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FOMC Targets Strong USD in Minutes, Technicals Breakdown

FOMC Targets Strong USD in Minutes, Technicals Breakdown

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- USDOLLAR loses 11009 level - former higher, daily 13-EMA.

- EURUSD breaks through daily 13-EMA, trend resistance since July.

- October Forex Seasonality Foretells End of Seasonal USD Weakness

The technical foreshadowing proved correct over the past few days, with the US Dollar breaking down out of its uptrend in the wake of the September FOMC minutes released yesterday at 18:00 GMT.

In particular, our main concern - that market participants would find the current Fed to have been at its apex in terms of hawkishness due to the strong US Dollar and falling inflation expectations - was vindicated:

"While most viewed the risk that inflation would run persistently below 2 percent as having diminished somewhat since earlier in the year, a couple noted the possibility that longer-term inflation expectations might be slightly lower than the Committee's 2 percent objective or that domestic inflation might be held down by persistent disinflation among U.S. trading partners and further appreciation of the dollar." (September FOMC minutes.)

Rate expectations have started to shift back, too. The market-priced Fed funds rate began pricing in the first rate hike in Q3'15 after the release of the September FOMC minutes, back from Q2'15. More dovishness may be ahead as Fed policymakers try to underscore their newest shift in policy.

In terms of the charts, the US Dollar has evidently lost trend support, mirrored by similar developments in AUDUSD and EURUSD. See the above video to see how the FOMC's latest announcement is factoring into the major USD charts.

Read more: October Forex Seasonality Foretells End of Seasonal USD Weakness

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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