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Yesterday, in true Apprentice style, US President Trump fired FBI Director James Comey, in unconventional and unconstitutional fashion. The move is not only going to drive calls for an independent investigation but is also likely to make it that much more difficult for Trump to pass policy. It remains to be seen to what degree this will affect expectations for the performance of the US economy and, thus far, the reaction in markets has been muted. Broadly, the USD continues its recent recovery, aided by Treasury yields tracking higher. The rally in the USD slowed at notable trendline resistance (BBDXY at 1228/32), but there is scope for this move to extend if 2y yields can progress through 1.35% towards range resistance at 1.40%.
Today, yet again, there is relatively little on the data calendar, although a number of central bankers will be in focus. ECB President Draghi speaks to the Dutch parliament. Following Emmanuel Macron’s victory in the French presidential election, and given the continued outperformance of European economic data relative to economists’ expectations (the European Citi Surprise Index is close to a 7-year high), speculation is likely to grow as to whether the ECB will change stance at June’s policy meeting. Draghi will be closely watched for any hints that the central bank may remove the downside rate bias in its forward guidance (a step our economists expect to occur).
Elsewhere, the Fed’s Rosengren (non-voter) is scheduled to speak. He previously has indicated that he thinks the economy may already be at full employment. As such, he favors at least two further interest rate hikes this year alongside an early start to the process of reducing the size of the Fed’s balance sheet. Finally, tonight, the RBNZ is expected to leave its policy rate unchanged at 1.75%.
Our near-term studies suggest a bounce should be seen from current levels towards 1.0920/1.0960, but that’s where we see the risk of a lower high for a deeper corrective pullback into the 1.0800-1.0635 region, to close the 1st round French election gap. We will then be looking for a higher low to develop as part of a broader move from the medium term range lows to the highs in the 1.12-1.14 region. A break of channel resistance at 1.1025 would suggest a direct move to those upper targets.
