The US dollar eyes FOMC meeting minutes and inflation data for direction

The US dollar has been declining for the several days now. The majors such as EURUSD, GBPUSD and AUDUSD has gained a lot of momentum in the few days. On 17th February, there were decent gains for the US dollar. However, the US dollar was again seen on the back foot yesterday. The bearish pressure on the US dollar is not only coming from the major currencies, but also from the commodities. The GOLD and SILVER have managed to register gains in the last two weeks. The SILVER has registered a major bullish break, in my opinion, which might take it towards the 24.0 level if turned out to be true.

Yesterday, the disappointment from the NY Empire state manufacturing index and national association of home builders (NAHB) housing market index ignited further downside for the US dollar. The NAHB housing market index registered decline from 56 to 46, and NY Empire state manufacturing index dived to 4.48 from 12.51. The bad weather was again blamed for the poor housing market index. The official statement says “unusually severe weather conditions across much of the nation along with continued concerns over the cost and availability of labor and lots caused builder confidence in the market for newly-built, single-family homes to post a 10-point drop to 46.” The EURUSD pair traded above the 1.3760 level after the data release.

Now, the coming few sessions are very important for the US dollar. Today at GMT 07:00 PM, the FOMC meeting minutes will be released. The market will be eyeing this particular event very closely. The investors will be keen to know what the fed has to say to the market regarding the recent developments. These are minutes of January meeting at which the Fed decided to reduce the bond purchases by another $10B. If the minutes show optimism towards the US economy, then we may see some dollar buying after the release. There is no doubt that the recent labor data was on the bad side. However, as the Fed’ Janet Yellen mentioned recently that we need to be careful while accessing the data, as there were many factors to look into. One of the main reasons for the same was the bad weather across much of the nation.

I think these minutes will highlight most of the things mentioned by the New Fed Chairman, Janet Yellen. If there are signals that there is no change in the plans, then it would mean that they might stick to the taper plan in the upcoming meeting. This would definitely boost the US dollar, and we can witness some decent correction in the pairs like EURUSD and GBPUSD.

Furthermore, on 20th Feb at GMT 01:30 PM, the US CPI figures will be published. The market is expecting an increase in growth rate in the CPI (YoY) from 1.5% to 1.6%. On the other hand, the market is expecting a decline of 0.2% in the CPI (MoM). If the data does not disappoint, then it will take the inflation one step closer to the Fed’s 2.0% target. This might again be US dollar bullish. So, we need to keep a close eye on this event as well in order to know where the things are going.

Earlier today, in the European session, two key events for the UK are scheduled. The UK employment report will be published along with the BOE meeting minutes. There is no change of votes expected regarding the rate hike or cut. The Claimant Count Change figure is set to register a reading of -20K. The last two readings missed the expectations, and the unemployment level is slowly creeping, as can be seen in the chart below. However, on the other hand, the unemployment rate is expected to remain stable at around the 7.1%. One more decline in the unemployment rate would be very bullish for the GBPUSD.

Technically, there is a clear resistance at around the 1.6820/40 level for the GBPUSD pair. There is also a triangle on the daily chart, as shown in the chart below. The triangle resistance also coincides around the same levels. So, the pair might struggle to trade above the mentioned level. On the downside, the 1.6610/20 may provide support to the pair. A break above or below may call for at least 80-100 pip move for the pair.

So, take note of these levels friends while trading.

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Happy Trading Friends!

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