Forex Video Briefing 7/8 – Anticipating USD Reactions to the FOMC Meeting Minutes
The US Dollar Index rallied last week on the back of a strong NFP report, which showed 288K jobs added to the US economy in June. This rally broke above a falling trendline, but has not been able to sustain this week. The 4H chart shows a mini-head and shoulders, from which USD is falling and challenging July’s rising trendline. Basically the USD is at the crossroad questioning whether to continue July’s bullish attempt, or respect June’s rounded top. If rate hike expectations are to be pushed back, we will likely see a slide in the USD. But if the FOMC minutes show no concern of Q2 growth missing the bank’s own forecast, then we might see the USD hold above 80 and keep upside bias. Even if the market is in consolidation, there is short-term upside bias towards the 80.50 level, then the 80.70 pivot area.
The USD/JPY is bearish this week, reverting to levels before last week’s NFP report. The 4H chart shows a slide below a recent rising trendline, invalidating last week’s bullish breakout. The focus is on 101.25. Dovish FOMC minutes would likely send the pair toward the 100.75-100.85 lows on the year. Otherwise, look for USD/JPY to continue consolidating, which means there should be support if price does approach that 100.75-100.85 area. The 102 level is roughly the middle of the price range since May, so look for the market to oscillate around this level until further directional clues.
The EUR/USD is showing some resilience this week, climbing back above the 1.36 level. The pair is just coming off a bearish breakout, so the bias is bearish heading into the FOMC meeting minutes. Dovish FOMC meeting minutes should help EUR/USD push toward that 1.37 in a hurry. Neutral tone however should allow EUR/USD to continue its recent downtrend, and the 1.3475-1.3505 support area will be in sight. We might not even need a hawkish tone, but if the FOMC was actually optimistic even after the Q1 GDP revision, then we are likely to see EUR/USD dip toward the 2014-lows in a hurry.
While the prevailing trend in the EUR/USD was bearish, the prevailing trend in GBP/USD has been bullish. In fact it is just coming off a fresh high on the year made last week. This week, the pair is consolidating. Whereas a neutral tone in the FOMC minutes would allow EUR/USD to continue its bearish mode, the neutral tone should allow GBP/USD to continues its Bullish mode. Dovish FOMC minutes would likely push GBP/USD to new highs on the year. A hawkish tone could push GBP/USD into further consolidation and maybe even bearish correction. But the downside should be limited to 1.6920-1.6950 for now.