US policymakers remain focused on higher rates but majors go the other way

Yesterday the focus of the traders was mainly on the release of the Fed minutes from their last FOMC meeting on monetary policy. We have mentioned how important it was for market participants to get some insight on how the Fed is planning to raise rates and more importantly when. However, given the fact that the last meeting was back a couple of weeks ago we expected the minutes to contain the recent bullishness that comes out of the Fed hence we also focused our attention on several Fed members that were delivering speeches yesterday.

What the minutes and the Fed talks had in common was the conviction that the US economy has seen enough progress to justify a higher interest rate policy. And again, it was natural for the Fed to believe this 2 weeks ago but for them to remain firm on their beliefs even today with the global political instability after the Paris attacks is something different.

However, the Dollar didn’t benefit from the content of the minutes and the bullish tone of the US policymakers across the board. After the release of the minutes we have seen a correction lower for the US currency overnight with the likes of the Euro, the Pound and the rest of the major currencies printing gains against the buck. Was there something more that traders expected from the Fed? We don’t think so, maybe this is a technical correction from the overbought Dollar.

The Euro has gained overnight against the Dollar and has printed a 1.0700 high but we have to say that the bias remains bearish. The tone from the Fed (minutes and policymakers’ talks) has been clearly bullish and today the ECB will release their own minutes from their monetary policy meeting and we expect bearish remarks. Should this be the case then we should see the Euro at least testing its previous lows as there is little in terms of news expected from the US today.

The Cable is also higher is morning against the Dollar and has nearly hit the 1.5300 level choosing a weird timing to illustrate strength after a week of sideways trading. Today we should expect more price action as the release of the UK Retail Sales is scheduled for this morning and analysts expect the consumer report to print in a bearish manner. The drop in wages and the decline in spending should translate into a correction in consumer demand and the Pound might suffer from that with the 1.5200 area being the first target.