Today, the main fundamental factor for the USD was the release of the FOMC Meeting Minutes recorded during the Oct. 28-29 monetary policy meeting. The minutes didn’t have any pronounced change in tone, but there is a slight shift towards more cautious language. The outlook on Europe is weaker, and FOMC members emphasized watching out for declining inflation expectations.
Other then that, there is no new indication of forward guidance. The phrase “considerable period of time” to describe the Fed’s low-interest rate campaign was on discussion, with mixed opinions. If this language is struck from the FOMC statements, we can be sure the market will put on more USD-strength in anticipation of a rate hike. The phrase has also been perceived to mean that the FOMC was not basing its rate hike schedule on economic data, so without it, the market would become more sensitive to US economic data, especially inflation data.
The minutes was slightly dovish in my opinion, but it is no surprise the the outlook on Europe is growing more uncertain, and that inflation has been below target. The market was also indecisive in its initial reaction as we can see in a few USD-crosses.
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There was an initial USD-sell-off, and the EUR/USD came up to tag the 1.26 level. However, the pair found resistance, and sellers area pushing it back towards its intra-session lows. The jittery price action confirmed resistance at 1.26, and if price breaks 1.26, we should expect expect another leg of bullish correction. However if price falls below 1.25, it would clear a support/resistance pivot and a rising speedline from last week. This would open up a bearish continuation outlook, at least to test 1.24, and the 1.2360 low on the year.
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While the slowdown in Europe might indirectly effect the FOMC’s consideration of a rate hike, it directly effects the ECB’s consideration of QE. On this point, EUR/USD is still bearish outside of November’s consolidation/bullish correction. A break above 1.26 might bring about another bullish correction, but when we look at the EUR/USD daily chart, we can see that the downtrend would still be intact. So be ready for sellers if price approaches the 1.27 handle, and definitely below the 1.2770 resistance pivot from late October. Above 1.2770, EUR/USD may be flattening, but it will require much more price action to suggest a price bottom against the current downtrend.
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