FOMC Hawks send Risky Assets on the Offer
US equities traded higher ahead of the FOMC, but was hammered following the minutes from the April meeting, which revealed a more hawkish tone than expected. This has reignited rate speculation that the Fed potentially will have a rate increase installed for the June meeting (against September), assuming that the US will continue show a constructive macro outlook. Futures prices now indicate a 32% chance of a June hike against 12% before the FOMC minutes. The US Dollar rose across the board on back of rising US yields, which also triggered a sell-off in commodities (being priced in USD). EURUSD closed below the 50-day SMA for the first time since March and has so far found support at the 38.2% Fibo retracement in recent wave just above the 1.12-figure.
Overnight, the risk-off mode followed in Asia, less China, despite better than Japanese Core Machinery Orders. Australian employment came out better than expected, but the reaction was relatively muted. AUDUSD has been on the offer since the dovish tone from the RBA and the pair has this morning tested the 0.72-figure (from 0.76-area before the RBA two weeks ago).
Today, UK figures will be in focus from the morning. Weaker than expected inflation figures on Wednesday were offset by polls showing a comfortable lead to the “stay” side, which triggered a 2 figure move in GBPUSD. UK Retail Sales for April will be out at 103CET, where consensus is for an increase MoM/YoY of 0.6%/1.9% from -1.6%/1.8% in March. Sterling has been bid from this morning, and we could see additional upside towards the 2016 highs at 1.4770 should the figure come out better than expected. That said, we recommend keeping position sizes reduced on back of the event risk of other polls, which could trigger unnecessary event risk. FTSE is still caught in between the 50- and 100-day SMAs and has so far not been able to break out of the range.
From the Euro zone, we have the ECB minutes at 1330CET, where we don’t expect anything major, but could look for comments about the impact of a potential BREXIT on the economy of the Euro zone. Focus has been away from the EUR for a while and we could see the currency trading relatively sideways ahead of the BREXIT.
In the afternoon we have weekly claims, leading economic index and the Philly Fed manufacturing index, where we could see a positive surprise in the latter on back of an improved outlook in the manufacturing sector. In New York, Fed president and FOMC voter Dudley will comment on the economy. Dudley has recently hinted that two rate hikes from the Fed this year would be possible and we could see him reiterate this statement tonight, adding more pressure on US equities and a stronger US Dollar.
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