The US dollar is on retreat this morning as the markets continue to digest yesterday’s Federal Reserve policy meeting. As my colleague Scott Smith noted in his “FOMC Post Mortem” last night, interest rates were kept unchanged and, despite the statement acknowledging a disappointing first quarter, most of the committee still eyes a September rate hike. Despite the ongoing uncertainty concerning Greece, the euro exploded higher during the overnight session, touching its highest level against the dollar in over a month. European leaders came together as the June 30th deadline looms but it would appear the market expects an agreement to be met.
The Asian session was very quiet on the data front as the markets really keyed in on the Fed and Greek situations. While there seemed to be some reservation concerning the statement and Ms. Yellen’s subsequent press conference as US markets closed, Asia sold the dollar heavily. The dollar continues to edge lower against a basket of currencies despite the knowledge that most FOMC members expect as much as two rate hikes before the end of 2015. Ms. Yellen did her best to speak out of both sides of her mouth, acknowledging the committee’s downward projections on growth and inflation but conveying confidence on the overall state of the American economy. As Mr. Smith noted, the dollar’s decline should be taken as the market’s “collective sigh and the subsequent comforting feeling that an interest rate hike is likely not coming until September.” The yen has been a big winner over the last twenty four hours, benefiting from the dollar and its safe haven status as investors ditch stocks en masse.
In Europe, the euro charges on despite lower equities as Greek negotiations continue to move forward without an agreement. The was some “real” positive news as the European Central Bank released the results from its most recent TLTRO auction, which came out a bit above expectations at €73.8 billion. The fourth action of the ECB’s Targeted Long term Refinancing Operation (TLTRO) was expected to result in banks taking €60 billion, but this significant beat should boost the single currency. Theoretically, more lending from banks means less printing from Mr. Draghi. The ECB announced the TLTRO over a year ago as the Bank lends cheap money to commercial banks under the condition they lend it out to the real economy. As the ECB lends more money to the real economy, it could print less via its QE program, buoying the currency.
As the North American session reopens, one currency that continues to win is the Canadian dollar. Benefiting from yesterday’s FOMC meeting, commodities are also on the rise as the dollar slides, edging up the so-called commodity currencies. While the longer term outlook remains higher for USDCAD, the pair could edge lower giving CAD sellers a better opportunity to leg in at higher levels. Boosting the Fed’s diminished expectations, US May inflation missed expectations of 1.8% with a 1.7% reading this morning. Despite another strong result from weekly jobless claims – only 267k Americans filed first time claims – the dollar continues to trend lower. Tomorrow, Canada will release May inflation data and April retail sales. Both results will need to beat or miss badly to impact price action and USDCAD should remain range bound, favoring higher levels into the latter part of the summer months.
Further reading:
US Core Inflation slides to 1.7% y/y, jobless claims and current account beat – USD ticks down
USD Looks Weaker, Looking At EURUSD & GBPUSD – Elliott Wave Analysis
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