Markets still need time to accept and understand the Fed’s attitude

The US dollar is clearly still digesting the last Wednesday Fed’s meeting. Atlanta Federal Reserve President, Dennis Lockhart, came to the aid of the central bank on Friday when he declared that he expects the U.S. central bank to raise interest rates at either its June, July or September policy meetings. The dollar is still not convinced as Janet Yellen requested better economic data. The 1.0900 resistance level on EURUSD is becoming more and more vulnerable as the upward trend line is looming increasingly better.

The economic calendar is lighter this week, compared with the one on last week, but we have to consider the recent high volatility and sensitivity of the markets that could attract significant movements in financial markets.

From the very end of last week in the Japanese media circulated an exchange of words between the prime minister and the central bank’s governor. The message is trying to explain the delay in achieving the inflation target. The main reason is the low price of oil, which once stabilized, would allow the inflation to get back on the recovery course. Secondly, the two reassured the markets that the QQE program is being maintained but not increased. However, the Japanese yen remains weak while its direction is given by other major currencies. For example, the American dollar’s weaknesses could generate new episodes of strengthening yen.

Oil prices are constantly proving the resistance to the descending trend. The WTI seems to have found its bottom in the 44-45 dollars support level while Brent can’t go below 46-47 dollars. The rising American inventories became harmless to prices while new assurances of oil-producing countries in terms of keeping production manage to lead the prices to retest local support areas. Saudi Arabia, OPEC’s biggest producer, said over the weekend that will not cut its output to defend prices. Both types of oil have expressed concern by marking negative gaps, but we can expect the recover of losses very soon.

The Canadian dollar gained ground against the US dollar as oil prices are trying to stabilize while economic Canadian data were not so good. CPI increased to 0.9%, while the Core CPI remained at 0.6%, Retail Sales were reported down to -1.7%, while Core Retail Sales was published down by -1.8%. The USDCAD evolution is still upper bounded by 1.2830 while lower bordered by 1.2370 (range). A breakdown of 1.2500 would determine the price to retest the lower limit of the range.

Meanwhile, the situation of Greece temporarily calms down as Angela Merkel declared that the discussions are taking a reliable path. She and Alexander Tsipras will meet again in Bruxelles in order to establish further steps to be taken as the Germans won’t release new money without reforms and the Greeks are unwilling to suffer any more. The necessity to pay imminent debt payments without new aid could put Greek officials in a difficult position.