The Dollar index saw a rebound with strong bullish momentum on Monday after hitting a 6-month low of 98.40 last Friday. This morning, during the European session, the dollar index bulls have recovered the significant resistance level at 99.00. USD/JPY hit a high of 113.68, last seen on March 15.
The dollar index has given up most of the post US presidential election gain. That means, a large number of dollar long positions which were opened around the US presidential election have been closed. Per the CFTC data (Commodity Futures Trading Commission, the week ending May 2), the number of dollar long positions have dropped to the lowest level since October 2016.
Last Thursday the US Congress has finally passed the replacement of the Obamacare bill with the American Healthcare Act. Even though it was passed by a narrow majority it symbolises Trump’s first victory since taking office which has lifted market confidence in Trump’s administration to an extent.
There are several Fed presidents scheduled to make speeches this week. Boston Fed president Rosengren (non-voter) and Dallas Fed president Kaplan (voter) will speak on Tuesday with Chicago Fed president Evans (voter) speaking on Wednesday. The outcome of the French election has eased the Fed policymakers’ concerns about the impacts on the US economy from the Eurozone turmoil after Le Pen’s presidency. Per the CME’s FedWatch tool, the probability for a rate hike in June has increased to 87.7%.
On Monday two Fed officials made speeches. FOMC member Mester sees two more rate hikes until the end of the year, to prevent economic overheating. St. Louis Fed president Bullard stated that “as the Qi GDP figure was weak, and inflation was soft, the Fed is likely to raise rates once by the end of the year, instead of twice”. However, the two Fed officials are both non-voters this year and their comments have limited impacts on markets.
EUR/USD retraced on Monday from a 6-month high of 1.1021 due to profit-taking after the French presidential election and the dollar rebound. ECB Governor Draghi will make a speech in the Dutch Parliament at 12:00 BST on Wednesday May 10.
Be aware of any comments on economic outlook or hints of possible gradual removal of QE.