Currency Markets
The USD had a slight wobble on the Fed's latest statement redraft which was interpreted dovish on the surface. But below lurked a confident sounding board suggesting inflation targets are on track. With no follow-up presser, additional Fedspeak and the release of the minutes on May 23 will provide more clarity into the boards thought process. But yes, given the robust US economic data, the balance of risk remains for the Fed to keep policy on track and if anything lean more aggressive.
With all the trade noise still simmering on the back burner, the Feds were unlikely to come out heavy-handed anyway as much can change on these delicate trade negotiations between now and June 13 FOMC.
But, with the US economic data flow continuing to dwarf other economies around the world and mainly the EU, the US Dollar remains the markets darling for the time being. As expected, the malefactor in the crowd was the EUR nosediving and pulling most of the G-10 currencies in tow as the common currency now sets sights on YTD low of 1.1915.
Equity markets
US equities hit the late skids afternoon despite a better than expected earnings report from Apple (NASDAQ:AAPL). But with much of the good news in the equity world currently factored, investors are left mulling over the paradoxical landscape of stellar earning but higher interest rates and the threat of trade war. This struggle is unlikely to end anytime soon.
Oil Markets
Prices wobbled when U.S. Energy Information Administration (EIA) reported a larger-than-expected 6.2-million-barrel build in crude stocks on lower exports and higher imports than a week ago. However, Oil bulls found solace in the IMF’s threat to expel Venezuela which could all but collapse the Venezuelan oil industry if the IMF cuts funding due to inconsistent economic reporting.
But in general, the market has shifted to consolidation mode as we have amazingly entered a 48-hour lull in geopolitical tensions.
Gold markets
Gold prices initially recovered post FOMC but have come under renewed pressure on a surging USD. The balance of short-term risk remains for a stronger dollar supported by robust US economic data. Given the lull in geopolitical tension, the fear for gold investors is that sell -stop mechanisms get triggered by a move below $1300.00 that could cause gold to cascade much lower. Longs are holding on by a thread at this stage.
Currency View
EUR: Continues to trade heavy as traders are now targeting 1.1915 years to date low. The Euro will continue to get the most attention into NFP.
JPY: Despite the rising political risk in Japan, USD/JPY remains supported by easing of political threat in the Korean Peninsula along with higher US bond yields. The market is trading off USD dollar strength not a weaker JPY
MYR: The USD has remained on positive footing post FOMC and has offered no reprieve to the pre-election beleaguered Ringgit versus the USD. While the Ringgit is better positioned, due to higher oil prices, to withstand external shocks better than some regional peers, it too is feeling the pressure from waning global equity markets. Not only is the MYR mired in election risk but it must now compete with the resurging Greenback.