Daily FX Update, 19 May 2015 OVERNIGHT MARKET UPDATE:

·         The US NAHB housing market index fell to +54 in May from +56 in April, continuing the disappointing run of US data. Overall, the trend in the NAHB index has largely tracked sideways since late 2014.   

·         Chicago Fed President Chris Evans (dovish, voter) reiterated that the Fed shouldn’t commence its normalisation process until early 2016 given soft inflation outcomes. “My current view is that my economic outlook and my assessment of the balance of risks will evolve in such a way that I likely will not feel confident enough to begin to raise rates until early next year” … “My forecast does not see inflation rising to our 2 percent target until 2018 -- for me, that’s too far down the road given how long we have underrun our target.” 

·         In Greece. The progress in the ongoing debt negotiations is reported to be better, but slow, with significant differences remaining. Expectations are limited that an agreement can be reached at this week’s EU Summit in Riga.

·         In the currency market, the USD found support on wider reporting of last week’s San Francisco Fed research on the Q1 seasonal effect. The EUR began paying attention to Greece again. The next loan repayment of EUR309 million to the IMF is due on 5 June.        

·         US bond yields rose strongly, with the yield curve generally steeper to reverse Friday’s rally. The 5- and 10-year yields increased 8 and 9 bps to 1.54% and 2.23% respectively.

·         US equities rose modestly, with the Dow Jones and S&P 500 touched the record highs. Both bourses increased 0.14% and 0.30% respectively from the previous closing.                     

·         Crude came under pressure as the USD rose while concerns over rising supply persisted. Saudi exports hit a near 10-year high in March. Reports that Iran's oil minister sees its country's crude output back at pre-sanction levels in as little as six months also weighed on sentiment.       

Weak housing data around the globe was a key catalyst for the weakness. While the stronger USD was also a headwind for industrial metals, gold shrugged it off and finished the day higher.