FOMC Preview: What to expect of EUR/USD?

The US dollar jumped in the market on Wednesday after the release of economic data and before the FOMC minutes. It resumed the rally that started days before the US elections. Greenback awaits the minutes, consolidating important daily gains, near the highs. 

EUR/USD has been stabilized during the last hours, after bottoming at 1.0525, fresh 2016 low. It has been moving between 1.0565 and 1.0530. The pair continues to hold a bearish tone, looking at 2015 lows, that lie at 1.0460. 

Will it have an impact?

The US dollar has already rallied on Wednesday and market expectations about a December rate hike are around 95% according to the CME Group Fed Watch. Market odds are clearly tilted toward a rate hike and if the minutes show high probabilities of a December rate hike, market impact could be limited. Although, if the USD continues to move in line with the main trend it could extend gains or at least rise to test daily highs. Any mention about the path of monetary policy beyond 2017, could receive market attention.

On the other side, a surprise would be if the minutes send a message, that lowers Fed rate hike expectations. That could weaken the USD, favoring a bullish correction in the EUR/USD pair. From the current level, key resistances are seen at 1.0600 and above here around 1.0660/70 (Nov 21 & 22 high). 

The minutes are from the November meeting when the FOMC decided, as expected, to leave interest rates unchanged at 0.25-0.5%. The central bank said in that statement that the case for an increase in rates has “continued to strengthen”, giving more signals of a rate hike over the next meetings. Two members (Mester and George) voted  against the decision to kept rates unchanged and asked for a rate hike. 

“Participation will lighten up by then, and the minutes are unlikely to tell investors anything that they did not already know.  Most participants anticipate a hike shortly”, said analysts from Brown Brothers Harriman. 

Since the November meeting the US dollar has rallied, Trump won the elections, yields soared and US equity indexes reached record highs. A lot has happen since then and even today, it has been a volatile day. The impact of the minutes could be limited on investors expectations, that appear to be looking more at 2017, rather than the December meeting. But taking into account that tomorrow will be a holiday in the US, there could be more moves in the market. Would those moves be a USD correction or would it resume the trend? 

FOMC meeting minutes: Will it add any new information to the markets?