It was a relatively quiet end to the London session as the markets square up their positions ahead of the FOMC rate hike decision. The FOMC watch tool has 100% probability that there will be a rate hike today. The unknown is whether the market has forced the hand of the FOMC to raise by 75bps or whether the repricing of late has overshot the mark and the Fed comes in with the as originally planned 50bps hike. 97% of the CME survey show they expect a 75bps move, with 3% looking for 100bps. No one is expecting 50bps today.
The forex heatmap has placed the Australian dollar as the strongest currency relative to the others after the Chinese data wasn’t so bad this morning and while the relatively weaker US dollar today helped the other crosses. The CAD has been weak all session after an inventory build was reported yesterday but also in today’s US EIA weekly crude stocks. The 1.956 million barrels was lower than the previous weeks 2.205 million, but expectations had been for a draw of -1.314 million. Brent has not swept yesterday’s low as it is still trading within yesterday’s outside bearish candle range. $120 per barrel is beginning to look like a hard ceiling to push through, especially as global productivity and energy demand is being forecast to slow down this year.
The USDCAD is once again pushing at the supply zone around 1.3000 and should the US dollar fall tonight this may be an ideal shorting position for the USDCAD with a stop loss above the 12th of May 2022 high.
I am going to assume that the US dollar does go higher on the back of a 75bps rate hike today. If it does the next target to the upside is the $107.765-$108.00 zone which is confluent with the 4.236 Fibonacci extension. Today’s price action is still within yesterday’s range and there is a gap at $104 which could be tested. Overall the US dollar index is in a well-established uptrend and momentum is still positive until we get a confirmed swing high with bearish divergence in the RSI indicator.
US advanced monthly retail sales contracted for the first time in 5 months and missed expectations of an expansion by 0.2%. To make matters worse the previous month was revised lower by 0.2% too. Total sales jumped by 7.7% for the 3-months ending in May 2022. Motor vehicle and parts dealer’s sales have been dropping from the peak in March 2022 as has furniture and home furnishing stores.
The Dow Jones Industrial Average found support at the close of an imbalance area from February 2021 in yesterday’s push towards 30,000. That level has held today and now we’re waiting to see if the demand is still present for a push back towards the daily 200-period EMA, or whether we have more correction to the downside to come.
Tomorrow, we have the SNB and Bank of England on deck with the latter likely to push another 25bps rate hike on to us.