While until earlier this week, a decision by the FED to increase the interest rate next month, was seen as very unlikely has completely changed in the recent 2 days. First we had the strong data on Tuesday which already started to shift in sentiment, and was further boosted by the hawkish FOMC meeting minutes, which showed that if the economy continues to improve we are likely to see a rate hike in June.
Currencies
EUR/USD – moved sharply down after the FOMC meeting minutes were released as it showed that there is a reasonable chance that the FED will increase the interest rate next month if the economic data remains solid. At the moment we are trading near the support around the 1.12 level.
USD/JPY – finally received the extra push needed to break out of the range it was trading in the last few days and broke through the 110 level. The nearest resistance can be found just below the 111 level.
GBP/USD – moved much higher, but not really due to the stronger data out of the UK, even though that caused for a bit of strengthening of the GBP. The large move came as another poll came out showing a large majority for staying in the EU. Previous polls showed a very tight race, but if a Brexit is off the table we could see the GBP strengthen.
AUD/USD – moved down again as the USD strengthened due to the FOMC meeting minutes, but also the AUD weakened as the employment data was weaker than expected, even though the overall unemployment rate stayed the same, while a slight increase was expected.
Indices
Dollar Index – surged higher as expected after the likelihood of a rate hike in June is firmly on the table again. A little move higher and we will have also finally broken the downwards pattern in place for the last 6 months or so, and reached the highest level in nearly a month.
S&P 500 – again hit the support at the 2030 level, and once more this level was able to hold. As mentioned yesterday, there remains a lot of pressure, especially after the FOMC minutes showing that we very well could see an increase of interest rate next month. Technically the S&P also doesn’t look to healthy at the moment, with different indicators indicating a further move down is possible.
Commodities
Gold – moved down with the strengthening of the USD on the backdrop of the change in sentiment and the FOMC meeting minutes. We have more data out of the US today and if this is also strong then we could see gold move towards the 1240 level.
Oil – attempted once more to break through the resistance, but failed again. We are not heading down, mainly due to the strengthening of the USD. The inventories showed a slight build instead of the expected drawdown and also the production in the US declined, albeit less than in previous weeks. This could signal that at these prices, production get more attractive, but we need to see if this trend continues.
Stocks
Bayer – is reportedly interested in taking over Monsanto (NYSE:MON) to create the largest company in the industry (chemical seed & crops). A possible deal would be worth over $42 billion as that is the current market capital of Monsanto.
Tesla (NASDAQ:TSLA) – announced it will sell more stocks to raise enough capital to meet its set production goals. The company hopes to increase its capital by nearly $2 billion which should help it meet its goals and also ensure financial stability.
by Shawn Koopman