Euro Strength More Than Dollar Weakness

The Dollar Index is heavy, just above the lows set earlier this week set near 96.80. However, this exaggerates the dollar’s weakness because the weight of the euro and currencies that shadow it, like the Swiss franc and Swedish krona. 

As the North American session is about to start, the dollar is higher against the dollar-bloc currencies and the Japanese yen. The Scandi’s are flat and sterling is turning lower. That leaves the dollar weakness limited to the euro and Swiss franc.  

The euro reached a high earlier this week just shy of $1.1270. It has run out of steam today near $1.1250. Between $1.1175 and $1.1200, there are nearly 1.4 bln euros in options expiring. Sterling was sold in response to the downward revision in Q1 GDP to 0.2% from 0.3%. The UK economy had expanded by 0.7% in Q4 16.Services and production were revised lower and net exports took 1.4 percentage points off GDP, a record drag. There are nearly GBP270 mln options struck at $1.2940 that roll-off today. Sterling has not closed below its 20-day moving average (~$1.2940) since April 10. We note that the technical condition for sterling may be deteriorating. The MACDs and RSI show bearish divergence.

Separately, when US President Trump began this extended trip, many thought that Israel would object to the Administration’s handling of intelligence, but it turns out the British seem more concerned. The BBC reports that Prime Minister May will raise the issue at the highest levels following the British police have stopped sharing information with US officials.  

Minutes from the FOMC meeting seems to confuse some. To be sure, the market continues to believe that a hike next month is as done of a deal as these things can get. Our calculations suggest fair value for the June Fed funds futures contract, assuming a hike and some softness at the end of the quarter, is about 1.04%, while the contract currently implies 1.015%.