Summary:
- FOMC minutes were on the dovish side, USDJPY pulls back
- Trump digs into auto imports, new tariffs on the horizon?
- DE30 paints evening star formation, is a reversal on the way?
FOMC minutes paint a slightly dovish picture
One of the major calendar events yesterday was minutes from the May FOMC meeting and traders looked for signs that the Fed could consider accelerating monetary tightening amid strong economy and rising oil prices. Well, they didn’t get them. They key phrases from the document are:
It was noted that it was premature to conclude that inflation would remain at levels around 2 percent, especially after several years in which inflation had persistently run below the committee’s 2 percent objective.A temporary period of inflation modestly above 2 percent would be consistent with the committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations,.
The point is that inflation is not going to be modestly but quite well above the 2% over the coming months unless oil prices ease but it was not that evident when the Fed met at the beginning of the month. So there’s still some room to sharpen rhetoric come June 13. However, the minutes show a cautious approach and a kind of disbelief at the Fed that a rise in inflation could be lasting. Furthermore with alarming data in Europe that may put a brake on the ECB tightening ambitions the Fed may have one more argument to stay cool. Reactions? Surprisingly small. USDJPY pulled back but it was more sentiment deterioration while the EURUSD remains at 1.17 and a downward direction is still possible.
New tariffs in store?
The big news from the Asian session that sees equities down is a message from the Commerce Department. Following Reuters:
U.S. Commerce Department said on Wednesday that it would launch a national security investigation into car and truck imports under Section 232 of the Trade Expansion Act of 1962, a move that could lead to tariffs like those imposed on steel and aluminum in March.
Sure enough its not a local initiative but an order from Trump and it shows the president may seek another bargaining tool in a possible Trade Wars escalation. Does not look like a good news for the markets.
DE30 paints evening star formation
Although equities recovered slightly into the evening yesterday (on dovish FOMC minutes), the daily close for DE30 was decisively bearish and painted an evening star formation (on quite a volume, just look at the volume bar on the chart). That could possibly lead to a reversal following a major rally with the nearest support at 12600 points.
Evening star formation on DE30 could herald declines. Source: xStation5