BNPP: Falling commodity prices undercut Fed expectations and the USD – FXWW Chatroom

Falling commodity prices have continued to undercut Fed rate hike expectations. The loss of rate support has, in turn, undermined the USD, primarily against the core low yielder currencies. With inflation breakevens retreating again, the burden of proof is now on Fed rhetoric or US macro data to convince the market that Fed tightening is still likely in Q3 or Q4. On Tuesday, we expect Conference Board consumer confidence to moderate a bit from the elevated levels reported last month. Meanwhile, we expect the Fed to possibly drop their reference to stabilization in commodities markets in their statement Wednesday, and we continue to view this meeting as unlikely to deliver a hawkish signal. We closed our short EURUSD trade recommendation flat at entry on Monday as the pair traded back up through our trailing stop. However, we remain constructive on the USD and continue to watch for good risk-reward opportunities to reengage. We remain positioned for EURUSD downside and USDCHF upside via derivatives recommendations. 

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