EUR/USD: Holds above 1.16, focus on Fed minutes

  • The EUR/USD is in a holding pattern above 1.16.
  • Fed minutes to show policymakers discussed interest rate ceilings, the impact of a trade war, inflation and flattening yield curve.
  • The USD will likely pick up strong bid if minutes reveal scope for an upward revision of neutral rate.

The EUR/USD sits well above 1.16, having built a nice basing pattern around 1.15 in the last few weeks and could gain altitude if the Fed minutes, due today, take some wind out of the hawkish June policy statement.

The US central bank hiked rates by 25 basis points in June, escalated the pace of rate hikes and kept the neutral rate unchanged at 2.9 percent.

The USD could pick up a strong bid if the minutes reveal a discussion on the higher neutral rate. Meanwhile, the USD may take a beating if the minutes show a higher degree of inflation tolerance. Further, the minutes are also expected to show a debate the policymakers discussed the impact of a trade war on the US economy, a stronger dollar and a flattening yield curve.

Note that the probability of an ECB rate hike in September 2019 has reportedly jumped to 80% from 69%. So, the EUR/USD could rise sharply if the Fed minutes put more stress on topics like trade war, flattening yield curve and show a higher tolerance for inflation.

EUR/USD Technical Levels

Resistance: 1.1690 (July 2 high), 1.1751 (downward sloping 50-day moving average), 1.1852 (June 14 high).

Support: 1.1642 (10-day MA), 1.1508 (June 21 low), 1.1448 (50% Fib R of Jan 2017 low - Feb 2018 high).


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