Morning Commentary & Currency Insights – May 31, 2018

The Dollar Index is down again this morning as other majors have been rebounding after seeing multi-month lows throughout the week. Trump applied a 25% tariff on imported steel and 10% on aluminum back in March, but granted Canada, Mexico and the EU reprieve until June 1^st. NAFTA negotiations are not progressing as many had hoped and it is very unlikely that a deal will be struck ahead of the June 1^st deadline. The EU will also be subject to tariffs from the US, and the EU Trade Commissioner has already planned for Trump imposing tariffs on the eurozone. The BoC held rates yesterday as expected, but the loonie took off against its US counterpart as the BoC stated that higher interest rates will be warranted to keep inflation near target, ultimately hinting at future hikes. EUR continues to recover as political concerns ease slightly with hopes that the political stalemate can be resolved without calling for new elections in Italy. Five Star and the League are attempting to revive their coalition efforts. In Spain, Prime Minister Rajoy is facing an official vote of no confidence on Friday. Sterling is also seeing some quiet gains, but is still being pressured lower by Brexit policy concerns.

In the markets today we have a $2.8B option at 1.2900 expiring at 10:00am. When options of this magnitude expire, markets tend to gravitate to the strike rate of the option. Eurozone CPI beat expectations this morning (1.1% vs 1.0%), and we now look forward to Canadian GDP Q1 (1.9% vs 1.7%)/YoY (3.0% vs 3.0%) and US PCE Cor (1.8% vs 1.9%) at 8:30am. Short term support and resistance are 1.2800 and 1.2950 respectively, with RSI falling to 53 and the 200-day moving average residing at 1.2661.