Dollar Recovered as Markets Firmed Up June Fed Hike Expectations, FOMC Minutes and BoC Awaited

US markets closed mildly higher overnight as investors were relieved that US President Donald Trump’s first budget plan contained no surprise. DJIA closed up 43.08 pts, or 0.21% at 20937.91. S&P 500 gained 4.4 pts or 0.18% to close at 2398.42. Nikkei follows in Asian session and is trading up 100 pts at the time of writing. US 10 year yield also ended up 0.031 at 2.285. Dollar recovered as markets firmed up their expectation of a June Fed hike. Fed fund futures are pricing in 83.1% chance of that. In other markets, gold dips mildly but is holding above 1250 handle for the moment. WTI crude oil’s recent surge is still in progress and is holding above 51.50. Focus will turn to FOMC minutes and BoC rate decision today.

Philadelphia Fed Harker: June Hike is a distinct possibility

Philadelphia Fed President Patrick Harker said that June hike is a "distinct possibility … quite possible". And he also noted that "a month or two in the wrong direction isn’t enough to make me lose faith." Harker reiterated his support for two more rate hike this years. Regarding Fed’s plan to shrink its balance sheet, he pointed out the two questions of "when" and "how". For the "when" part, Harker didn’t give a specific date but he did think "we’ll start sometime this year". And, for the "how" part", he said it will be "predictable, slow and as boring as possible".

Minneapolis Fed President Neel Kashkari expressed some of his concerns on the economy. He noted that the US is "closer" to full employment but he cautioned that "we don’t know how far the shore is". Also, he said that "right now inflation is going in the wrong direction". Kashkari is a known dove who was the sole dissenter against Fed’s rate hike back in March.

BoC to stand pat today

BoC rate decision will be a focus today too and the central bank is widely expected to keep interest rate unchanged at 0.50%. Recent economic data from Canada have been solid with job gains for six straight month. Consumer spending grew at healthy pace with support from rising home values. But BoC Governor Stephen Poloz has been reluctant to turn more upbeat on the economy and maintained that it’s still playing catch up to the US.

UK raised threat level to "critical"

In UK, Prime Minister Theresa May raised the nation’s threat level and warned that another terrorist attack "may be imminent". Alert level was lifted from "severe" to its highest "critical". May announced the mover after an emergency meeting of the security cabinet, with conclusion that the attacker of Monday’s bombing in Manchester could be part of a larger network. And May warned that the prospect of of wider plot was "a possibility we cannot ignore".

On the data front…

Released in Asian session today, New Zealand trade surplus widened to NZD 578m in April, larger than expectation of NZD 267m. That’s also the larger trade surplus since 2015. Exports jumped 9.8% yoy to NZD 4.8b. Imports rose 4.9% yoy to NZD 4.2b. Australia Westpac leading index dropped -0.1% mom in April. Looking ahead, German Gfk consumer sentiment, US house price index and existing home sales will be featured.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9719; (P) 0.9741; (R1) 0.9780; More…..

A temporary low is in place at 0.9691 in USD/CHF and intraday bias is turned neutral first. Some consolidations would be seen but upside of recovery is expected to be limited by 0.9858 support turned resistance to bring another decline. Whole fall from 1.0342 is still in progress and below 0.9691 will target 100% projection of 1.0342 to 0.9860 from 1.0099 at 0.9617. We’ll start to look for reversal signal below there.

In the bigger picture, USD/CHF is bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level.

Economic Indicators Update