Today's Economic Highlight

Market Overview

US Apr existing home sales unexpectedly fell -1.9% m/m to 4.14 million, versus expectations of an increase to 4.23 million.

The minutes of the Apr 30-May 1 FOMC meeting stated, “Participants noted disappointing readings on inflation over the first quarter” and discussed “holding interest rates steady for longer. ” The minutes also said “many” questioned whether the policy was restrictive enough to bring inflation down to target, with “various” participants willing to tighten more if needed.

The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 21% for the following meeting on July 30-31.

U.S. Treasury yields rose on Wednesday after minutes from the Federal Reserve's latest policy meeting showed central bank officials were concerned about higher inflation but still had faith that price pressures would ease, if slowly.

“The minutes appear to be a bit more hawkish than what we heard from (Fed Chair Jerome) Powell at the post-meeting press conference,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

“They seem to be concerned about inflation, they are much more open to perhaps hiking if needed,” Rajappa said. “This means higher for longer on policy.”

While we saw good data come April for payrolls and CPI along with slowing U.S. job growth, it is acceptable that the FED decided to wait for more data to come into the market before making a rate cut, to ensure that the economy really is heading toward the targeted 2% inflation. 

The entirety of the 2nd quarter's data may tell us what may happen as talks of, once again, rate hikes resurface amongst investors. 

The Treasury Department sold $16 billion in 20-year bonds on Wednesday at a high yield of 4.635%, close to where it had traded before the auction. The bid-to-cover ratio was 2.51 times, the lowest since February.

The Treasury will also sell $16 billion in 10-year Treasury Inflation-Protected Securities (TIPS) on Thursday.

Crude Oil prices fell lower by -1.39%.

An increase in crude oil in floating storage is bearish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week rose +15% w/w to 69.27 million bbl as of May 17.

According to Bloomberg calculations based on official data, Russian crude production in April was 9.418 million barrels per day, more than +300,000 barrels per day above the 9.1 million barrels per day target Russia agreed to with OPEC+. Also, Russian crude processing averaged 5.45 million barrels per day in the first half of May, up 4% above April's level as refineries recovered from Ukrainian drone strikes. In addition, Russia's fuel exports have increased as refineries came back online after being damaged by Ukrainian drone attacks.

However, this fall may be short-lived as Israel's military is poised to conduct major military operations in the southern Gaza city of Rafah despite opposition from the Biden administration. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Meanwhile, attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.

Not to mention, the death of the Iranian president further increases the chances for Israel to attack at a time of evident chaos and disorder. While the speculations and theories are going wild, we must stay cautious of how the conflicts will turn out.

GOLD - As expected, the price has done a sudden drop. What was beyond expected was how deep the drop was, breaking through 2392.470 before the market closed last night. We continue to see GOLD as bullish but wait for how the price will turn out. Currently, the structure that may support it is 2365.443.

SILVER -As called yesterday, the price has indeed fallen slightly below 30.938. We continue to call this market bullish but we are unsure of where the drop will stop to rise again. There is a possibility for a deeper retracement toward the 29.900 before a continuation high, but we shall wait and see how the price will play out.

DXY - The market has indeed shown us a higher correction and may test 105.071. Bearish structures still stand but we wait to see how this will play out. Higher T-note yields supported moderate gains in the dollar. Also, the weakness in stocks boosted some liquidity demand for the dollar.

GBPUSD -Despite large gains on the DXY, there is no apparent change in the pound. The price has, instead, shown large gains out of 1.27256 before the news pushed the price back into the structure. We continue to call this market bullish but we will be cautious of how the price will proceed from here.

AUDUSD - This market has tested and fallen to 0.66145 as called on Tuesday. Despite that low probability, the gains on the dollar have given enough volume for the AUD to drop toward these levels. We continue to wait for how the price will turn out. However, we still call this market bullish as the structure still holds up.

NZDUSD -Not much change in our views for the NZD as we see strong support at 0.60847. However, during the day, we may see a sudden change in price action. However, it is clear that the price did not move as aggressively as the Aussie dollar against the dollar recovery.

EURUSD - As expected, the price has now moved toward the trendline. However, we wait to see if it will make its way back into the structure. We can see an M pattern forming and may continue to push the price down. There is a possibility that this fall has changed momentum unless we see a consolidation happen from here and move along the trendline to collect orders. Otherwise, a clean fall will signal a change in momentum.

USDJPY -The YEN has fallen greatly and is now above 156.516 and is currently trading at 156.792. We wait to see how the BoJ will react to an increase in prices against the USD. We stay wary of price as no intervention may mean a continuation moving up.

USDCHF -The CHF has indeed fallen weak as it reacted strongly against the dollar gain as seen in the chart. Will the price be pushed all the way back to 0.92248？ This massive move has now changed our structure outlook to bullish until another consolidation occurs.

USDCAD -The market has successfully broken through 1.36563 and may move up further before another consolidation to collect orders going down. In a larger timeframe, the price action is consolidating. However, we may expect bullish momentum coming in as the break above structure is clear and clean. However, we wait for further confirmation before calling a switch in overall momentum.