This week’s minutes from the April FOMC meeting should provide us clear insight of how the committee is viewing the slate of risks to their outlook. As external risks subsided, domestic momentum has slowed.
The case for an impending hike has admittedly weakened, and the minutes will give some indication if the Fed is ready to acknowledge this. The quickest way to get the hawks flying again is additional evidence of a material inflation pickup. Until then, the hawks will likely be staying in their nests.
We look forward to Tuesday’s headline print to be strong but the core should bounce by just 0.1%, slipping to 2.1% YoY.
Diversifying global USD risk The USD is back in the G10 driver’s seat (see charts), that should strengthen FX correlations. Rather than considering positions in single crosses, we find it appealing to take advantage of the market pricing non-perfect correlations.
The DXY remains on the verge of key technical supports. EUR/USD and USD/JPY together comprise more than 70% of the index, and the respective technical pictures of the two pairs also look pivotal.
It’s sensible to try to find diversification of the global USD risk via these pairs, as they would likely experience synchronised breaks. In the current market context, the probability of achieving the topside condition on EUR/USD is very high if the USD/JPY downside condition is met, and vice versa. Hence, the rest of this month for the dollar should remain challenging.
It is worth considering a dual digital option, which would be activated if two currencies appreciate against the USD, and which would cost significantly less than the two individual digital options.
Long positions are being squeezed out, and if risk turns off, a break of pivotal levels in EUR/USD and USD/JPY would trigger an acceleration of the year-to-date USD sell-off. A dollar break would be a much bigger move than the promising rebound.
The material has been provided by InstaForex Company – www.instaforex.com