US Open Note – Dollar drives on a slippery road as euro fights key resistance

Christina Parthenidou, XM Investment Research Desk

Risk-on weighs on dollar

Reduced appetite for safety kept the dollar pinned on the downside during the European trading hours as the FOMC meeting minutes reiterated late on Wednesday what markets already know about the progressive recovery in the US economy and the Fed’s commitment to keeping policy super accommodative until it sees sustainable growth.

As usual, the minutes also highlighted that any upside inflation pressures this year will likely be transitory and interest rates will not rise before 2024. However, comments from Fed policymakers Evans and Kaplan this week, expressed the need for an earlier rate hike in 2022, revealing an increasing division within the central bank.

Nevertheless, the US Treasury yields continued to trade downbeat today, weighing on the US dollar, which tumbled towards the 109.00 mark against the Japanese yen, violating the key support region around the surface of the broken ascending channel. The sell-off got extra fuel from the US weekly jobless claims which arrived higher at 744k compared to 644k expected.

The S&P 500 futures are currently foreseeing a slightly positive open on Wall Street following the close at fresh record highs yesterday despite Yellen’s calls for a corporate tax hike to 28% and a minimum tax on foreign earnings. In non-yielding metals, gold is set to close slightly above the neckline of its bullish bottom pattern around $1,745/ounce.

Powell’s speech at the virtual IMF seminar could remind investors about the Fed chief’s view on the global economy and monetary policy at 16:00 GMT.

ECB meeting minutes shrugged off; euro challenges key resistance levels

Turning to Europe, several countries announced restrictions on the use of AstraZeneca’s vaccines on younger people after medical authorities identified a link with the rare but serious blood clots symptoms, though recommendations were to keep supplying the vaccine. Obviously, the news is discouraging for the European Union and the UK, which rely on the company to fight the pandemic, unlike the US, which has enough supply of Pfizer and Moderna vaccines to meet its needs without invoking AstraZeneca according to Biden’s top medical Adviser Fauci.

Probably Russia’s Sputnik V could get more demand from the European Union as negotiations have already started with Germany, however, authorization is still required from the union’s medical authorities.

On the monetary front, minutes from ECB’s March meeting did not bring anything new to the table, revealing that bond purchases under the PEPP program will be conducted at a significantly higher pace in the second quarter and the envelope of 1.85 trillion euros may not be fully used if financial conditions remain favorable and the flow of purchases does not exhaust itself before March 2022. The truth is that the ECB’s bond buying has yet to pick up steam substantially since the March meeting according to the graphics, with some ECB speakers even mentioning the case of reducing the PEPP purchases by the end of Q2 today, which consequently made the minutes look a bit hawkish.

Still, euro/dollar could barely gain on the report as the 200-day SMA appeared a tough obstacle to overcome around 1.1890. Euro/pound was also under pressure near the 50-day SMA at 0.8640 following the notable bullish correction from the low of 0.8490.

European stocks remained in the green territory for another day, with the UK’s FTSE 100 climbing to a 14-month high.