No support for dollar off FOMC

25 May, 2017

Our prop desk has taken on little fresh exposure in the last 24 hours. Some long cable positions continue to yield results but short US equity index trades are still sitting well out of the money.

We have a relatively quiet couple of days running into the weekend break as far as the typical economic data is concerned, although Moody’s downgrade on China this morning is a timely reminder of the risks of mounting debt in the country and the expected Opec verdict over cuts to oil production quotas being extended will also be under scrutiny.

With perhaps a slightly hawkish bias in yesterday’s FOMC meeting minutes release, there has been little cause for cheer on the greenback, with the DXY dollar index giving up its hold on the 97 level in recent trade. The US economic data we have on the cards today is relatively limited, although wholesale inventories for April could provide some fresh direction in the short term, especially if we see a foray into negative territory.

The pound continues to lose ground against the Euro, with major banks flagging the risk associated with potentially difficult Brexit negotiations as a factor that needs to be considered. Any attempted sell-offs here are meeting fresh bouts of buying and unless we see a marked jump in the UK GDP revision that’s due at 8.30am GMT it seems unlikely that the currency will see a meaningful reversion in its fortunes.

Moody’s downgraded China’s credit rating this morning but at least so far this has had no meaningful effect on the fortunes of the Aussie dollar. The currency is seen by many as a proxy for China’s fortunes given the strong trade ties between the two nations and although we could see downside pressures build here in due course for now AUD/USD is attempting to break above the 0.7500 level. There’s little economic data due for release from Australia before the weekend break so given the marking down we’re seeing for the greenback right now, further gains could be seen here.

Japanese CPI data is set to be released at 11.30pm GMT today and given the recent run of improvements seen for the nations struggling economy, expectations of an upbeat print here will be running high. With the dollar ion the back foot and USD/JPY sitting some way off recent highs, again there’s upside potential to be seen here, especially if we have an indication that a return to more normal monetary policies may be on the way.

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