Will FOMC speakers bolster the dollar rally?


  • The recovery of the dollar is impacting across markets as earlier weakness continues to unwind. With FOMC speakers and Retail Sales scheduled this week, will this dollar rally continue? Forex majors have been coming under pressure as key levels have been tested. Commodities have also started to look increasingly corrective with the dollar strength and there will be concerns that this move is set to continue. The fact that this is coming as Treasury yields have been falling back (on concerns over economic growth) is a combination that does not bode well for markets.

stronger dollar.

  • The Non-farm payrolls report will have done little to help persuade the doves on the FOMC to vote for a hike. The headline jobs fell to a 7 month low (with downward revisions of prior months and the labor force participation falling back), however the average hourly earnings picking up to +2.5% suggests that inflationary signs are beginning to creep in. The question should be extended though to include whether economic growth is strong enough to hike. Weakening trend PMIs and Q2 GDP running at around 1.7% annualised (currently according to the Atlanta Fed) would suggest not. However the market could be set to react to a couple of Fed speakers in the coming days. Recently we have had the FOMC’s Williams and Lockhart giving hawkish hints (no major surprise), whilst Bill Dudley has also suggested that two hikes were a reasonable expectations this year. We have Eric Rosengren (voting dove) and Esther George (voting hawk) this week and the comments from both are likely to move the dollar.
  • Forex markets are seeing a reversal underway as the short covering of the yen has driven sharp moves on the yen pairs. The jawboning continues and it is interesting that a similar short covering rally was seen a couple of weeks ago prior to disappointment and renewed selling pressure. Will this happen again? The Aussie is under pressure with cuts to inflation forecasts and rate cut by the RBA. Does this now leave the Kiwi open to a similar move? The technicals have broken down in recent days.
  • The Brexit debate continues to hot up, with focus from the Remain camp turning towards security and defence of the country potentially being compromised under a Brexit. The poll of polls now appears to be pretty much 50/50 on the chances for either camp and in this scenario the questions needs to be asked whether there is enough downside risk priced into sterling currently. The rally of a couple of weeks ago came as President Obama put his weight behind the Remain campaign, however this one is going to go down to the wire. With how close the whole vote will surely be, expect volatility to ramp up in the coming weeks.

Cameron Brexit

  • Equity markets appear to have regained some poise in the last couple of days, helping to bolster some key medium term supports that had been threatened. Is this a sustainable move though?
  • The rally on commodities is now being questioned as the dollar has rebounded. Gold and silver are hanging on to medium term positive outlooks but the bulls are having a tough time of it. The negative real interest rate environment for gold remains supportive for the coming months if the Fed continues to dial back on its hiking cycle, however the rebound in the dollar is testing the bulls’ resolve. It is also a similar position on oil which is also finding itself developing into a choppy range.
  • The Bank of England releases its monetary policy this week and no change is expected as ever. However it is also “Super Thursday” so the meeting minutes (unanimous 9 voters expected to stand pat) and also the Quarterly Inflation Report will add to volatility for sterling on Thursday. Expect Carney to further warn of the volatility and negative impact of Brexit on the economy, however little discernible change is expected to the growth and inflation figures. There is also the US Retail Sales on Friday. The expectation is for +0.5% for the month which would mean that the year on year data staying just above 2%.
  • Watch for: BoE minutes and QIR, US Retail Sales



EUR/USD – The stronger dollar is testing the positive medium term outlook

  • Despite mixed US data the dollar is rallying, and focus is again on the FOMC speakers who can drive the volatility.
  • The support band around $1.1330 protects a retreat to $1.1215 which needs to hold technically otherwise the outlook will become neutral medium term.
  • Watch for: US Retail Sales

GBP/USD – Brexit still to drive volatility

  • The closer we get to Brexit the more volatile sterling will become. Nearer term the BoE and Mark Carney will drive volatility in the inflation report.
  • Support around $1.4400 needs to hold as further pressure on the $1.4300 low could shift the outlook bearish again. There are questions over whether sterling bulls can regain control again.
  • Watch for: BoE minutes and QIR, US Retail Sales

USD/JPY – How far can the short covering rally go?  

  • Jaw-boning from Finance Minister Aso has helped to drive what looks to be s short covering rally but for how long? The dollar rebound is also helping to pull the pair higher.
  • Technically this still looks to be another chance to sell with a series of lower highs and bearishly configured momentum. 109.75/11.00 looks to be a decent sell zone but wait for the signal.
  • Watch for: US Retail Sales

Gold – A loss of $1260 questions the bullish breakout

  • A stronger dollar is negative for gold, so a continuation of the dollar rally will continue to gold correction. Focus on US economic data (especially Friday this week) which indicates the potential for a FOMC hike in June. Continues negative real interest rates in the US is supportive for gold.
  • The bottom of the breakout support band is at $1260 so the loss of this would put the bulls under pressure again. Subsequent technical levels come in the mid $1240s which if broken would re-open the old range lows again. Momentum is corrective for now.
  • Watch for: US Retail Sales

Oil – Near term corrections remain a chance to buy

  • How Canada recovers from the loos of output from the oil sands region in Alberta from the wildfires will be important for the oil price. Signs are that balance between demand and supply is slowing returning but it could still take until next year.
  • Technically the outlook is consolidating within the uptrends but supports ideally need to hold. This means $42.50/$43.50 on WTI is key. The uptrends come in at $41.50/$42.20 this week on Brent Crude and $41.70/$42.70 on WTI.
  • Watch for: EIA oil inventories to drive volatility

Indices – Markets are still not trading clear above the key supports   

  • S&P 500 – Momentum indicators suggest that perhaps the support band 2022/2034 was fortunate not to come under further scrutiny. This might change if the bulls fail to return with any real gusto.
  • DAX Xetra – Volatility remains elevated on the DAX but the support at 9737 is now important for the bulls to work from.
  • FTSE 100 – Some very uncertain candles have greeted the bounce off 6054 which maintained the key support at 6036. A break down would be technically very concerning.



Tuesday 10th May

  • US – JOLTS job openings

Wednesday 11th May

  • UK – Manufacturing Production
  • US – EIA Crude Oil inventories

Thursday 12th May

  • UK – Bank of England monetary policy, meeting minutes and Quarterly Inflation Report
  • US – Weekly Jobless Claims
  • US – FOMC’s Rosengren speaking
  • US – FOMC’s George speaking

Friday 13th May

  • Eurozone – German GDP (prelim)
  • Eurozone – German CPI (final)
  • Eurozone – GDP (flash)
  • US – Retail Sales
  • US – PPI
  • US – Michigan Sentiment (prelim)



Saturday 14th May

  • China – Industrial Production

Monday 16th May

  • US – Empire State Manufacturing
  • US – NAHB Housing Market Index

Tuesday 17th May

  • Australia – RBA meeting minutes
  • UK – CPI
  • US – Building Permits & Housing Starts
  • US – CPI
  • US – Industrial Production & Capacity Utilization

Wednesday 18th May

  • Japan – GDP (prelim)
  • UK – Unemployment & Average Weekly Earnings
  • US – Crude Oil Inventories
  • US – FOMC meeting minutes

Thursday 19th May

  • Australia – Unemployment
  • UK – Retail Sales
  • US – Philly Fed Manufacturing
  • US – Weekly Jobless Claims

Friday 20th May

  • US – Existing Home Sales


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