Inflation boost expected in Fed’s minutes
- Fed’s January meeting minutes were released yesterday, had a more hawkish tone and boosted the US dollar. Minutes reveal that recent strengthening of the economy increases the likelihood of further gradual rate hikes and saw upside risks coming. Despite some FOMC members advising patience, most analysts forecast a possible shift from three to four rate hikes in 2018. March rate hike becomes imminent after the release of the minutes, though the 4 rate hike path may not be communicated in March as the Fed may want to retain flexibility. USD may continue to strengthen in the short term, as market expectations may grow.
- EUR/USD dropped yesterday, breaking the upward trend line incepted since the 18th of December and aimed for the 1.2230 (S1) support line. We see the case for the pair to continue to drop in the short term, albeit at a slower pace as the main effect of the FOMC minutes release weakens. Some support may be provided by the release of the ECB minutes during the day. Technically, in the 1 hour chart, the 100 moving average crossed the 200 moving average possibly signaling a more bearish market and the RSI is approaching 30 in the 4-hour chart possibly signaling an approach of an overcrowded short position. Should the bears keep the upper hand on the pair we could see it breaking the 1.2230 (S1) support level and aim for the 1.2100 (S2) support barrier. Should the bulls take the reins we could see the pair breaking the 1.2355 (R1) resistance line.
Brexit time for UK Cabinet
- The UK Cabinet is to retreat today in order to reach decisions regarding Brexit with just about one year to go to the UK to leave EU. UK’s negotiating targets are to be released via a speech delivered by May next week and today’s meeting is to bring more consensus. On other headlines, UK prime minister May seems to be in favor of EU citizens staying in the UK after Brexit. Also, it seems to be the case that the UK aims to strike a deal with the EU for a longer transition period by March. GBP could strengthen in the short term as positive headlines could emerge for Brexit in the next few days.
- Cable traded in a sideways manner, however with a bearish tone as UK’s employment data had a negative surprise in store for the market. The pair aimed for the 1.3850 (S1) support line, however, did not break it. We see the case for the pair to trade with a bearish mood as a positive USD sentiment may overshadow any Brexit news. Technically the 100 moving average crossed the 200 moving average possibly signaling a bearish market. Should the bears continue to be in the driver’s seat we could see the pair breaking the upward trend line incepted since the 11th of January as well as the 1.3850 (S1) support line, aiming for the 1.3750 (S2) support barrier. Should the bulls have the upper hand, we could see the pair aiming and even breaching the 1.4040 (R1) resistance line.
In today’s other economic events:
- During European morning we get France’s HICP for January and Business Climate indicator for February and from Germany we get the Ifo Business Climate indicator for February. Later on, ECB’s January meeting minutes will be released. In the American session, the Canadian retail sales data for December are to be released and later on from the US the Crude Oil Inventories. Last but not least, New Zealand’s retail sales data for quarter 4 are due out.
- As for speakers, FOMC members Dudley, Bostic and Dallas Fed President Kaplan speak.
EUR/USD
Support: 1.2230(S1), 1.2100(S2), 1.1920(S3)
Resistance: 1.2355(R1), 1.2455(R2), 1.2600(R3)
Support: 1.3850(S1), 1.3750(S2), 1.3615(S3)
Resistance: 1.4040(R1), 1.4168(R2), 1.4325(R3)