· The dollar largely kept to familiar trading ranges on Wednesday, as it found support near a 3-1/2-week high on higher U.S. yields after the United States eased trade restrictions on Chinese telecommunications equipment maker Huawei Technologies.
“The trade dispute won’t be resolved easily, so the risk-off mood won’t come off all of a sudden, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. “I think market sentiment will rather improve one small step at a time.”
Against a basket of key rival currencies, the dollar was largely steady at 98.031, having brushed a 3-1/2-week high of 98.134 overnight. The index has risen 1.9% this year.
· Against the yen, the dollar was largely steady at 110.49 yen , after hitting a two-week high of 110.675 during the previous session. The greenback has recovered 1.4% from a three-month trough of 109.02 yen touched on May 13.
· The 10-year U.S. Treasury note yield was up slightly at 2.428%. It had moved further off a seven-week low of 2.354% brushed on Thursday during the previous session.
· Elsewhere in the foreign exchange market, the euro was steady at $1.1162.
The single currency, which has given up 0.9% from this month’s high touched on May 1, has been under pressure in recent weeks on dollar strength and due to concerns the coming European parliamentary elections may see euroskeptic parties faring well.
· USD/JPY wavers in a narrow range around the midpoint of the 110 handle, as dovish remarks from the BOJ board member Harada and weak Japanese exports data continue to offset the cautious risk tone. Focus on Fed minutes.
According to the 4 hours chart, as the 20 SMA keeps advancing below the current level and providing intraday support, while the pair broke above the 100 SMA, for the first time above it this month. Technical indicators in the mentioned timeframe have lost upward strength after reaching overbought territory, still not giving signs of changing course. The pair has broken above the 61.8% retracement of its latest daily slump, now a static support at around 110.20. Should the current momentum continue, the pair will fill the weekly opening gap left two weeks ago at 111.24.
Support levels: 110.20 109.75 109.40
Resistance levels: 110.95 111.25 111.60
· Atlanta Federal Reserve President Raphael Bostic said he does not see the central bank cutting interest rates, contrary to market expectations.
Bostic expressed confidence in the economy, and in the Fed’s position on monetary policy, during an interview Monday with CNBC’s Steve Liesman on “Squawk Box.”
· Indeed, traders in the fed funds futures market and central bank officials have been at odds this year on the future direction of rates.
The market is pricing in about a 48% chance of a rate cut by September and a 73% chance of a move lower before the end of the year. In fact, traders see a 31% chance of two cuts before 2019 comes to an end.
· Is the Federal Reserve inching closer to cutting U.S. interest rates? And how long will the central bank continue to tolerate low inflation? Wall Street hopes to glean answers to these questions and more when a summary of the Fed’s last big meeting is made public.
The Fed’s decision-making arm, known as the Federal Open Market Committee, or FOMC, kept a freeze on a key U.S. interest rate in early May. It also took another step to keep rates low by paying banks less to effectively leave money idle. Minutes of the April 30-May 1 meeting will be issued Wednesday afternoon.
Several months ago the Fed abandoned plans for further interest-rate increases in 2019 because of persistently low inflation and a somewhat slower economy after a bout of rapid growth last year.
Many investors even think the central bank will cut interest rates this year. Not only has the economy softened, they point out, but another round of tit-for-tat tariffs between the U.S. and China in an intensifying trade spat could further weaken the economy and stoke inflation.
The “FOMC minutes may shed light on whether trade uncertainties and softer economic data could push the central bank to cut rates,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Some Fed officials have pushed back against talk of rate cuts.
· Further weakness in inflation could prompt the U.S. Federal Reserve to cut interest rates, even if economic growth maintains its momentum, James Bullard, President of the Federal Reserve Bank of St. Louis, said on Wednesday.
The risk of the Fed missing its 2% inflation target and the trade war were two key macroeconomic challenges to the policy-setting Federal Open Market Committee (FOMC), he said in a presentation prepared for an audience at the Foreign Correspondents’ Club in Hong Kong.
Bullard and Chicago Fed’s Charles Evans, both voting members of the FOMC, have in recent days expressed concerns over the Fed’s failure to meet its target. Bullard said on Wednesday that another ‘low-side miss’ is on the horizon in 2019.
· The U.S. administration is considering limits to Chinese video surveillance firm Hikvision’s ability to buy U.S. technology, the New York Times reported on Tuesday, in a move that deepens worries about trade frictions between the world’s two top economies.
The move would effectively place Hikvision on a U.S. blacklist and U.S. companies may have to obtain government approval to supply components to Hikvision, the paper said.
Hikvision shares opened 10% lower but an executive in the company’soffice told Reuters the company had not been informed of the possible U.S. blacklisting.
· There is at least one thing in common between the U.S. and Russia – their willingness to weaken the European Union, a high-ranking European official told CNBC.
As European voters prepare to head to the polls later this week and choose new lawmakers to the European Parliament, there is a lot of debate about the challenges within the 28-member union. However, Jyrki Katainen, vice president of the European Commission told CNBC Tuesday that the external challenges have never been so hard.
“Countries like Russia, China but also the United States have challenged us harder than before,” Katainen said in Brussels.
Opinion polls have suggested that nationalist parties could gain as much as 30% of seats in the European Parliament after this week’s election.
However, Katainen sounded relieved that despite their growing size in EU politics, the majority in the European Parliament and most European governments are still pro-EU.
· Oil prices fell on Wednesday after industry data showed an increase in U.S. crude inventories and as Saudi Arabia pledged to keep markets balanced.
However, analysts said oil markets remained tight amid supply cuts led by producer group OPEC and as political tension escalates in the Middle East.
Brent crude futures were down 39 cents, or 0.5 percent, at $71.79 at barrel by 0658 GMT.
U.S. West Texas Intermediate (WTI) crude futures for July delivery were down 59 cents, or 0.9 percent, at $62.54. The June contract expired on Tuesday, settling at $62.99 a barrel, down 11 cents.
The American Petroleum Institute (API) said on Tuesday that U.S. crude stockpiles rose by 2.4 million barrels last week, to 480.2 million barrels, compared with analyst expectations for a decrease of 599,000 barrels.
Official data from the U.S Energy Information Administration’s oil stockpiles report is due later on Wednesday.
Outside the United States, Saudi Arabia on Wednesday said it was committed to a balanced and sustainable oil market.
Reference: Reuters, CNBC, Telegraph
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