Market Attention Turns To The Fed’s Minutes

May 19 21, 10:58 GMT

The greenback weakened against a number of its counterparts yesterday and retreated against EUR, CHF and GBP as the market maintains its expectations for US interest rates to remain at rather low levels for some time. Market attention today turns to the release of the Fed’s April 27-28 meeting minutes which are expected to reaffirm the view that the bank is still a long way from a possible rate hike. We would not be surprised to see the bank recognising the progress being made in the US economic recovery and the inflationary pressures, yet may characterise the latter as temporary, rejecting market pressure to act. Given the lack of high impact US financial releases, we expect monetary issues along with fundamentals to be the main drivers for the market sentiment.

EUR/USD rose yesterday especially during the European session, breaking the 1.2175 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the pair as long as it remains above the upward trend line incepted since the 14th of May. Please note though that the RSI indicator below our 4-hour chart has surpassed the reading of 70, which on the one hand confirms the bull’s dominance, yet on the other may imply that the pair is overbought, and a correction lower is possible. Should the bulls maintain control over the pair’s direction, we may see EUR/USD breaking the 1.2275 (R1) resistance line and aim for the 1.2350 (R2) resistance level. Should the bears take over, we may see the pair reversing its course, breaking the prementioned upward trendline the 1.2175 (S1) support line and aim for the 1.2100 (S2) support level.

CAD weakens as oil prices drop

The Canadian dollar steadied against its broadly weaker U.S. counterpart on Tuesday, pulling back from an earlier six-year high as oil prices weakened and market participants may have deemed the CAD as overvalued kicking off a selling interest for the Loonie. Oil prices touched the highest since early March near $67 but then settled lower for the day, after media reports stated that the US and Iran have made progress on reviving a deal restricting Iran’s nuclear weapons development, which could reintroduce Iran as a major oil supplier. Besides oil today we expect Loonie traders to keep an eye out for Canada’s inflation measures and should the rates accelerate for April, we may see the CAD getting some support as it could provide more confidence for the BoC.

USD/CAD abandoned the 6 year lows it had reached in an upward motion breaking the 1.2060 (S1) resistance line, now turned to support. We maintain our bearish outlook for the pair as expressed in yesterday’s report and for it to change we would require a clear breaking of the downward trendline incepted since the 21st of April. Please note that RSI indicator below our 4-hour chart is rising, aiming for the reading of 50 while the pair’s price action is well within the Bollinger bands. Should the selling interest be renewed we may see USD/CAD breaking once again below the 1.2060 (S1) support line and aim for the 1.1995 (S2) support level. On the flip side should the correction higher be extended we may see the pair breaking the prementioned downward trendline, the 1.2140 (S1) support line and aim for the 1.2230 (R2) resistance level.

Other economic highlights today and the following Asian session:

Today in the European session we get UK’s inflation measures for April and Eurozone’s final HICP rate also for April. In the American session, we get Canada’s CPI rates for April, while oil traders may be more interested in the release of the US EIA crude oil inventories figure for the past week. On the monetary front, besides the release of the Fed’s meeting minutes, which may be the main event of the day, we also note the scheduled speeches of Fed Vice Chairman Quarles and St. Louis Fed President Bullard. During the Asian session tomorrow, we note the release of Japan’s trade data for April and we highlight the release of Australia’s employment data for the same month.

EUR/USD H4 Chart