Risk Recovery in Full Flight Following Dovish Fed

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USD Lower Following Data Rally

The US dollar has softened a little again over the European morning today following a rally yesterday in response to better than expected data. Following 10-year weakness in the manufacturing reading, the ISM non-manufacturing index jumped to 56.9, beating expectations. USD index trades 97.18 last, now sitting back above the 97.10 level.

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ECB In Focus

EURUSD is a little higher today, benefitting from USD weakness. The market is waiting for the May ECB meeting. It is likely to see the bank acknowledging the ongoing weakness in the domestic economy as well as persistent external threats. Indeed, the market is expecting the ECB to announce some form of action. This is given the current downward trajectory of the economy though Draghi is not likely to move on rates again at the moment. EURUSD trades 1.1237 last, sitting between the 1.1217 and 1.1264 levels.

Pound Still Down

GBPUSD has enjoyed a slight recovery this morning also as USD weakness keeps the pair above the 1.2658 level broken earlier in the week. With Brexit woes continuing to weigh on sentiment, focus remains on further downside in the near term as price continues to trade within the bearish channel which has framed price action over recent months.

Risk Rally Runs Rampant

In light of the dovish tone from Fed chairman Powell earlier in the week, as well as expectations of a similar tone from the ECB today, risk appetite has recovered firmly over the week. The SPX500 trades back above the 2816.15 level now, having bounced off the sub 2744.15 level traded on Monday. The potential for Fed rate cuts later in the year has bolstered equities traders, despite ongoing concerns around the US/China trade war.

Safe Havens Surge Over USD

Safe havens have seen strong inflows today also with both the Japanese Yen and gold trading higher against USD. The prospect of US rate cuts later in the year is keeping XAUUSD well bid. Despite some retracement yesterday as the dollar gained on better data, XAUUSD is trading 1326.27 last, as the upside momentum continues. JPY is trading higher today also with USDJPY having turned lower to trade 108.16 last, sitting just above the 107.78 support for now.

Crude Capped By Record High US Production

Crude oil remains under pressure today following another sharp drop lower yesterday as the latest report from the EIA showed a further build in US crude stocks. US crude stores rose by 6.8 million barrels last week along with US crude production soaring to fresh record highs of 12.4 million barrels per day. Crude trades 51.84 last, with price fighting to stay above the 61.8% retracement from last year’s lows.

Commodity Currencies Continue Higher

USDCAD has traded lower today with USD weakness keeping the pair weighted despite the weakness in oil prices which typically leads CAD lower. A more neutral tone from the BOC at its recent meeting, than we have heard from any of the other G10 central banks, is offering CAD some support at current levels with the BOC maintaining that the current downturn is temporary. USDCAD trades 1.3408 last, sitting between the 1.3359 and 1.3469 levels.

AUDUSD is once again pushing against the .6982 level following a retracement lower yesterday on USD strength. Rising gold and equities prices are keeping AUD supported despite the ongoing threat from the US/China trade war. The RBA rate cut this week has done little to keep AUD down leaving many to question if the RBA will try a bigger cut next time around.

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