USD Poised for FOMC Moves

Tonight’s FOMC minutes release will of course be centre stage for traders. The recent squaring of long positions in USD puts the Dollar in a very interesting place ahead of the event because on the one hand, if the minutes are encouraging for USD, there is plenty of room for capital to re-join the long-side, driving USD higher. However, with selling already in place, a subsequent USD slide on the back of the minutes would likely happen very quickly.

Recent Hawkishness from Fed

However, despite the focus on this month’s minutes it is worth noting that we have heard plenty of high-level Fed commentary since then. Most notably, we’ve heard Fed chairman Powell opening the door for even larger rate hikes (above .5%) while reaffirming the Fed’s commitment to tightening. We’ve also heard Powell warning that the Fed is ready to lift rates above neutral if necessary to combat inflation. So, it’s possible that the FOMC minutes come across a little tame in response to these latest comments.

Focus on Impact of Tightening

In terms of what is most likely to create volatility, focus will be on the Fed’s outlook on how the economy is likely to perform alongside its tightening program. If the Fed sounds overly cautious about the prospect of a downturn later in the year, this will be risk-off for markets likely fuelling USD safe-haven support.

Check This Out

For those of you interested in learning how to interpret and decipher FOMC minutes, there’s a great Bloomberg interview here with a former Fed member breaking down her advice.

Technical Views

DXY

The correction lower in the Dollar Index has seen the market breaking down through several key levels. With both MACD and RSI bearish, the near-term focus is on a continuation lower and a test of the bull channel low and support around the 100.93 mark. This will be a key pivot and if bulls fail to defend here, the risks of a much deeper move lower increase.