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The Fed is unlikely to raise rates

May 18, 2023

DXY: The dollar index is trading near 102.70. Real estate market data released yesterday showed a decline in building permits in April by 1.5%, while experts forecasted growth of 3%. The weak real estate report proves that the Fed’s high rate is negatively affecting the economy. Despite this, Cleveland Federal Reserve Bank Chair Loretta Mester said the conditions for a pause in the monetary tightening cycle are not yet in place, and officials need more evidence that inflation has begun a steady decline. At the moment, the probability of a rate increase in June is 20%, which suggests that the regulator will refrain from further tightening of the national monetary policy. Coupled with default risk in the US, this backdrop could be enough to put pressure on the dollar.

SELL STOP 102.60/TP 102.00/SL 102.80


EUR/USD: The European currency is consolidating near 1.0850. According to data released yesterday, the Eurozone consumer price index in annual terms rose from 6.9% to 7%, while the base index fell from 5.7% to 5.6%. Despite the negative dynamics of core inflation, prices continue to rise, causing concern among European Central Bank (ECB) officials. Under these conditions, the regulator can keep the “hawkish” rhetoric. The majority of economists polled by Reuters believe that the ECB will raise interest rates by 25 basis points twice more at the next meetings, and only after that a pause in monetary policy tightening is possible. If expectations are confirmed, the European currency will head for new highs.

BUY STOP 1.0850/TP 1.0950/SL 1.0820


Brent: Uncertainty in the oil market persists. Weak economic data from China is neutralized by higher forecasts of global oil demand from the International Energy Agency (IEA). In particular, analysts expect an increase in world demand this year by 200 thousand barrels per day. Pressure on prices may come from a significant increase in oil reserves in the US. According to yesterday’s report from the Energy Information Administration, U.S. oil inventories rose by 5 million barrels last week, indicating lower demand in the domestic market. Against this backdrop, the decline in oil may resume today.

SELL STOP 75.50/TP 73.00/SL 76.20