Global Macro Overview For 19/05/2016

Global Macro Overview For 19/05/2016

19 May 2016, 10:06
Roberto Jacobs
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Global Macro Overview For 19/05/2016

The FOMC meeting minutes from last month were released yesterday afternoon. The overall tone of the minutes was more hawkish than many market participants had expected, and the June rate hike is back on the table if economic growth data continues to progress as predicted. The improvement in the employment market and inflation are the key elements that grab the policymakers' attention as a precursor to a potential rate hike. During the April meeting, the main concerns were slow US economic growth and a potential UK exit from the eurozone. Nevertheless, these risks were counterbalanced by the improving US job market and a positive attitude towards the inflation targets this year. There is a noticeable change in the CME FedWatch Tool before and after the minutes' release. Just before the release, the Fed Fund Futures were pricing in a 19% chance of a possible rate hike at the June meeting, which was way more than the usual 4% level that lasted for weeks. Just after the minutes' release, the probability increased to 33% and currently stays there. In conclusion, the possible Fed interest rate hike to 0.75% is back on the table.

The market's reaction to the hawkish Fed minutes resulted in an immediate surge for the US Dollar, so let's take a look at the US Dollar index technical picture on the daily time frame. We can see that the important supply zone between the levels of 94.90 - 95.21 has been violated and now the market is trading above this zone. This means the bulls are on a good way to make a potential higher high, which will be the first indication of a bullish trend resumption.


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