Yesterday the Fed Vice Chairman Fisher commented to the Reuters that he sees rates gradually rising to reach 3.25-4.00% by 2018. He said that the start of the tightening cycle would be determined by data, not a date. And that it is misleading to give so much importance to the Fed’s first rate hike. As the VC Fisher pointed out the rate hikes depend on the data, which gives the Fed a lot of leeway in determining the future interest rates policy.
Last Friday’s CPI surprise from US lifted the dollar index higher and sent the EURUSD lower. My view has been that with Fed being dovish EURUSD having a major correction without an external event would be unlikely. Now such an event has occurred and the market psychology has once again changed to favour the dollar. But this could change. As we have seen the mood swings in this market are constant and can change very quickly. The real test of this newly found readiness to bid for the USD comes when EURUSD hits the vicinity of March and April lows.
After the better than expected CPI figure on Friday pushed EURUSD through the support levels the pair has been drifting lower and crossed below the 50 day MA and lower Bollinger Bands. EURUSD has declined for six days without a decent rally higher and Stochastics is deeply oversold. That should mean that this downtrend is getting closer to a point where it is vulnerable to corrective rallies. Should there be a rally to the previous support area (1.1084 to 1.1131) it would make sense to look for shorting signals in that range. The 1.1131 resistance is a weekly low from two weeks ago and 1.1084 is a 38.2% Fibonacci level. The next support level is a 61.8% Fibonacci retracement at 1.0845 coinciding with daily highs from April. This could be a reasonable target for intraday short trades.
Currency Pairs, Grouped Performance (% Change)
USD strength with EUR and JPY Weakness are the clear themes this morning. GBPUSD has created a lower high in daily and is now breaking below a support at 1.5447. Next major support area: 1.5046 to 1.5193. USDJPY pushed higher through the resistances and is now trading above the March high of 1.2202. GBPJPY is trading close to a resistance created by December 2014 high but has found support from a daily sideways range and reacted higher.
Main Macro Events Today
US Durable Goods Orders (Apr) is expected down to -0.5% with shipments growing by 0.5% and inventories by 0.2%, an indication that more and more inventory is held out of the market.
US New Home Sales (MoM) (Apr) is seen rising by 2.9% to 495K compared to previous month’s results which was at 481K. Although the result is higher from March’s results, it is lower by 8.83% in relation to February’s result.
US Consumer Confidence (May) is expected to fall to 93.0 from 95.2 in April, a decrease of 2.36%. Other confidence indicators have declined in May, and Consumer Confidence is more likely to follow them.