Yesterday was dominated by a weakening U.S. dollar, which extended its slide against the euro and British pound after the market interpreted the FOMC minutes as slightly dovish. While Fed policy makers see another rate hike this year, many issued concern that low inflation was not a temporary phenomenon. The priced-in probability of a December rate hike is still unchanged around 75 percent but if Fed officials believe that inflation could stay low for longer, then they might be less inclined to stay committed to a steep rate hike path in the future. The minutes were neither more dovish nor more hawkish but market participants interpreted the increasing concern about inflation as dollar-negative.
The focus now shifts to tomorrow’s U.S. Consumer price report, which, if positive, could boost the dollar.
The euro rose steadily up to a high of 1.1878 and the linear movement seems quite an atypical performance of the market. The 1.19-level could now serve as a ‘make-it’ or ‘break-it’ barrier. If the euro is able to break significantly above 1.1910, we expect further gains towards 1.20 and possibly even the September high of 1.2092. If the price, however, remains below the 1.19-barrier, the euro could start giving up some gains and may fall back towards 1.1780. Moreover, we bear I mind that the RSI index approaches overbought territory, a situation that could limit near-term gains in the euro.
ECB President Mario Draghi will hold a speech today at 14:30 UTC in Washington and if he touches on monetary policy the euro could respond to his comments with volatile swings.
The GBP/USD traded range-bound between our entry levels at 1.3235 on the upper and 1.3175 on the lower side. During the Asian trading session, the pound sterling was finally able to break above 1.3235 and rose to a high of 1.3265. As mentioned in previous analysis, we expect a next resistance near 1.33 and this level could be crucial for the future price development in the cable.
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