The US dollar staged a solid recovery on Friday and rallied to fresh three week highs against its major competitors after the US core CPI reading surprised markets on the upside. While Fed Yellen said in her speech in Providence that the outlook for the US economy is highly uncertain, but added that the rate hike would happen sometime this year, which boosted the USD bulls further. EUR/USD emerged the biggest loser among the majors, losing nearly -4% on the week. While the dollar-yen pair extended beyond 121 barrier and gained almost 1.80% over the past week, shrugging off losses incurred by BOJ and a dovish FOMC minutes.
During the past week, we published two macro ideas keeping in mind the two major market movers - FOMC minutes and US CPI figures. The first report was published on EUR/JPY under JPY Forecast and the second one on USD/CAD under CAD Forecast.
The first macro report titled “EUR/JPY Forecast: Poised to test 133 ahead of Fed minutes?” was published on May 19. The idea did materialize ahead of Fed minutes as anticipated in the report as the cross fell from 134.50 levels (at time of writing the report) and tested lows at 133.93 levels on the 133 handle well before the release of Fed minutes on Wednesday, May 20. However, EUR/JPY failed to breach the crucial support zone around 133.90 levels and rebounded to 134.85 levels as the USD bulls took a back seat on dovish Fed minutes.
However, the idea worked very well in a broader sense that the cross fell to lows at 133.33 levels on Friday May 22 largely as the shared currency lost footing against its American counterpart.
The second report titled “USD/CAD Forecast: Could rise to 50-DMA at 1.2280 on upbeat US data” was published on May 21. The macro idea was contingent on a batch of better than expectations US macro data (weekly jobless claims, factories data and existing home sales) due to be reported during the North American session on that day. However, the idea worked in part as the pair did rise to 1.2243 levels on US unemployment claims release which showed that Initial jobless claims across the country rose to 274,000 in the week ended May 18, missing market forecast of 270,000 new claims by a mere 4k.
However, with US manufacturing PMIs and existing home sales coming in below estimates, the pair erased entire gains and dropped to 1.2188 levels. The pair remained well supported above the 5-DMA supported of 1.2155 levels, settling the day finally at 1.2199 levels.
Week Ahead:
We have durables goods on Tuesday and US Q1 final GDP data from the US later this week. While the latter part of the week remains data-heavy with UK Q1 GDP (2nd estimate) and The ECB will publish the Spring 2015 Financial Stability Report to be closely watched.
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