- FOMC minutes less dovish than expected.
- Dollar pops higher and EUR/USD wobbles.
- EUR/USD is currently trading at 1.1263 between a range of 1.1229 and 1.1287.
While the FOMC minutes were in high anticipation, there were no real surprises or dramas at the last meeting and the main takeaway was that the majority saw rates on hold through 2019. The dollar has subsequently picked up some lost ground into the event. Instead, the real nuts and bolts in EUR/USD are down to the ECB.
Here are the keynotes from today’s FOMC minutes (20 March meeting):
- Majority saw rates on hold through 2019;
- Several officials noted that rate views could shift either way;
- Majority of policymakers said patience needed;
- Several officials concerned yield curve quite flat;
- Fed noted significant uncertainties around the outlook;
- Uncertainty remained high over Brexit and trade but that risks of adverse outlook had fallen;
- Some said economy could rebound and warrant a rate hike late in the year;
- No officials said expected that a rate cut would be needed this year;
- Time would be needed to assess whether Q1 weakness would spill into Q2;
- Saw less of a boost from fiscal policy than expected;
- Most likely outcome was a sustained expansion.
As far as the ECB went earlier, it was interesting to see that the ECB seems to be moving closer to further action. Analysts at ABN AMRO explained that the chances of additional stimulus rising:
- “ECB President Mario Draghi went out of his way in today’s press conference to stress that the Governing Council was willing and able to act. He said that the mood in the meeting was one of the Council acknowledging the weakening of the economic cycle and a ‘readiness’ to respond and that it was ‘willing to use all instruments.
- As well as the economic slowdown and ongoing downside risks to the economy, the ECB seems to be concerned about inflation expectations. On the surface, Mr Draghi played down the decline in the 5y5y inflation swap rate, claiming that it was due to risk premiums rather than de-anchoring.
- He subsequently spent a lot of time trying to explain to investors why they were wrong about the ECB’s commitment to meeting its inflation goal (which suggests he might have been more concerned about inflation expectations than he let on). He said that concerns that the ECB had run out of ammunition where wrong.
- In addition, he stressed that the central bank’s definition of price stability (below but close to 2%) did not imply a ceiling, but rather that the inflation goal was symmetrical.”
EUR/USD levels
As far as technical levels go, analysts at Commerzbank noted that the EUR/USD continues to show signs of recovery from the 1.1176 recent low, and is now pushing hard into the 20 day ma:
“We suspect that it is trying to base but needs to do more work (we note the 13 count on the weekly chart and this adds weight to the idea of a base). Once above the 200 day ma at 1.1453, the cross should target the 1.1570 January high, together with the 55 week ma at 1.1568.”
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