Fed’s Minutes Leave Room For Earlier QE Tapering

May 20 21, 10:33 GMT

The USD gained yesterday after leaving behind it a low point not seen since the last days of February, given also that the release of the FOMC meeting minutes showed that the possibility of the bank tapering its QE program may be nearer than what the market expected. In the Fed minutes, “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings”. Given that the meeting minutes predate April’s CPI readings release which reached new 12-year highs on a year-on-year level and given the Fed’s dual mandate, should also the May’s employment report come out strong, the idea of tapering the QE program may gain traction. The release tended to lift US yields somewhat, while US Stockmarkets tended to drop in the prospect of a tapering of the Fed’s QE program. Today we may see the market’s attention turned to the US financial releases, yet fundamentals are also to continue to shape its mood.

Dow Jones dropped yesterday yet after bouncing on the 33500 (S2) support level was able to recover some ground and land just above the 33800 (S2) support line. For the time being we tend to maintain a bias for a sideways motion, yet the bears may have a slight advantage, given that the RSI indicator of our 4-hour chart, is below the reading of 50. Should the selling interest for the index be renewed, we may see Dow Jones, breaking the 33800 (S1) support line and aim if not break the 33500 (S2) support level. Should the index find fresh buying orders along its path, we may see it breaking the 34100 (R1) resistance line and aim for the 34400 (R2) resistance level.

AUD also retreats against USD

The Aussie tended to weaken against the USD yesterday, yet overall seems to maintain a sideways motion providing some ambiguity for its direction. Commodity prices tended to maintain their supportive role, with one of the main Australian export products, iron ore, remained above the $210/ton on expectations for a continuance of Chinese strong demand and despite efforts by China to talk down prices. It should be noted though that the Australian employment data for April sent out some mixed signals as the employment change figure dropped into the negatives at -30.6k, which was lower than market expectations while on the flip side the unemployment rate ticked down. We expect Aussie traders to keep an eye out tomorrow for the release of Australia’s preliminary PMIs for May and the preliminary retail sales for April.

AUD/USD dropped yesterday after the strengthening of the USD side yet found some support on the 0.7725 (S1) support line, which held its ground. We tend to maintain a bias for a sideways movement between the 0.7785 (R1) resistance line and the 0.7725 (S1) support level, yet the bears may have a slight advantage, given that the RSI indicator below our 4-hour chart, is between the readings of 50 and 30. Should the bears actually take over, we may see the pair breaking the 0.7725 (S1) support line and aim for the 0.7665 (S2) level. Should the bulls be in charge we may see AUD/USD breaking the 0.7785 (R1) line and aim for the 0.7850 (R2) level.

Other economic highlights today and the following Asian session:

Today in the European session we get Germany’s producer prices growth rate for April and UK’s CBI trends for (industrial) orders for May. Please note that also during the European session BoE’s Deputy Governor Cunliffe and ECB President Christine Lagarde are scheduled to speak. In the American session we get the US weekly initial jobless claims figure as well as the Philly Fed Business index for May, while Dallas Fed President Kaplan and BoC Governor Tiff Macklem are scheduled to speak. During Friday’s Asian session, we get from Australia the preliminary PMI readings for May and the preliminary retail sales growth rate for April, while form Japan we get the CPI rates for April as well as the preliminary Jibun manufacturing PMI reading for May. Calendar follows

US 30 H4 Chart