FOMC Minutes Talking Points:
- The minutes from the May Fed meeting are due on Wednesday, May 22 at 18:00 GMT.
- The May Fed minutes should reflect the neutral tone deployed by Fed Chair Jerome Powell and the FOMC, which was that interest rates would be on hold for the foreseeable future.
- Retail traders are selling the US Dollar as it moves closer towards its 2019 highs.
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05/22 WEDNESDAY | 18:00 GMT | USD Federal Reserve Meeting Minutes (MAY)
The tone at the May Fed meeting was rather conciliatory insofar as policymakers were no longer sounding the alarm on an imminent slowdown to the US economy after the surprisingly strong 3.2% annualized growth reading for Q1’19. While the interim period since the May Fed meeting has seen US-China trade war concerns realized, the minutes won’t reflect these events yet. As such, the May Fed minutes should reflect the neutral tone deployed by Fed Chair Jerome Powell and the FOMC, which was that interest rates would be on hold for the foreseeable future.
Fed Funds Futures Rate Expectations (May 22, 2019) (Table 1)
Ahead of the May FOMC minutes, Fed funds futures are pricing in a 42% chance of a 25-bps rate cut in September and a 70% chance of a cut by the end of 2019. But given that the May Fed meeting itself provoked markets to reduce expectations of a cut this year, we would expect the sentiment taken in the May FOMC minutes themselves to be more optimistic than what rates markets are currently pricing (which may serve to the US Dollar’s benefit).
DXY Index Technical Analysis: Daily Price Chart (December 2017 to May 2019) (Chart 1)
Topside resistance in the sideways range that the DXY Index carved out during May has been tested several times in the run up to the May Fed meeting minutes. The DXY Index established a fresh monthly high yesterday above 98.10, the bearish outside engulfing bar high from the April US NFP report release on May 3. Since the start of the month, we have not seen price close below 97.15 either, the low from May 1, keeping the sideways consolidation in check. A move through 98.10 increases the odds of a return back to the yearly high set on April 25 at 98.32 over the coming sessions.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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