Morning brief for May 25

The US dollar dropped against many major currencies on less hawkish FOMC meeting minutes. Overall Fed’s policymakers seemed content to hike rate at the coming meeting in June if US economic information came in about in line with their expectations. The minutes also signaled that policymakers prefer a gradual reduction in their massive balance sheet. The Committee proposed the central bank set a cap on the amount of bonds that would be allowed to run off each month, initially determining it at a low level and then raising gradually every three months. Right after the FOMC minutes the 100-year US Treasury yield declined to 2.255% from Wednesday’s high at 2.295.

The euro rose higher to 1.1235 despite passive comments from ECB’s members which bring into question the recent long positioning. Solid performance in EZ economic activity and risk reduction after the French presidential election might force ECB to shift their language at the upcoming meeting in June. Yesterday ECB’s policymakers released their latest Financial Stability report along with the ECB President Draghi’s speech in which he downplayed the side effects from negative rates and claimed that there is no reason to deviate further from the indications he provided in his April introductory statement. The yesterday’s recovery from the 1.167 low is lacking in momentum, and the odds for extension towards 1.3000 are still not high. Most likely, the pair will be trading sideways within 1.1160 – 1.2670 levels.

Aussie came temporarily unhinged on the China’s credit rating downgrade as market participants use Aussie as a proxy for China risk. Then, it managed to recoup some of its losses amid broad USD weakening. In today’s Tokyo session, the pair slipped few points. Now, the AUD/USD currency pair is trading around 0.7500 mark. As long as 0.7430 is not touched we still anticipate a move higher towards 0.7560. 

USD/JPY hardly moved on the session. It’s now at 111.65 and expected to trade sideways in the short-term.  Kiwi rose to 0.7050 in the course of the Asian session. A further upsurge towards key resistance at 0.7090 is not ruled out.

USD/CAD sunk to 1.3390 level after the Bank of Canada was more upbeat about the economy than traders had expected. Brent oil futures were trading higher at $54.45 ahead of the start of the OPEC meeting in Vienna. Most likely OPEC producers will extend their agreement into the first quarter in attempt to drain persistent global supply. As we have OPEC meeting on the agenda, the oil prices might rise higher  and send USD/CAD lower towards the support at 1.3380, or even lower towards 1.3350.