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08.04.2021 09:05 AM
EUR/USD: Minutes of the Fed's March meeting was not surprising

The US dollar index made a positive reaction to the minutes of the Fed's March meeting published on Wednesday evening. And although the main topic of the document has already been stated either by Jerome Powell or by his colleagues, the dollar bulls favored the general mood of the Fed's "minutes". In this case, the US dollar strengthened its positions all over the market, although this fundamental factor had a limited impact. The published minutes only slowed down the decline in the dollar index, and suspended the growth of EUR/USD.

Yesterday, buyers of the pair managed to test the resistance level of 1.1910 (Kijun-sen line on the daily chart), but they moved to the middle of the 1.18 mark at the end of the US session. Such price dynamics confirms once again the fact that the growth prospects of the EUR/USD pair solely depend on the behavior of the US dollar, as the Euro currency cannot take the lead. As soon as the US currency stopped its decline, the pair immediately retreated from the reached peaks. This indicates that the corrective movement is weak.

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It is also worth noting that the Fed's minutes did not tell traders anything new – based on the general tone of the document, all the "hawkish" conclusions of traders are subjective. Following the results of the March meeting of the FRS, the US dollar weakened all over the market due to Powell's dovish comments. He convinced traders that the regulator will stick to the accommodative policy no matter what, that is, despite the V-shaped recovery of the US economy and despite the growth of inflation, even if it exceeds the target level. The Fed Chairman also emphasized that the US economy is recovering unevenly, and the current inflation remains below the 2% target level. And in general, the future prospects largely depend on the situation with the coronavirus and vaccination. Thus, this means that uncertainty remains, which does not allow us to talk about the temporary guidelines for raising the interest rate.

But if we talk about temporary benchmarks, then the Fed's point forecast, which was also published following the results of the March meeting, came to the aid of investors. It was known that at the time of the meeting, four representatives of the Committee expected a rate increase as early as 2022 (at the December meeting, only one representative of the Fed held this opinion). But in March, the number of those who expect a rate increase no earlier than 2023 also increased – if there were five of them in December, then at the last meeting, their number increased to seven.

In fact, yesterday's temporary benchmarks strengthened the position of the US currency. The fact is that the regulator in the minutes of the March meeting indicated that the fulfillment of the conditions that are necessary for the curtailment of the incentive program will take some time. Under these conditions, the regulator means "significant progress towards achieving full employment and price stability." In this case, it should be noted that wordplay is essential, since the change in wording may indicate a more "hawkish" or a "dovish" mood of the members of the regulator. Earlier in the minutes of previous meetings, the Fed used the phrase "for a long period of time", assessing the prospects for maintaining the current parameters of monetary policy. The phrase "for a while" is somewhat vague, but still allows us to say that the Fed hypothetically allows the idea of an early curtailment of QE, if the key macroeconomic indicators continue to show strong growth.

However, such conclusions are quite controversial and subjectively evaluative in nature, since Jerome Powell himself regularly refutes the presence of any "hawkish" intentions, believing that the spasmodic inflationary growth will be temporary, and the US economy is still just starting its recovery.

But judging by the reaction of dollar pairs, traders paid attention to the tone (change of wording) of the published document, since the document did not say anything significantly new. All the main messages were voiced earlier either by Powell or other Fed members.

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The Fed's minutes supported the US dollar temporarily, but failed to dramatically change the situation in dollar pairs, including the EUR/USD pair. Therefore, the US dollar may continue to show short-term weakness in anticipation of the next information impulse.

Technically, buyers of the pair were able to consolidate above the level of 1.1850, breaking the middle line of the Bollinger Bands indicator on the daily chart. However, it is still too early to talk about signs of a trend reversal – at least, buyers of EUR/USD should consolidate above the Kijun-sen line at D1 (1.1910), which failed to be tested yesterday. If this target is successfully reached, the Ichimoku indicator will form a "Golden Cross" signal: this will allow the EUR/USD bulls to count on testing the upper line of the Bollinger Bands indicator, which corresponds to the level of 1.2010.

However, it should be recalled that the upward trend is due solely to the weakness of the dollar, and not to the strengthening of the euro. Therefore, if the upward impulse fades in the range of 1.1850-1.1910, the bears will quickly take control and continue the downward trend.

Irina Manzenko,
الخبير التحليلي لدى شركة إنستافوركس
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