When Doves Cry

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The foreign exchange markets are a mixed bag this Thursday morning, one day following the release of the minutes from last month’s Federal Reserve policy meeting. While the minutes were fairly unremarkable, they did have a slight bias towards “wait and see” on the prospect on when to raise interest rates, which is putting a little pressure on the surging dollar. Overnight, it was fairly quiet on the data front with mixed Eurozone PMI results pacing the market after HSBC Flash Manufacturing PMI for China came in line at 49.1. This morning, US weekly jobless claims and existing home sales data will be released before speeches by Fed members Fischer and Williams wrap up today’s session.

Following a three day rally, which edged the euro off two month highs, the dollar is taking a breather this morning following the release of the FOMC minutes. Janet Yellen and company did not make any bold statements and continue to weigh their options following a less than stellar first quarter, which produced growth of only 0.2%. While the prospects of a June hike are all but gone, there continues to be a glimmer of hope for action in September, but this is also unlikely. Sifting through some reports this morning has Wall Street moving back time tables as well, with not the first move in rates for the US since December 2008 not taking place until November at the very least. There was some discussion at last month’s meeting concerning the 2013 “taper tantrum”, which produced a rapid increase in bond yields, unsettling markets as the Fed weighed the issue of winding down QE purchases. Although the Fed ultimately ended the program in 2014 to little fanfare, it is a telling signal that policy makers are concerned an interest rate move could lead to market volatility and damage the growth they are helping takes hold this summer.

A mix of Eurozone PMIs is giving the euro a boost as well, as there were more beats than misses as Germany, France and the EU released services and manufacturing results. Although most of the results were lower month over month, today’s results still show an economy in expansion, further supporting Q1 growth results. For the moment, Greece is on the back burner and most of the news or headlines hitting the tape is recycled from earlier this week. Negotiations remain tense and should continue to weigh on the markets, keeping the euro a sell on rallies. The pound is experiencing a bounce today after much stronger than anticipated UK retail sales. It would appear that consumer spending rose 4.7% over the same period in 2014, helping Sterling rise after this week’s earlier correction.

It has been a quiet week on the Canadian front but data picks up tomorrow with the release of April inflation figures. These numbers should garner a bit of attention before next week’s Bank of Canada policy meeting Although Chairman Poloz and company are likely to keep rates on hold for the time being, there will be a lot of attention paid to the statement released concerning the outlook for 2015. The Canadian dollar is sliding lower this morning, continuing its decline that started on Monday. While the most recent range remains firm, USD/CAD remains a buy on dips. Commodity prices have stabilized over the previous 24 hours, providing some steadiness for currencies such as the AUD, CAD and NZD.

European Central Bank President Mario Draghi will be speaking tomorrow, headlining Friday’s market events before a long weekend for the US and UK. Good luck and have a wonderful rest of the week.

Further reading:

USD/CAD Tries To Follow the USD Uptrend – BofA Merrill

EUR/USD: Trading the German Ifo Business Climate

Get the 5 most predictable currency pairs

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