EUR/USD recap for 23.05.2018
Euro's story for Yesterday:
Price started with gentle opening at 1.17785, with a modest high of 1.17891, after that price dropped sharp as it was tied up with a chain to a rock, dropping to the bottom for a low of 1.16753 and price managed just to close at 1.16961. The insecure movements from two days ago somewhat hinted for the move to continue down and the price dipped a little bellow 1.17170.
The movement accelerated after FED minutes concluded though the USD was under pressure as FOMC indicated that the FED wouldn't be in rush to tighten further even if inflation rises above 2% in the next few months. Key points from the FOMC:
- Modest inflation overshoot can be helpful
- Most felt it would soon be appropriate to hike should outlook remain intact
- Trade raised a particularly wide range of risks
- A few noted that FED funds could reach neutral level before too long if rate increase continued
- Some noted it may soon be appropriate to change guidance
- Many saw little evidence of overheating of labor market with wage pressures still moderate
- A few cautioned that inflation expectations remained somewhat low
- Most viewed firming of inflation as providing reassurance that 2% would be reached
- Some official saw forward - guidance revisions appropriate soon
- On the yield curve a few noted it's a less reliable economic signal, while several thought it remains important to watch as a recession warning
The market is fully expecting a June hike and these minutes confirm it. Beyond that it remains murky but with a solidly - hawkish bent.
The tough question at the moment is what happens if inflation heats up a bit? Will the FED let it run? These minutes suggest that the answer is "yes" but to what point? I don't know who knows the answer here.
So why the USD went lower on the news? Because if FED lets inflation rise above 2% without acting, it's a dovish call here.
Price of the Euro will probably try to consolidate now between 1.17170 and 1.18000 (which still remains strong resistance). Regards to the Italic crisis, movement can accelerate down towards 1.16000 which can be supported by a negative sentiment for the EU in macro data.
Price is still under the 200EMA and Bears are still in control for now. Exploit that as much as you can before any major trend reversals.