EUR/USD, GBP/USD into Trend Support with FOMC Minutes Due
- EURUSD snaps uptrend, heads to former resistance near $1.1050.
- GBPUSD holding April 13 uptrend after BoE minutes earlier.
- See the May forex seasonality report.
The US Dollar is attempting at carving out a bottom after a five-week downtrend, but it faces a very legitimate test today when the April FOMC minutes are released. At first glance, the minutes are likely to appear dovish: after weeks of disappointing economic data culminating in the dismal +0.2% Q1'15 GDP reading, Fed officials were likely to have continued to advise a cautious tone on rate hikes.
What's working against the US Dollar in particular is that the recent bump in select data prints - mainly the April Nonfarm Payrolls report and yesterday's April Building Permits and Housing Starts - won't be reflected in the minutes. In a sense, the minutes will reflect dated observations on the state of the economy; yet the Fed has advised caution all along, never really hinting that a hike was around the corner (i.e. at the next possible meeting).
In all likelihood, a reflection on the weak state of global demand coupled with comments denigrating the buck's relative strength in the world may prove to be USD-negative at first. However, considering that figures in recent days have truly surprised - the April Housing Starts figure was the best since November 2007 - traders may be quick to dismiss any long-term negative connotations from the minutes. It will be difficult for the market to ramp up further dovish expectations, seeing as how the first Fed rate hike isn't being priced into January 2016 at the earliest.
If the minutes have the potential to spark a brief USD sell-off, it's coming at an ideal time (from a technical perspective) in several key pairs. See the above video for technical considerations in EURUSD, GBPUSD, USDJPY, and the USDOLLAR Index around the release of the April FOMC minutes.
--- Written by Christopher Vecchio, Currency Strategist
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