US dollar still has time to save face

  • In the last trading sessions for the week, we have critical PMI data from both the EZ and US.
  • US dollar has given back gains made post hawkish surprise in FOMC minutes. 

The US dollar retreated on Thursday and moved in on the multi-month lows again.

Investors moved out of the safety of the greenback and cashed in on the knee jerk to the surprise in the minutes of the US Federal Reserve’s most recent monetary policy meeting.

The minutes stated that several policymakers said discussions on tapering of government bond purchases would be appropriate “at some point” should economic recovery continue to gather steam.

The message came in stark contrast to the mantra that fed officials have been regurgitating over the past several weeks that it is too soon to tighten its accommodative policy.

While inflation is inevitable, the Fed is adamant that it would only be transitory and would not transpire into longer-term inflation.

However, the rally on Wall Street overnight and a stabilisation in the cryptocurrencies along with weakening Treasury yields sank the greenback. 

Investors gauged that it would take several months of stronger data for the Fed to even start to consider discussions around a taper. 

Meanwhile, there is time still for the greenback to save face before the week is out with the PMIs on Friday. 

”May Markit manufacturing (market f/c: 60.1) and services PMIs (market f/c: 64.4) are due, and will both be spurred by the reopening, stimulus and buoyant consumer spending,” analysts at Westpac explained. 

Meanwhile, the results will be compared to that of the eurozone:

”We expect the service sector will lead gains in Europe, underpinned by the improved vaccination programme and gradual easing in restrictions in the euro area,” analysts at ANZ Bank said.

”The improving European growth outlook is reducing the likelihood that the ECB will maintain the current level of enhanced PEPP purchases beyond Q2, raising the likelihood that 10-yr bund yields could soon trade back above zero. That would provide a powerful signal of a sustainable improvement in the business cycle.” 

DXY technical analysis

Bullish for the commodity complex, including AUD and CAD, the path of least resistance is to the downside judging by the daily chart, at least to test into to deeper weekly support:

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