USD Gains As Tapering Speculation Rises

May 27 21, 10:23 GMT

The USD tended to be on the rise yesterday against a basket of currencies as discussions in the market on whether the Fed is close to start discussing the possible tapering of its QE program or not. It should be noted that Fed officials downplayed the importance of the inflationary pressures in the US economy as temporary, yet analysts tended to note a possible slight shift of tone. It’s characteristic that the Fed’s Vice Chairman Clarida stated yesterday that the time for the bank to start discussing a possible tapering of its QE program is nearing, as it may happen in the next meetings. We may see the market’s attention turning to the US financial releases today given their gravity and the release of the preliminary Core PCE Prices growth rate for Q1 may gain on importance as worries for inflationary pressures are high.

USD/CAD rose yesterday testing the 1.2140 (R1) resistance line, which is the upper boundary of its sideways motion. We tend to maintain currently our bias for a sideways motion, and for it to change in favour of a bullish outlook we would require a clear breaking of the prementioned resistance line. Please note that the RSI indicator below our 4-hour chart, is between the readings of 50 and 70 and may be providing an advantage for the bulls. Should the pair actually find fresh buying orders along its path, we may see the pair breaking the 1.2140 (R1) resistance line and aim for the 1.2230 (R2) resistance level. Should a selling interest be displayed we may see USD/CAD breaking the 1.2060 (S1) support line which could be the lower boundary of its sideways motion, and start aiming for the 1.1995 (S2) support level, which would be a new six year low for the pair.

Aussie retreats yet worries may run deeper

AUD tended to retreat against the USD, despite the capital expenditure growth rate for Q1 accelerating and outperforming market expectations. However, worries for the Aussie tend to run deeper, given the efforts of China to set the price of copper and iron ore under control, two key export products of Australia. On the monetary front, RBA is expected to remain rather dovish, given that wage growth and inflation remain at rather low levels, prompting the bank to maintain a very loose monetary policy, in contrast to some of its peers, which have started to sound more confident. Overall though we would also like to highlight the preparations ahead of the Biden-Xi meeting in June, as well as the US-Sino relationships as a possible factor that could fundamentally affect the Aussie, and possible escalation in the tensions characterizing the relationships of the two countries, could have an adverse effect on the Aussie.

AUD/NZD retreated after RBNZ’s interest rate decision breaking consecutively the 1.0715 (R2) and the 1.0640 (R1) support lines, both now turned to resistance, before stabilizing. For the time being we tend to maintain a bias for a sideways motion, yet the bears may still be lurking in the background for the commodity currency pair. Please note that the RSI indicator below our 4-hour chart, is below the reading of 30, confirming the presence of the bears, yet may at the same time imply that the pair is oversold and a correction higher is possible. Should the bears actually be in control of the pair’s direction once again, we may see it breaking the 1.0560 (S1) support line and aim for the 1.0485 (S2) support level. On the flip side should the bulls take over, we may see the pair, breaking the 1.0640 (R1) resistance line and aim for the 1.0715 (R2) level.

Other economic highlights today and the following Asian session:

Today during the European session, we note Germany’s forward looking GfK consumer sentiment for June. Yet the main attention of the market is expected to be on the American session as we get from the US the durable goods orders growth rate for April, the preliminary Core PCE Prices growth rate for Q1, the 2nd estimate of the GDP rate for Q1 and the weekly initial jobless claims figure. During tomorrow’s Asian session we get Japan’s Tokyo CPI rates for May.

USD/CAD H4 Chart