USD Edges Lower As Fed Officials Ease Inflation Worries

May 25 21, 11:16 GMT

The USD edged lower against a basket of its counterparts on a slow Monday, with little volatility and no major financial releases, while US stockmarkets tended to gain and as well as gold’s price, yet increased hopes for an economic recovery tended to cap the precious metal’s ascent. Market focus seems to remain on the inflationary pressures experienced in the US economy yet Fed policymakers speaking yesterday played down their importance, Kansas Fed President Esther George stating that she is not ready to dismiss the risk of inflation surge. On the other hand, St. Louis Fed President Bullard stated that the Fed perceives financial instability as a potential risk for the US economy and at the same time implied that a potential tapering of the Fed’s QE program is not near. Today we expect US financial releases to grab the market’s attention, while fundamentals may continue to shape the market sentiment.

AUD/USD bounced on the 0.7725 (S1) support line and started to aim for the 0.7785 (R1) resistance line. We tend to maintain a bias for a sideways motion between the prementioned levels and would require a clear breaking of either boundary in order to lift our bias. It should be noted that the RSI indicator below our 4-hour chart seem to run along the reading of 50, implying a rather indecisive market. Should the pair find fresh buying orders along its path we may see it breaking the 0.7785 (R1) resistance line and aim for the 0.7850 (R2) resistance level. Should a selling interest be expressed, we may see the pair reversing course, breaking the 0.7725 (S1) support line and aim for the 0.7665 (S2) support level.

RBNZ to remain on hold

Tomorrow during the Asian session, we get from New Zealand RBNZ’s interest rate decision and the bank is widely expected to remain on hold, keeping rates unchanged at 0.25%. Currently NZD OIS imply a probability of 99% for such a scenario to materialize, while the bank’s forward guidance also supports the notion. It should be noted that the bank in previous meetings had a rather dovish tone as it characteristically stated that medium-term inflation and employment would likely remain below its remit targets in the absence of prolonged monetary stimulus. On the other hand, it should be noted that the CPI growth rate for Q1 tended to accelerate providing a pleasant surprise for RBNZ officials. Should the bank dismiss any acceleration of the CPI rates as temporary and maintain its dovish tone, we may see the Kiwi weakening, while a more confident, less dovish tone could provide some support for NZD.

NZD/USD rose yesterday breaking the 0.7190 (S1) resistance line, now turned to support and aimed for the 0.7235 (R1) resistance line. Given that the pair’s main body of price action remained between the 0.7235 (R1) and the 0.7150 (S2) levels, we tend to maintain a bias for a wide rangebound movement for the time being. We would like to note though that the RSI indicator below our 4-hour chart as surpassed the reading of 50 to the upside, which may provide a slight advantage for the pair’s bulls. Should the bulls actually maintain control over the pair’s direction, we may see it breaking the 0.7235 (R1) resistance line and aim for the 0.7250 (R2) resistance level. Should the bears take over, we may see NZD/USD start aiming southwards, breaking the 0.7190 (S1) support line and aim if not breach the 0.7150 (S2) support level.

Other economic highlights today and the following Asian session:

Today in the European session we note Germany’s GDP rate for Q1, Germany’s Ifo indicators for May and UK’s CBI distributive trades also for May. In the American session, we get the US consumer confidence for May as well as April’s new home sales figure, while just before the Asian session starts we get the weekly US API crude oil inventories figure. Also please note that Chicago Fed President Evans, Richmond Fed President Barkin, ECB policymaker de Galhau, Fed’s Vice Chair Quarles, ECB chief economist Lane, BoE’s policymaker Silvana Tenreyro are scheduled to speak.

AUD/USD H4 Chart