FOREX: Boosted Risk Places USD on Back Foot, SEK Outperforms

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EXECUTIVE SUMMARY

• April’s FOMC meeting communications will reiterate the Committee’s broadly shared view that policy is well-positioned and the next move is not urgent, particularly because the Iran war-related energy shock and associated uncertainty complicate the outlook.
• Data since the last FOMC meeting have largely supported a wait-and-see approach, on balance showing initial resilience to the energy price shock seen in March (especially in the labor market) although surveys warn higher spillover to non-energy prices could be in the pipeline.
• Where Committee views have started to diverge most is whether and how quickly the FOMC could signal openness to removing its explicit easing bias.
• So while a Fed funds rate hold at 3.50-3.75% at this meeting is universally expected, with no new set of economic projections, attention will be paid to whether the easing bias in the Statement guidance is amended in favor of a two-sided approach to future rate moves.
• Either way, rate guidance may soon be eliminated altogether. This is likely to be Chair Powell’s last meeting before his term ends in mid-May, after which Kevin Warsh is set to assume the chairmanship.
• In his Senate confirmation hearing, Warsh said he doesn’t believe in forward guidance, and signaled that he would seek major changes to not just Fed communications practices but several key areas of policy.
• Warsh is broadly expected by markets and analysts to steer the FOMC’s rate lean in a more dovish direction, but his ability and indeed willingness to do so are not entirely clear.
• There’s not much Powell can say at the press conference about the outlook that differs from what he said in mid-March, given the ongoing impact of the war distorting economic signals, though it’s possible that if the Statement doesn’t shift to a two-way rate guidance, he may echo the recent Minutes in a hawkish fashion in suggesting that the Committee is leaning increasingly to that conclusion.

MNI’s separate preview of sell-side analyst summaries to follow on Monday April 27

• RES 4: 1.4051 High Nov 28 
• RES 3: 1.4015 High Dec 2 ‘25
• RES 2: 1.3985 76.4% retracement of the Nov 5 ‘25 - Jan 30 bear leg
• RES 1: 1.3878/3967 High Apr 13 / High Mar 31 and the bull trigger
• PRICE: 1.3687 @ 15:47 BST Apr 24
• SUP 1: 1.3631 Low Apr 21
• SUP 2: 1.3630 76.4% retracement of the Mar 9 - 31 bull leg
• SUP 3: 1.3526 Low Mar 9
• SUP 4: 1.3457 2.0% 10-dma envelope

The S/T bear cycle in USDCAD remains in play, however the weakness has steadied into the Thursday close, with the pair recovery well off 1.3631. The clearance of both the 50-day EMA as well as 1.3694, the 61.8% retracement of the Mar 9 - 31 bull leg, opens next support into 1.3630. For bulls, a reversal higher would refocus attention on 1.3967, the Mar 31 high and bull trigger.

The FOMC decision will command the most attention but there are some notable data releases skewed towards the end of the week. 

• Thursday sees the first Q1 GDP release after a lacklustre Q4, with the Atlanta Fed’s GDPNow looking for a subdued 1.2% for real GDP growth vs the current early consensus of 2.1% on Bloomberg after 0.5% in Q4.
• Released at the same time, the March PCE report will give a better gauge of consumer spending in its first month with markedly higher gasoline prices under the Iran war. March retail sales were stronger than expected and with upward revisions as well but were likely soft in real terms.
• On the inflation side, we have seen core PCE estimates center around 0.26% M/M for March after three strong months averaging 0.36% but there's a wider than usual range this time owing to uncertainty over the legal services source.
• The Employment Cost Index for Q1 will also give its useful, more comprehensive update on wage pressures after monthly AHE data hit fresh post-2021 lows on a Y/Y basis in March.
• The MNI Chicago PMI for April will then give an update on manufacturing activity and price pressures, with the flash PMIs from S&P Global earlier this week showing manufacturing activity hit a 47-month high with a boost from “stock building in the face of concerns over supply availability and price hikes." Prices paid will of course be watched, especially after the flash PMI noted “input cost inflation accelerated and supply delays worsened at a pace not seen since mid-2022.”
• This MNI Chicago PMI will provide a final update before the April ISM manufacturing report on Friday.