US Housing Strikes Back – Risky assets bid
Markets were in a positive mood on Tuesday on back of strong US New Home Sales, which rallied 16.6% against 2% expected, adding good ingredients for investors risk appetite. US benchmark indices closed 1.2-2.0% higher, led by financials, with S&P500 bounced the neckline in the daily H-S formation and the good mood followed through in the Asian session, with the Nikkei pushing for a break of recent resistance at 16,840, which would give scope for a test of 17,000+. The solid figures from the US housing sector also increases the odds that the Fed will perform a rate hike over the summer, where implied probabilities now are showing a 54% chance.
In FX markets, the US Dollar enjoyed another day of gains and have been gaining consistently throughout May against most peers. EURUSD closed below the 100-day SMA with next key support at the 50% fibo in the recent daily wave at 1.1070-area. The EUR was hurt yesterday on back of a weaker than expected ZEW and as well following the deal made with the Eurogroup and the IMF, which will be an additional burden on the economy of the Euro zone. This morning, German IFO figures came out to the upside, which has triggered renewed buying interest in the EUR.
EURUSD Daily – closing below 100-day SMA
Looking further into Wednesday, the EU28 finance ministers will be meeting, where the discussion of an anti-tax avoidance package as well as the implementation of the banking union will be discussed.
In the US, we have a busy day with the Advanced Goods Trade Balance for April (expected to show a larger deficit than April) and a few Fed speakers on the stage as well, where we expect focus to be on Dallas Fed President Kaplan. Kaplan has recently been quite dovish in his comments, but should there be any hints of a change, this should materialise into additional USD-strength. There has been a lot of market noise from Fed speakers, and we are looking forward to hearing Fed Chair Yellen’s testimony on Friday, so she can set the tone straight.
From Canada, BoC will announce interest rates at 16CET, and expectations are for an unchanged rate of 0.5%. USDCAD has increased more than six figures since bottoming out in early May on back of a worsening of the Canadian fundamentals as well as oil prices, which historically has been highly correlated to the CAD. We expect no change, but could see the CAD being under pressure with oil production on the increase.
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