Morning brief for June 20
Fed Dudley was a superstar of yesterday’s trading sessions. In the absence of any significant economic data overnight, the market’s focus was on Fed member Dudley who gave an upbeat assessment to the US economy and forecasted a further increase in inflation rate due to tightening of the labor market. He also noted that Fed withdraws its monetary policy accommodation very judiciously, gradually so that it wouldn’t cause a recession. Dudley’s hawkish tone allowed the USD to regain its strength that consequently reverberated across the trading desk. Federal Reserve Chicago head Charles Evans a little hampered the USD rally today after he said that he would like to see more data confirming the surging inflation rates before hiking once more time. He does support a gradual reduction of the Fed’s balance sheet. This allowed the USD not to lose its ground.
USD/JPY rose to 111.65. Dudley’s effect was so strong that even Russia’s threat to target US warplanes in Syria failed to ruffle any risk-averse sentiment that would support safe-haven yen. The pair swiftly moved from neutral to bullish phase. We will be waiting for a further upside towards 112.00/112.20.
EUR/USD ticked a little bit higher in Tokyo morning. It is trading along the 1.1155 level. The single currency needs to break below 1.1105 so as the pair moved into a bearish phase. We cannot speak of the restoration of the uptrend unless EUR moves clearly above 1.2000 and makes some additional gains.
The British pound drifted lower during the EU-UK negotiations held yesterday in Brussels. Dudley’s comments sent it even lower to 1.2722. At the present moment, it is trading near 1.2740 against the USD. Today’s focus will be on the BOE’s Governor Mark Carney’s speech which is due at 10:30 am (MT time). Market participants will be curious to know his comments on the last week’s unexpected 5-3 vote to remain the cash rate unchanged. With annual consumer prices spiking to 2.9%, some BOE’s officials believe that a positive trade-off between supporting job and activity vs. returning inflation back to the target no longer exists. It would be interesting to know on whose side Carney is on.
Aussie dropped to 0.7585 yesterday on the news that Moody decided to cut the credit rating of the big four Australian banks to AA3 from AA2. Again, Dudley’s speech increased AUD’s losses. In today’s session, AUD/USD felt better, it rose above 0.7600. From here, the upsurge towards 0.7680 will be complicated given the yesterday’s unexpected drop. So, we expect to rise at least to 0.7535 in the short-term.
USD/CAD didn’t change its position from yesterday. It holds still at 1.3217. There was little support from oil prices as investors saw more signs of the rising crude production in the US, Libya, and Nigeria. OPEC-led output cuts seem to be no longer effective. Brent oil futures dropped to $46.78 yesterday. In Tokyo morning, they were trading near $49.95.