After skyrocketed in the last three months, Greenback lose steams. Since market opening this week, US Dollar has softened in major currency pairs. Japanese Yen has strengthened as much as 1.7% against the US Dollar, and so did the Euro and Cable.

After skyrocketed in the last three months, Greenback lose steams.  Since market opening this week, US Dollar has softened in major currency pairs. Japanese Yen has strengthened as much as 1.7% against the US Dollar, and so did the Euro and Cable. Correction occured because the currency has already too overbought and surpassed its fundamental basis. However, the trigger of US Dollar sells this time is diminished market expectation on sooner the Fed rate hike due to the disappointing FOMC Meeting Minutes.

PerformaMajor Currencies Performance Against US Dollar In The Last Week

 

Strong US Dollar Might Trim Growth

The release of The Fed FOMC Meeting Minutes is an important event in fundamental calendar. Released two weeks after United States central bank policy meeting that is known as Federal Open Market Commitee (FOMC), the minutes disclose FOMC members' individual opinion and considerations that lead to the Fed's final decision.

As is known, FOMC Meeting is attended by 12 selected Fed officials. After each meeting, the Fed Chief, Janet Yellen, speaks in a press conference and relays FOMC decisions and views regarding rates, stimulus, growth, currenct macroeconomy condition, etc. However, it does not disclose everything that is being talked about in the meeting. Therefore, for transparency purposes, FOMC Meeting Minutes is being published in the next two weeks. The minutes usually talk about individual opinions, as well as their views about the economy that leads to the vote and final decision. In short, FOMC Meeting Minutes provides insight into the works of teh Fed behind the doors. As such, market players closely follow it to gain clues and understanding.

RapatFOMC Members Gathering In March 2014

The latest FOMC meeting minutes revealed several concerns of the Fed FOMC members that diminished market hopes for sooner rate hike. Here is three takeaways from the minutes:



1. The Fed Rate Hike is data-dependent, and it is not tied to a certain calendar schedule.

CNBC reported that the FOMC Meeting Minutes argued about the language used to explain rate hike timing; it is thought that the language they have been using might have led to misapprehensions. Many wanted forward guidance to be revised in order to underline their hint that the Fed rate hike is not going to be determined after a certain period following the end of tapering, but instead depending on economic data.

 

2. Strong Dollar And Weak Global Economy Could Trim Growth.

A number of Fed members mentioned their concern regarding strong US Dollar, while some others take attention on weakening global economy. FOMC Meeting Minutes alluded to the fact that many members cut their GDP growth projections for a year or more, especially for the year of 2015, compared to their projections in June. They considered the less-than-expected consumer spending and perception of lower GDP growth. It also needs to be noted that if consumer spending and global demand lowered, then inflation will stuck too; and that will eliminate the need for the Fed rate hike.

 

3. The Fed remains sure that the current policy could support price stability and the job market.

This is the main point of the last minutes. According to the Fed, inflation and employment report has not shown satisfactory improvement. Unemployment that has fallen to 5.9% in September is said to be due to fallen workforce, instead of increases on employment opportunities. Inflation too, has been going around 1.6% annually. The aforementioned factors provide perfect reasons for the Fed to defend low rate for longer period, or at least until inflation and unemployment is deemed sufficiently good.

The minutes was approved by 10 of the 12 FOMC members. Two hawkish members of the meeting, Richard Fisher and Charles Plosser, once again rejected it. Their hawkish views are well-known, but they are repeatedly failed to bring the meeting to agree into their way of thinking.

 

Will Climb Up Again, US Dollar Watches Inflation

Boris Schlossberg from BK Asset Management wrote that, The short covering rally against the buck has been swift and vicious precisely because the dollar has been so overbought over the past several months as the one way trade became almost a universal view. FOMC Meeting Minutes surprised people because they were already thinking of a sooner Fed rate hike. Further, Schlossberg said that it will now force traders to pay more attention to inflation data rather than growth figures to ascertain the next policy move.

 

Most analysts agreed that US Dollar will come back up.

Quoted by Reuters, Ken Wills from US Forex said, The Fed minutes were a catalyst for the market to take profits on the dollar's strength over the last three weeks. But the dollar will be back, because You just look at the global picture, the concerns in Europe, Japan and emerging markets. They're all slowing and people are leery of equity markets, so there's an awful lot of flows piling into the U.S. Treasury market.

Reuters also quoted Shaun Osborne from TD Securities who said, Unfortunately, there is not a whole lot of conviction in this dollar profit-taking. The euro started moving lower again, and people are saying, That's probably it for the euro because we couldn't get above $1.28. While in fact, greenback's pullback might go on for a bit longer. Osborne mentioned that US dollar tend to weaken in the fourth quarter, and that it might be what happens in the market now.

This morning, US Dollar apparently is trying to climb back up. However, considering how far it has gone in the last three months, there is possibility that correction will occur again. US Dollar is bullish in the long term due to the Fed rate hike outlook, but it will not happen any time soon, so there are opportunities for market players to unwind their long dollars in order to buy again later. This is especially need to be noted if you are going to trade US Dollar with the Euro, Japanese Yen, Poundsterling, and Gold. Observe fundamental calendar to prepare yourselves of the possibility of significant price movements.

 

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