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Americas Roundup: Dollar nears 10-week high on Fed views, stocks rally, oil ends up on U.S. crude drawdown hopes-May 24th, 2016

Market Roundup

•    US new home sales race to 8-yr high (+16.6% in April), prices surge; percent increase largest since Jan 1992.

•    Richmond Fed May composite index -1 vs 14 previous, Service Index -1 v 15 previous.

•    Richmond, KC, Cleveland & San Francisco FRBs voted to increase discount rate ahead of last Fed meeting.

•    Gold hits 4-week low as U.S. rate hike outlook weighs, USD rises vs JPY and EUR.

•    ECB warns against rise of populism, says structural reform efforts have lost momentum.

•    ECB’s Constancio: Too soon to discuss new ECB stimulus package, Fed hikes good for world, bad for Ems.

•    Brazil’s Meirelles: goal is for inflation target to be achieved in coming years.

•    Turkey’s new Gov’t programme to implement policies for a lasting solution to C/A deficit.

Looking Ahead - Economic Data (GMT)

•    22:45 New Zealand Trade - Imports* Apr forecast 4.06b, 4.09b-previous

•    22:45 New Zealand Trade Balance* Apr forecast 60.0m, 117.0m- previous

•    22:45 New Zealand Trade Balance YY Apr forecast -3.94b, -3.38b- previous

•    22:45 New Zealand Trade - Exports* Apr forecast 4.13b, 4.20b- previous

•    01:30 Australia Construction Work Done Q1 forecast -1.5%, -3.60%- previous

Looking Ahead - Events, Other Releases (GMT)

•    No Significant Events

Currency Summaries

EUR/USD is likely to find support at 1.1100 levels and currently trading at 1.1140 levels. The pair has made session high at 1.1161 and hit lows at 1.1131 levels. The U.S. dollar rose to hit its highest level against the euro in more than ten weeks on Tuesday as better than expected US housing data and increased expectations for an interest rate hike in coming months from the U.S. Federal Reserve strengthened dollar across the board. Investors' anticipation of a rate increase from the Fed in June or July gained momentum following minutes from the central bank's April meeting released last week and comments on Monday from Fed officials signaling a June hike was firmly on the table. The euro was last down 0.51 percent against the dollar at $1.1139, near a session low of $1.1130, its lowest level since March 24. Commerce Department data on Tuesday showed new U.S. single-family home sales surged to a more than eight-year high in April and prices hit a record high, also supporting the greenback. New home sales jumped 16.6 percent to a seasonally adjusted annual rate of 619,000 units, the highest level since January 2008. The percent increase was the largest since January 1992.

GBP/USD is supported in the range of 1.4561 levels and currently trading at 1.4633 levels. It reached session high at 1.4642 and hit low at 1.4583 levels. Sterling rose sharply against US dollar on Tuesday, broadly supported by view that Britain will vote to remain in the European Union, driving the currency back above 1.4600 levels. Traders saw little new to go on from testimony by Bank of England Governor Mark Carney and colleagues in parliament, and dealers cited the abandoning of Brexit bets or hedging by major fund investors for the scale of the gains. Sterling was a touch below highs hit against the dollar at the start of May, but a 1-percent gain to $1.4630 was its best day since mid-March. It gained 1.5 percent to 76.23 pence per euro, a 3-1/2 month high. The latest poll from ORB, published in the Telegraph newspaper, gave the remain  camp a 13-point lead over their leave rivals, after winning support for the first time from a majority of men.

AUD/USD is supported around 0.7100 levels and currently trading at 0.7182 levels. It hit session high at 0.7196 and made session lows at 0.7156 levels. The Australian dollar drifted lower against US dollar on Tuesday, as renewed weakness in commodity and equity markets sent investors towards safe heaven assets like Japanese yen and gold. The Australian dollar eased to $0.7182, from $0.7224 early, pulling closer to its lowest level since March. Support was found at $0.7142.The Australian dollar has tumbled six cents in one month, largely on speculation the U.S. Federal Reserve will raise rates as early in June. In contrast, the Reserve Bank of Australia (RBA) is seen cutting rates to a record low of 1.5 percent later this year. The Aussie was undermined by a 5.4 percent drop in iron ore prices .IO62-combined with a broadly stronger yen.

USD/CAD is supported at 1.3036 levels and is trading at 1.3131 levels. It has made session high at 1.3168 and lows at 1.3082 levels. The Canadian dollar firmed against its U.S. counterpart as higher oil prices helped the Canadian dollar reduce its losses against its broadly firmer U.S. counterpart after the currency weakened to a seven-week low on Tuesday. The loonie has fallen 5 percent from its 10-month high of C$1.2461 on May 3, pressured by speculation that the U.S. Federal Reserve will raise interest rates as early as next month, as well as a weaker outlook for Canada's economy following a strong start to 2016. The central bank is widely expected to hold interest rates at 0.50 percent on Wednesday but strike a more dovish tone. Meanwhile, oil reversed early losses, turning slightly positive as investors awaited inventory data from the United States that was expected to show a shrinking supply overhang. U.S. crude prices were up 0.15 percent at $48.15 a barrel.

Equities Recap

European shares rose to their highest point in almost 4 weeks on Tuesday as firmer financial stocks lifted the region's equity markets.

UK's benchmark FTSE 100 closed up by 1.51 percent, the pan-European FTSEurofirst 300 ended the day up by 2.42 percent, Germany's Dax ended up by 2.33 percent, France’s CAC finished the day up by 2.54 percent.

Wall Street surged over 1 percent on Tuesday and the Nasdaq had its strongest day in three months as investors made peace with the possibility that the U.S. Federal Reserve might soon raise interest rates.

Dow Jones closed up by 1.21 percent, S&P 500 ended up by 1.37 percent, Nasdaq finished the day up by 2.00 percent.

Treasuries Recap

U.S. Treasury prices fell on Tuesday, with the two-year yield touching two-month highs, but prices bounced off session lows when robust demand at the $26 billion note auction offset pressure from a stock market rally and strong U.S. home sales data.

Benchmark 10-year Treasury prices were down 5/32 in price for a yield of 1.859 percent, up 2 basis points from Monday.

The two-year Treasury yield was up as much as 3 basis points to a two-month high at 0.930 percent before easing to 0.909 percent, up 1 basis point on the day.

Commodities Recap

Oil prices rose on Tuesday as investors anticipated a weekly drawdown in U.S. crude inventories that they hoped would boost prices closer to $50 a barrel, while a rally on Wall Street also lent support.

U.S. crude's West Texas Intermediate (WTI) futures settled up 54 cents, or 1.1 percent, at $48.62 a barrel.

Brent crude futures finished up 26 cents, or 0.5 percent, at $48.61, ending a four-day slide.

Gold fell to a four-week low on Tuesday as hawkish comments from Federal Reserve officials in the previous session sent the dollar to a two-month high against a currency basket.

Spot gold was down 0.9 percent at $1,236.81 an ounce at 1340 GMT, off an earlier low of $1,235.35. U.S. gold futures for June delivery were down $14.50 an ounce at $1,237.00.

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