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US Dollar Reaches Technical Crossroads as FOMC Minutes Loom

US Dollar Reaches Technical Crossroads as FOMC Minutes Loom

2014-10-08 11:30:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- EURUSD faces 13-EMA today, MACD downtrend breakouts?

- USDJPY barely above 108 - traders noncommittal ahead of FOMC.

- October Forex Seasonality Foretells End of Seasonal USD Weakness

Coincidence or not, various USD-pairs are sitting at important technical levels ahead of the week's top event risk: the September FOMC meeting minutes. Our attention is heightened for this specific set of minutes as the September meeting produced a fresh round of economic projections.

The most recent economic projections conveyed a more hawkish Fed, at least from a consensus perspective. The aggregate policymakers' interest rate forecasts for the next several years - collectively known as the 'dot plot' - have shifted upwards from June to September:

US Dollar Reaches Technical Crossroads as FOMC Minutes Loom

If you look in the bottom right, you can see the numerical representation of the dots. In 2016, for example, the average rate expected is now 2.875% versus 2.500% in June; an entire additional rate hike has been forecast in 2016 after just three months of improving economic data out of the United States.

In context of where the US Dollar lies on the technical roadmap, the message conveyed by the FOMC minutes will be particularly important. The minutes can serve as a support mechanism, a fundamental reinforcement to technical support established on the charts. If market participants view the commentary as the apex of Fed hawkishness - a possibility now that attention is shifting to falling inflation expectations - the US Dollar may be in trouble. The recent flip in EURUSD SSI adds to this perspective.

Of particular importance today, EURUSD is less than 0.5% away from testing its daily 13-EMA, trend resistance since mid-July. USDJPY is holding onto downside support in its recently developed broadening wedge. See the video above for more detailed technical considerations.

Read more: 3 USD Trades to Watch Ahead of FOMC Minutes

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.