FED Hawks Keep USD Supported

 | May 24, 2016 05:12AM ET

London Forex Report: Fed rhetoric continues to be hawkish, spurring expectations the Fed is paving the way for a June rate hike. Fed Williams said the Fed is on track to raise rates in June or July despite Brexit risks. He reinforced the view both within the US central bank and in financial markets that overseas risks, even the Brexit vote he said would loom over next month’s decision, are not severe enough to delay rate hikes much longer. Meanwhile, Fed Bullard said extended period of low rates could cause financial instability in future, and stronger market expectations for a rate rise are “probably good”. PMI manufacturing in the US staged a surprised pullback to 50.5 in May while that of the Eurozone pulled back somewhat to 51.5, against expectations for a rise to 51.9. On a less downbeat note, PMI services managed to sustain at 53.1 based on May preliminary reading. USD Index retreated somewhat by 0.11% to 95.23 after paring earlier gains going into US trading session after the release of disappointing PMI manufacturing data.

FX Majors: EUR PMI manufacturing in the Eurozone pulled back somewhat to 51.5, against expectations for a rise to 51.9. On a less downbeat note, PMI services managed to sustain at 53.1 based on May preliminary reading. In a separate release, Eurozone consumer confidence index came in at -7.0 in May versus prior’s -9.3, an improvement but nevertheless marked consumers remained pessimistic albeit at a lesser extent. GBP While the pound just posted its best performance in three weeks, a measure of price swings anticipated in a month’s time (Implied Volatility) jumped to the highest since February as it encompassed the date of the 23 June referendum on Britain’s membership of the European Union. JPY Japan’s leading index rebounded stronger to 99.3 in March vs first estimate of 98.4. The stronger print was due to improvement seen in most sub sectors, led by strong traction seen in new manufacturing orders. Similarly, coincident index also rebounded for the month of Mar, with a stronger print of 111.1 versus previous reading of 110.7.

EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: Prior support at 1.1280 now becomes resistance while this area contains upside reactions, bears now target symmetry support at 1.1065, only over 1.1450 eases immediate downside bias.
Retail Sentiment: Neutral
Trading Take-away: Neutral