Morning brief for May 23

Morning brief for May 23

The British pound slumped after authorities said a blast at an Ariana Grande concert in Manchester could be a terror-related.  A suspected terrorist attacked killed at least 19 people and wounded 50. It happened in the middle of an election campaign and ahead of the tough Brexit negotiations with the two parties embroiled in a wrangle over the size of compensation for the Britain’s divorce settlement. GBP/USD lost a few points on Tuesday having slipped to 1.2990. Today’s focus will be on the BOE Governor Mark Carney’s testimony on inflation and economic outlook before Parliament’s Treasury Committee as well as on the public-sector net borrowing.

EUR/USD hit a six-month high (1.2542) overnight after German Chancellor Angela Merkel said that the currency was made too weak by the European Central Bank’s loose monetary policy.  The cheaper euro is partly to blame for Germany’s trade surplus. In Tokyo morning, the euro was trading near 1.2450. The bullish phase that started last week appears to a bit overextended.  The euro will unlikely hit 1.3000 in the short-term future. So, while undertone of the pair is still positive, we would suggest adjusting some stop-losses to avoid unexpected dips. Tonight’s focus will be on German May Ifo Survey and second vintage of quarterly GDP. Eurozone’s PMIs are also out today.

The yen gained some points in the early hours of the Asian session probably on concerns over the explosion in the UK and political wrangling in Washington. USD/JPY retraced to 111.05 from yesterday’s high 111.60. Markets lost their confidence in the growth-generating capacity of the current US administration with Trump’s presidency engulfed in a crisis over his firing of FBI James Comey and the allegations he had some close ties with Russians in the course of his election campaign. With Donald Trump on his first overseas trip, the political crisis has calmed for now. But we expect the melodrama to pick after once the US president returns to Washington. There were two Fed speeches today, both at the dovish end of the monetary policy spectrum – Charles Evans and Lael Brainard who didn’t provide us with any comments on current economic outlook and on monetary policy. FOMC member Kashkari will be speaking today at 4:00 pm and 10:00 pm MT time.  

Aussie and kiwi are both higher on the session due to rising commodity prices. AUD/USD is trading above 0.7490 at the current moment. There is a room for extension towards 0.7480/85 levels. To maintain the momentum, bulls should allow quotes to move below 0.7430. NZD/USD spiked to 0.7030. A move beyond 0.7050 will force to focus on the upper levels.

USD/CAD dropped below 1.3475 (below 50-day MA) on surging commodity prices. Yestersay we received Trump's complete budget proposal that seeks to boost government revenues by allowing oil drilling in the Alaska National Wildlife Refuge and draining the Strategic Petroleum Reserve. This might hurt the Loonie and oil prices in the short-term and push USD/CAD higher. On the daily chart of Brent oil futures, the doji candlestick has been formed. It is a good selling opportunity. 

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