Hawkish FOMC Minutes Should Spark EUR/USD, USD/CAD at Crossroads

By DailyFx | July 09, 2014 AAA

DailyFX.com -

Talking Points:

- USDOLLAR holding trend break, USDJPY least cooperative.

- EURUSD and USDCAD offer better opportunities today.

- July forex seasonals in QE era still working against greenback, however.

Better than expected June US labor data may have set the pre-conditions necessary for a US Dollar rally, but it could be today's June 17-18 meeting FOMC minutes that prove to be the catalyst needed to shake the greenback out of its low volatility lull.

We expect the FOMC Minutes to take on a more hawkish tone than what Fed Chair Janet Yellen conveyed at her June press conference, insofar as the aggregate staff economic projections (SEP) suggest higher rates over the next two years, more so than the market is currently pricing in. Long-end US yields have stayed pinned lower, in no small thanks to Fed Chair Yellen's dismissal of recent inflationary pressures, calling them 'noisy.'

Indeed, if the FOMC minutes reveal more optimism regarding the US economy from its members, the US Dollar could see a kick higher as interest rates have some 'catching up' to do. Whereas the Fed staff projects the main rate at 1.13% at the end of 2015 and 2.50% at the end of 2016, the market is currently pricing in rates at 0.74% at the end of 2015 and 1.75% at the end of 2016 (data provided by Barclays).

Between these two areas of potential conflict - the market having mispriced when interest rate hikes are due and heightened concern among FOMC members about the inflation outlook, despite Fed Chair Yellen's soft tone - there is enough fuel to light a move under the US Dollar today.

See the video for technical setups in EURUSD, USDCAD, and USDJPY. Of the three, USDJPY looks the 'worst,' as it represents the most viable bearish option should the FOMC minutes disappoint with a dovish tone. Although it's not usually on the radar, USDCAD is at critical long-term support that may be carving out a short-term bottom.

Read more: Short-term Reversals Develop in GBP-crosses - Sell Highs or Buy Dips?

comments powered by Disqus
Related Forex Analysis
  1. EUR/USD lies in wait at 1.2650
    Forex News

    EUR/USD lies in wait at 1.2650

  2. Asian recap: Aussie and Yen run the show, majors playing second fiddle
    Forex News

    Asian recap: Aussie and Yen run the show, majors playing second fiddle

  3. Pound to Fall on Ebbing BOE Rate Hike Bets if 3Q UK GDP Underperforms
    Forex News

    Pound to Fall on Ebbing BOE Rate Hike Bets if 3Q UK GDP Underperforms

  4. GBP/USD at Risk for Fresh Monthly Lows on Slowing U.K. GDP
    Forex News

    GBP/USD at Risk for Fresh Monthly Lows on Slowing U.K. GDP

  5. Gold Turns Lower as Expected, US Dollar May Have Resumed Uptrend
    Forex News

    Gold Turns Lower as Expected, US Dollar May Have Resumed Uptrend

Trading Center