Asian Open NZD Powers Ahead CAD Bulls Lighten Their Load

The ensuing juncture between the resurging US dollar against the shaky euro, Aussie, NZD on one hand, and oil’s gradual stabilisation above the key $58 on the other will witness more clarity into Fed Chair Yellen’s Friday speech than from today’s release of the April Fed minutes.

Oil struggles to save 2-month trendine

The rallying US dollar has complicated matters for US crude oil to hold its two-month trendline support despite figures of bigger than expected draws in US crude inventories oil.

Tuesday’s release of inventory data from the American Petroleum Institute showed US oil stocks dipping by 5 mln barrels last week, well above expectations of a 1mn drop. Today’s release of the Energy Information Administration crude oil inventories also showed a greater than expected decline last week, with 2.7 mln barrels drawn following the prior week’s build of 5.0 mln barrels. Markets had been expecting a draw of merely 730,000 barrels.

Oil’s Tuesday losses also accelerated ahead of Tuesday’s expiry in crude’s front-month contract, as traders exited the June contract to enter the new front-month contract (July) on Wednesday. The combination of resurging USD rally and data showing both of the US and Saudi Arabia pumping more oil than was demanded also weighed on oil.

The varying technical picture for US crude and brent oil suggests upcoming support emerging at $58.50 and $62.50 respectively.

BoE Minutes provide key GBP support

GBP is the only major currency outperforming against the USD after the today’s release of the May MPC minutes revealed the usual two hawks (likely to be Weale and McCaferty) sticking to their April view that the decision to hold rates unchanged was finely balanced. The minutes should not be ignored by the fact they emerged before this week’s release of the negative CPI figures because short-term deflation falls within the forecast of the Bank of England’s inflation view.

This evening’s release of the US Fed minutes could trigger further 2-way volatility in GBPUSD, but the real test for the pair will be Thursday’s release of UK April retail sales. So far, the pair appears to draw robust demand near 1.5510-1.5520 before a recovery towards 1.5800 takes course.

From FOMC minutes on to Yellen’s Friday speech

Going to tonight’s release of the minutes from the April 28-29 FOMC decision, we remind that statement triggered a short-lived USD rally after omission of the calendar reference “…the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting”. The statement highlighted Fed’s data dependence guidance and qualified each subsequent meeting as potentially live event for rate liftoff.

The only factors seen as USD-negative from the minutes would be any detailed references to USD strength in the discussions. More importantly, USD bulls will want to see a more protracted return to data upside in the US, namely, Thursday’s jobless claims, Friday’s April CPI release and Fed Chair Yellen’s speech on Friday. Yellen’s assessment with regards to recent data disappointments and yield tightening will be key.