No Volatility So Far on Friday, Traders Remain Cautious

Equity markets traded flat during the London session, while commodities booked some gains, pushing higher the Australian and New Zealand dollar.

According to Bloomberg, Chinese Premier Li Keqiang warned of catastrophic implications if the economy continues to deteriorate, noting that an economic decline in the second quarter must be prevented. Meanwhile, the US and Taiwan are allegedly set to launch economic negotiations to strengthen their relations, which might contribute to escalating geopolitical tensions between China and the US.

Later in the day, the US Personal Consumption Expenditures (PCE) Price Index data, the Fed's favored inflation indicator, will be released. In addition, the Personal Income and Personal Spending statistics for April will be released by the US Bureau of Economic Analysis, along with the Consumer Sentiment Index for May from the University of Michigan.

USD at 1-mth lows

Meanwhile, the US dollar declines from its multi-year highs as traders are taking profits, driving the greenback lower. The dollar index dropped to 101.50, the lowest in a month, pushing the EURUSD pair toward 1.0750, where the major bearish trend line is. 

"Pricing of the Fed tightening cycle has corrected 25-35bp lower since early May," said analysts at ING in a note, "but Fed speak and the US data calendar suggests those higher levels for the Fed terminal rate could easily be put back into the market - which is dollar supportive."

At the same time, US yields are also quickly retreating from their multi-year highs as the oversold bond market might recover in the following days, pushing both yields and the USD lower.