FED minutes intensified US dollar correction; greenback is strong while US index above 102, oil sets to rally
Today European markets started the day in a positive mood as indices traded in the green zone. Positive data from China and US decline in oil inventories had a positive impact on oil and precious metals. Strong oil has traditionally supported European markets. US indexes futures trade flat in the first part of the day.
Today China data proved to be positive, the business activity index in the services sector (PMI) from Caixin, in December is 53.4, higher than expectations of 53.3 and 53.1 in November. However, the main event of the last two days is the statement publication on the latest Federal Reserve meeting.
Investors analyze the results of December "minutes" and expect a large block of statistics throughout the day.
Fed «minutes» provides food for thought and the way to analyze American regulator position in the coming 2017. It is evident now that the significant US currency gains (4% for last year) seems of the US regulator concern, and it looks like the Fed officials position is no more clear and unified with regard to the previously announced plans of rapid rate-hike . Last November December we witnessed hints for at least double rate hikes in coming 2017. That is the case of global capital relocation and investors’ concerns. Yesterday report might be a kind of sign that this year it is likely to be a gradual approach in rate hikes and therefore, this year will be volatile, in which the expectations of the rate policy will change on a regular basis.
As a result, yesterday US dollar continued to lose, moving to rapid decline immediately after the report publication. However, before the publication US currency was declining for technical factors. So we cannot exclude that the "minutes" only reinforced the tendency to fix the profit, we must not forget that the US currency gained for few months, and in such cases, profit-taking correction might trigger a few figures decline. As long as the US dollar index remain above the psychological level of 101.9-102, we believe in the power of the US currency, and the market is more than confident in the hawkish course of interest rate hike in the United States this year.
Japanese yen has recovered some of its losses, and gold futures retreat from 10-month local low.
Yesterday, Brent oil market drop stopped at the first support at around $ 55.55. US currency weakness provided some support, and API inventory data returned a positive in oil market. Today, the oil market is back in the spotlight, crude official data is expected, as the market now is unloaded and technically ready for a new gain momentum. If official data happens to be in line with API data (decline of 7.43 barrels), we will see the market gain back in the area of this year highs- the area of $ 58, and our outlook for $ 60 can be back in the game.
Today, we will focus on a large block of US data. Labor market data , ISM in services and official data on crude inventories will provide some information on US economy.