25 May, 2017
The Greenback found itself under noticeable selling pressure during early trading on Thursday after May’s Federal Reserve meeting minutes were neatly packaged with a dovish undertone. Although expectations of a rate hike in June were realised when Federal Reserve officials said it would “soon be appropriate” to raise rates again, the longer-term hiking path remains clouded.
With Fed policymakers more than likely to hold off hiking interest rates further until there is solid evidence that the recent economic deceleration is transitionary, hard economic data from the U.S will come under heavy scrutiny moving forward. The prospect of a third U.S rate increase by the Federal Reserve in 2017 still remains under threat, especially when considering how Trump uncertainty still remains a major theme.
OPEC meeting in focus
Oil prices were heavily supported this week by the growing optimism over major oil-producing countries working together to eliminate oversupply woes. With markets widely expecting OPEC and Non-OPEC members to extend the current output cut deal by another nine months, compliance is likely to be the main focus of today’s meeting. With compliance still a grey area, it will be interesting to see if OPEC enacts penalties in the new deal to prevent other members from cheating or going against the agreement.
While WTI Crude may venture higher after OPEC officially confirm to extend production cuts, the upside could face some headwinds as investors ponder over how U.S Shale reacts. Although OPEC and Non-OPEC members have strived to re-balance the saturated markets by trimming production, this has offered an opportunity for U.S Shale to snatch market share from other OPEC members.
Sterling on standby ahead of GDP report
Sterling was passive this week with prices hovering around 1.3000 as investors redirected their focus elsewhere. A vulnerable Dollar did little to elevate prices higher and, as such, continues to highlight how the upside remains limited by Brexit anxieties. Participants will direct their attention towards the second estimate for the first quarter GDP report this morning which could be a non-event if estimates are unchanged. With uncertainty over Brexit still gripping Sterling, downside risks remain present. From a technical standpoint, the GBPUSD could be displaying early signs of exhaustion with weakness below 1.2900 opening a path to 1.2775.
Euro back in fashion
The EURUSD has staged an incredible rebound this month with prices finding comfort around a six-month high at 1.1235 as of writing. With political risk in Europe a theme of the past and the macro-fundamentals in the European economy quite encouraging, the Euro is back in fashion. Sentiment towards the Euro is turning increasingly bullish with a further upside expected if ECB hawks make a return. From a technical standpoint, the EURUSD fulfils the prerequisites of a bullish trend as there has been consistently higher highs and higher lows. Prices remain above the 20-day Simple Moving averages while the MACD trades to the upside. A breakout above 1.1250 should open a path towards 1.1350.
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