Dollar Recovers after Jobless Claims, Oil Pares Gains on Profit Taking

Dollar recovers in early US session after solid job data. Initial jobless claims rose 1k to 2.34k in the week ended May 20, below expectation of 238k. The four week moving averaged dropped to 235k, down from 241k. The average stands at the lowest level since 1973. Continuing claims rose 24k to 1.923m in the week ended May 13. Also from US, trade deficit widened to USD -68.0b in April. Wholesale inventories dropped -0.3% in April. Released earlier today, UK GDP growth was revised lower to 0.2% qoq in Q1, index of services rose 0.2% 3mo3m in March, BBA mortgage approvals dropped to 40.8k in April.

Markets disappointed with FOMC minutes

The market was somewhat disappointed over the FOMC minutes for the May meeting released yesterday. While the minutes should be considered as a confirmation of a rate hike in June, it raised the uncertainty over the future rate hike path. The members appeared divided over the inflation outlook. While one camp was concerned over the impact of falling unemployment on inflation, another camp remained focused on the downside risk to inflation. Meanwhile, it is getting more likely that the balance sheet reduction might begin ‘this year’. More in Fed ‘Confirmed’ Rate Hike In June, Signaled Balance Sheet Reduction To Come Later This Year.

OPEC agreed on production cut extension

OPEC agreed to extend production cut for nine months through next March. Formal announcement will be made later today. Saudi Oil Minister Khalid Al-Falih said at the opening session of the group’s meeting in Vienna that the decision is a "very safe and almost certain option to do the trick". And, production surplus will be "balanced earlier than later". Nigerian Oil Minister Emmanuel Kachikwu said the extension would bring price stability and suggests a "USD 50 floor" for oil. WTI oil dips back to 50.65 after hitting 52.0 earlier today as the news should be priced in.

EU Tusk: No common position with Trump on Russia, climate and trade

EU President Donald Tusk met US President Donald Trump today. After the meeting, Tusk said that they discussed topics on foreign policy, security, climate and trade relationship. Tusk noted that "we agreed on many areas, first and foremost on counter-terrorism". However, "some issues remain open like climate and trade". And, Tusk is "not 100% sure" he can say that Trump and himself have a common position, common opinion about Russia". Tusk emphasized values of freedom, human rights and dignity, and "the greatest task today is the consolidation of the whole free world around those values."

BoJ Sakurai: Crucial to patiently maintain easing

BoJ board member Makoto Sakurai said that "the economy is in good shape and the government’s fiscal spending plans are being implemented now." Hence, "maintaining the current fiscal and monetary stimulus measures would be enough." Meanwhile, Sakurai also noted that "there were some views in the market that the BOJ would consider raising its long-term interest rate target in the near future." But he warned that "underlying price growth remains moderate and uncertainties on overseas economies persist." Therefore, "it is therefore crucial to patiently maintain our monetary easing." And for the moment, he believed that BoJ should keep the JPY 80T bond purchase target.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1184; (P) 1.1202 (R1) 1.1235; More….

EUR/USD failed to take out 1.1267 with today’s rebound and weakens again. The pair is staying in tight range below 1.1267 and intraday bias remains neutral first. Overall, we’d stay cautious on strong resistance from 1.1245/98 (138.2% projection of 1.0339 to 1.0828 from 1.0569 at 1.1245) resistance zone to limit upside and bring reversal. But decisive break of 1.1298 will carry larger bullish implication and target 1.1615 resistance next. On the downside, though, break of 1.1020 resistance turned support will indicate rejection from 1.1245/98 and turn bias to the downside for 1.0838 support first.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD now far above 55 week EMA. Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Economic Indicators Update