FOMC Minutes Preview

There have been weeks of tough talk from Fed officials to counter the effect of the latest CPI numbers. The time for some insight into what they discussed in the last FOMC meeting has finally come.

Putting the puzzles together

Remembering what happened to the markets after the last FOMC meeting could give us clues as to what kind of reaction could come from the minutes. Immediately after the decision, the stock market rose, and the dollar weakened as the markets interpreted the statement as more dovish. It was when Powell's press conference later, in which he said that rates might go up more than the market was expecting, that the situation turned around.

Then, of course, we had the reaction of the slower-than-expected CPI, which many took as a sign that the Fed wouldn't be hiking as much. Fed officials have been coming out to dismiss that notion, and the meeting minutes can be adjusted in light of data that comes out afterwards. With the release, Powell has no accompanying presser to put a hawkish spin on it.

What to expect

The Fed is thinking several months ahead, so there can be much more discussion about where the neutral rate is in the minutes. FOMC members wouldn't explicitly talk about a "pivot", but views on the economic situation and how it's expected to evolve in the coming months give some indications.

Given the market's predisposition towards believing good news from the Fed, given how strong the reaction to the last statement was and to the CPI figures, merely talking about when the Fed would start levelling off would likely hone investor appetite. This expectation has been fueling generalised dollar weakness, which has been capitalised on by the Euro, where ECB officials have been talking up raising rates by 75bps at the next meeting. Meanwhile, three-quarters of economists expect the Fed to hike by only 50bps in December.

EUR/USD in rising flag pattern

EUR/USD is forming a rising flat pattern unless it is complete, as two throughs have already followed two peaks. The break past the upper channel trendline might offer an upward spiral to $1.061 (R3), whereas a failure or premature reversal might see the descending consolidation last longer. Sliding outside the lower end of the channel will open the door to $1.01 (S2).

In the short term, $1.0220 (S1) is the support bulls need to defend for a bullish opportunity. On the other hand, $ 1.0395 (R1) is swing resistance under the Nov 15 peak of $1.0480 (R2).

Key takeaways

The market reaction to the last FOMC meeting and the release of slower-than-expected CPI data could give clues as to what kind of reaction to expect from the minutes. Given the market's predisposition towards believing good news from the Fed, merely talking about when the Fed would start levelling off would likely hone investor appetite towards the Euro, as the ECB is expected to hike more than the Fed.