Fed Urges Patience
The June FOMC minutes release last night failed to provide a catalyst for a fresh wave of USD buying. Given the upward revision to the Fed’s dot plot forecasts as well as the upward revision to growth and inflation forecasts, traders were looking for a firmly hawkish set of minutes. While the minutes showed that the Fed did indeed discuss the need for tapering of asset purchases this discussion was tempered by members agreeing on the need for patience.
Further Progress Needed
On balance, the Fed agreed the economic recovery was occurring at a faster pace than it had projected, including inflation rising above projections also. However, members agree that despite the lift off in the economy, there was still a need for “substantial further progress” before the Fed could begin shifting policy.
Looking ahead, the minutes noted that: “In coming meetings, participants agreed to continue assessing the economy’s progress toward the Committee’s goals and to begin to discuss their plans for adjusting the path and composition of asset purchases. In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases.”
DXY Sold
The market reaction to the minutes tells us everything we need to know. There was little here to suggest that the Fed is any closer to tapering than it was ahead of the meeting. The bank’s views on the economy and inflation have remained unchanged despite volatility in data and rising inflation expectations, suggesting that the Fed is set to weather the summer storm of higher activity. Indeed, the latest set of US employment reports showed that there are still issues within the recovery, dampening near term tightening expectations.
Technical Views
DXY
The rally in the Dollar index has seen price trading back up to test the 78.6% retracement from the highs, with price currently stalling around the 92.5. Bearish divergence in both RSI and MACD warrants caution for bulls. To the topside, 93.40 is the next level to watch while 92.07, and 90.98 are the next downside markers to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.