Dollar jumped broadly overnight as the modestly hawkish FOMC minutes spurred hope of rate hike in June. Indeed, fed fund futures are now pricing in 34% chance of a June hike, sharply higher than 4% at the beginning of the week. Dollar index's breach of 95.19 key near term resistance is taken as another sign of medium term trend reversal. EUR/USD is also pressing key near term support at 1.1217 now. Meanwhile, the greenback is seen strong against commodity currencies too as AUD/USD extends recent decline. USD/CAD also took out 1.3014 resistance as WTI crude oil dips to 47.50 after hitting 48.95 overnight. There could be some profit taking pressure for WTI ahead of 50 handle. In other markets, DJIA closed just down -3.35 points overnight and is holding on to key near term support at 17526.62. Asian stocks are mixed while gold weakened on Dollar strength.
The modestly-hawkish FOMC minutes for the April 28 meeting lifted hopes of June rate hike. Policymakers generally judged that it might be justified to increase interest rates in June if economic data suggest growth were picking up in 2Q16, job market continued to improve and inflation were making progress to reach the +2% target, though some were worried that the data by then might not be sufficient for decision making. Most members also viewed that the slowdown in growth of consumer spending in the first quarter would be temporary, probably due to measurement problems and other transitory factors. As the data (e.g. retail sales, CPI, IP growth) released since the meeting has been consistent with strong growth in the second quarter, we see high risks for the move by the Fed in June/ July. More in FOMC Minutes Spur Hopes Of June Rate Hike.
Dollar's strong rebound this month argues that the medium term consolidation pattern from 100.39 has completed with three waves down to 91.91. This view is affirmed by the strong support seen from 38.2% retracement of 78.90 to 100.39 at 92.18. Sustained trading above 55 weeks EMA (now at 95.19) should at least pave the way for a test on 100.39 high. Overall, the up trend from 70.69 (2008) is expected to resume and that could happen in the second half of the year.
Released in Asian session, Japan machine orders rose 5.5% mom in March. Australia employment grew less than expected by 10.8k in April while unemployment rate was unchanged at 5.7%. Focus in European session will be on UK retail sales and ECB monetary policy accounts. Philly Fed survey, jobless claims, leading indicators and Canada wholesale sales will be featured in US session.