With a sparse US data calendar this week, Fed talk will likely to dominate dollar price action ahead of the June FOMC meeting (note Bullard, Williams and Harker are all due to speak today). It seems that in recent months, the sensitivity of both FX and short-term rates to US data surprises has been fading; this de-coupling highlights the difficulties that the Fed faces in guiding market expectations when it just leaves data to do the talking. I expect hawkish Fed speak to get a lot louder as we approach the summer Fed meetings (with the committee looking to shore up expectations of a rate hike). As for the timing of the Fed’s next move, were we to see the positive run of data continue, we may be faced with a phantom rate hike in June (data supports the case for tightening, but global risks keep most of the FOMC on hold). In this case, it is practical to be tactical long USD positions against currencies where there is a clear divergence in the fundamental/monetary outlook.

Price action has been muted so far this morning, most currencies have been stuck in recent ranges. In a long term perspective April risk rally in currencies have hit a wall in May and the correction in levels have now retraced back to March levels. Weakness has lost some momentum as levels are now tough to break, breaking these levels in most currencies would mean expectations of a strong USD trend. That for not is failing as USD Index does not seem ready to break 96,50’s. The only trends in the last few hours are Ruble weakness on the back of local news and weaker oil, CNY and HKD weakness and SAR weakness. Major currencies have hit resistance levels and momentum has faded for now.