High-Conviction FX Trade Setups — April 24

As April draws to a close, FX markets remain in a state of elevated crosswinds, shaped by diverging central bank policies, softening global growth data, and residual risk appetite driven by easing geopolitical tensions. This week’s FX positioning reflects a decisive shift back toward monetary policy divergence, with the Federal Reserve’s credibility under renewed scrutiny, while the Bank of Japan inches closer to signaling potential tightening. Meanwhile, the Eurozone’s economic fragility is re-emerging, the UK is buoyed by trade optimism, and the commodity bloc—particularly NZD—is benefiting from a stabilizing risk environment.

The dominant driver across G10 FX this week is the Fed-BoJ policy divergence. While the Fed has attempted to reassert its “higher-for-longer” stance, markets remain unconvinced. Powell’s remarks earlier this week were perceived as damage control following a soft CPI and a dovish FOMC tone, but with long-term yields stalling and USD rallies fading quickly, conviction in further hikes is waning. In contrast, Japan’s inflation momentum remains sticky, and BoJ commentary is increasingly hawkish. The April Tokyo CPI due next week could be pivotal, but markets are already rotating toward JPY strength amid speculation of a June BoJ rate move. This underpins short USD/JPY and EUR/JPY as high-conviction directional plays.

Risk sentiment, while generally positive, is now bifurcated between regions. Equity markets remain firm globally, but the underperformance of European PMIs—particularly in Germany—has sharply downgraded ECB expectations. The ECB is now fully priced for a June cut, with terminal rate expectations falling below 3.25%. This divergence against the Bank of England, where traders remain more cautious despite soft UK inflation, supports EUR/GBP downside. UK assets also continue to benefit from reduced Brexit-related friction and optimism over EU trade normalization, bolstering GBP in both EUR and JPY crosses.

Technically, the EUR is under pressure across the board. EUR/USD failed to reclaim the 1.1430 resistance area, rejecting cleanly after the latest Eurozone PMI miss. EUR/JPY is testing key trendline support, and EUR/GBP looks poised to revisit the 0.8500 handle. This is a reflection of both deteriorating European data and waning confidence in the EUR as a carry or reflation trade. ECB President Lagarde’s recent attempts to temper cut expectations have fallen flat amid growing evidence of German industrial stagnation.

In contrast, NZD/USD remains a standout long candidate. Despite a more cautious RBNZ, the kiwi continues to benefit from a technically constructive ascending channel, a recovering China outlook, and commodity inflows. Risk-sensitive pairs like AUD and NZD tend to outperform during periods of global equity stability, and NZD has been outperforming AUD, suggesting idiosyncratic strength. A breakout above 0.6038 could open the door to a medium-term push toward the 0.62 handle.

Safe-haven dynamics are also playing out in USD/CHF, where USD downside persists despite a brief bounce on Powell’s rhetoric. CHF remains firm on limited SNB intervention and modest real yield appeal. Technicals show a consistent rejection under the 100-day EMA, and downside momentum remains intact toward multi-month lows near 0.8040.

Among the more nuanced pairs is GBP/JPY, where policy divergence favors JPY strength but GBP remains resilient due to positive trade sentiment and firm wage growth. While momentum indicators lean toward a short bias, the setup carries slightly lower conviction due to competing tailwinds.