Yesterday’s Ifo came in slightly weaker than expected and US housing market data showed sales falling behind construction activity suggesting higher inventories. This leaves higher bond yields being the result of diminishing cross border capital flows as the EM outlook improves. Anyhow, the steeper US yield curve has the potential to drag 2y yields higher, particularly relevant for FX, thus lending USD support. A Fed keeping the door open for a potential June hike will add USD demand in the short-term.
Price action wise, the consolidation of the last few days have given way to a quiet that will probably continue until Wednesday as the market waits for new catalysts. FOMC is 100% expected to pass this meeting and only a June hike is not priced in. The USD is acting accordingly, it has consolidated around 94,50s but has not really pushed forward and still remains relatively weak. Almost all the pairs have been range trading and well out of trending zone. A dovish FED would probably mean a market chasing USD weakness especially with risk pairs.For now, GBP is the only pair with a slightly positive trends. All currencies including emerging markets have corrected the last few week's rally and now seem to be directionless.