USD Under Pressure

The US Dollar has come under fresh selling pressure this week on the back of the November FOMC minutes released last night. The minutes revealed that Fed policymakers agreed that smaller rate hikes would be appropriate soon. While there was no focus on a particular meeting, the minute shave been interpreted as increasing the chances of a smaller hike from the Fed next month.

Economic Impact of Tightening

The minutes noted that: “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”. The minutes continued, saying: “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.”

The minutes come on the back of a slew of recent Fed commentary which has been fairly evenly split. Some members have bene pushing for smaller hikes, voicing concerns over the economic impact of tightening. However, others have called for further tightening and even for the Fed to hike rates above the current peak projection.

Market Expectations for December Fed

Despite the USD downturn, market pricing for a larger-than-.5% hike has actually increased recently, moving up to around 40% from around 20% a fortnight ago. With this in mind, risks are fairly well balanced for now with traders awaiting the next data/commentary to help them gauge the likely outcome of the December 14th meeting.

Technical Views

DXY

The sell off from YTD highs has seen price breaking below the corrective bear channel which had been framing the reversal lower. Price has subsequently retested the underside of the broken channel which is now holding as resistance and is currently sitting on support at the 104.95 level. This is a key level and a break here will be firmly bearish, putting focus on 101.27 next.