a retail sales print and PEN will see CPI figures.