In markets with reduced activity due to the holiday, the dollar is generally weaker as anticipation builds for North American leadership. Given the recent increase in the yen, and contrary to our prior expectations, it seems that Japanese officials took significant action yesterday. The intervention could have been approximately $34.5 billion (~JPY5.4 trillion), which, if correct, would exceed the typical scale of intervention operations anticipated for 2024. Enhanced confirmation is expected to be accessible by the conclusion of next week. This week, five G10 central banks convened. The derivatives market recalibrated its expectations for the Bank of Canada’s trajectory this year by 22 basis points. Two hikes are now completely factored in. The implied year-end target rate for the European Central Bank saw a 19 basis point increase, with three hikes now fully priced in. The Bank of England’s hawkish stance resulted in the anticipated year-end base rate increase of 15 basis points to 4.42%, suggesting two additional hikes and approximately a 75% probability of a third hike.

The Federal Reserve stands as the sole significant central bank anticipated to implement rate cuts; however, the futures market currently reflects just over a basis point discounted, a decrease from almost a dozen basis points observed at the end of the previous week. The significant rally in the yen had a notable impact on the dollar across the board yesterday. The euro reached its lowest point prior to the yen. It is already recovering from approximately $1.1655, a slightly new three-week low, when Japanese officials initiated a significant short squeeze of the yen. The euro experienced an upward trend during the North American morning session, but encountered resistance around $1.1735. It closed above Wednesday’s high (~$1.1720), indicating a potentially bullish key reversal. In holiday-thinned markets, the euro’s appreciation was extended to nearly $1.1750 today. The peak for the week, noted on Monday, was $1.1755. Initial support could be found in the $1.1710-20 range at this time. The price movement of the yen yesterday is likely to leave a lasting impression. The market has been driving the dollar upward in relation to the yen. It had already risen above JPY160 prior to the hawkish hold by the FOMC. The dollar was positioned just above JPY160.70 as Japanese officials issued a clear warning regarding potential intervention.

Initial assessments indicate that the intervention could be approximately $34.5 billion, with confirmation expected by the end of next week. The dollar declined to nearly JPY155.55 during early North American trading. The asset reached a slight new low, approaching JPY155.50. Following the low noted late in the Asia Pacific session, the dollar has remained below approximately JPY156.75, despite having approached nearly JPY157.35 earlier in the session. The dollar experienced a significant downside reversal in its performance against the yen. However, the action appears to be disproportionate. The greenback not only fell below its lower Bollinger Band (two standard deviations from the 20-day moving average) but also settled more than three standard deviations lower. The current level of the lower Bollinger Band is approximately JPY157.20. Sterling demonstrated a robust recovery following a decline to a five-day low of approximately $1.3455. It achieved a two-month peak exceeding $1.3600 during the North American afternoon session. The region previously limited sterling’s movement earlier this month and aligns with the (61.8%) retracement of the decline from this year’s peak in late January around $1.3870. It extended the gains to nearly $1.3625 today, although it is slightly better offered in light European turnover. The subsequent notable chart zone is in the vicinity of $1.3635-50. Initial support is identified in the $1.3570-80 range.

The Canadian dollar experienced an increase of approximately 0.70% yesterday, marking its most significant gain since early March. The U.S. dollar has positioned itself beneath CAD1.3600 for the first occasion since March 11. Today, there was limited follow-through selling, resulting in a movement to CAD1.3570. The trendline connecting the lows of January, February, and March is showing signs of deterioration. A decisive breach of that zone may indicate a challenge to the March low (~CAD1.3525). The lower Bollinger Band is situated near CAD1.3535. Following a period of frustration at $0.7200, the Australian dollar managed to rise above this level yesterday amid a risk-on sentiment and a generally stronger greenback environment. Today, it achieved a slight new high by a few hundredths of a cent but has since returned to a more offered position. Initial support is around 0.7170-80. The Australian dollar remained just above $0.7100 on Wednesday, marking a two-week low. The company achieved its peak settlement since June 2022. In April, the intraday high reached just above $0.7220.