Fed’s meeting minutes the main event

In a sign of broader strength after a weak open in 2023, the USD rose significantly against its major counterparts yesterday, yet in today’s session it relented some ground, as traders turned cautious ahead of the highly anticipated Fed’s December meeting minutes. The Euro was among the biggest losers yesterday weighed by the stronger dollar as well as the unexpected drop of the preliminary yoy HICP rate of Germany, which showcased that inflationary pressures fell sharply from 11.3% to 9.6% in the month of December. The expectation was for an easing to 10.7%. The benchmark US 10year treasury yield opened sharply lower yesterday, reflecting investors’ concerns that the US economy may slip into a recession later this year, as the grim warnings by the IMF for sluggish growth, echoed through the market. Adding more fuel to the fire, Alan Greenspan, a former Fed said a recession is the “most likely outcome” for the world’s largest economy. US stock markets finished the session in the reds as looming recession fears crippled sentiment. Tesla received a heavy beating yesterday, as it plunged by more than 12% after the electric vehicle maker announced that it missed its 2022 delivery target. Later today, market participants will be awaiting in anticipation for the release of the Fed’s December meeting minutes which may hold valuable clues in regards to the views and opinions of FOMC policy makers.

Analysts will be sifting through the data, looking for any sign of divergence in the narrative as well as the views of the committee, since a deviation could possibly foretell that the bank’s unanimous commitment may be fracturing, posing a threat to its credibility in the eyes of the market. The report is also expected to shed light in where Fed officials see the terminal rate being, at the end of the central bank’s tightening efforts. At the December’s decision the forecast was upwardly revised to 5% according to the renewed dot plot, as the apparent tightness of the US labour market practically allows the Fed to continue with more hikes in its attempt to curb inflationary pressures. A fresh round of employment data out of the US is scheduled on Friday and it is widely expected to be the key driver for the greenback’s performance this month. Moreover, later today the release of the ISM Manufacturing PMI for December will provide an update on the manufacturing activity across the US. According to expectations the figure is expected to record another contraction, easing further to the 48.5 level compared to the 49.0 of the prior month. Should the actual figure meet the expectation we may see the USD on the retreat, as the result may reflect weakening client demand due to inflationary pressures and economic uncertainty.

USDIndex rose sharply yesterday reaching the 104.60 (R1) where it encountered heavy resistance. We hold a sideway bias for the index with its price action being confined between 103.70 (S1) and 104.60 (R1). Should the bears reign, we may see the pair breaking the 103.70 (S1) support line and aim for the 103.10 (S2) support level. Should on the other hand buyers take charge of the pair’s direction, we may see the pair rising, breaking the 104.60 (R1) resistance line and head for the 105.30 (R2) resistance barrier.

US500 fell yesterday yet it still remains confined between 3780 (S1) and 3900 (R1) levels. We hold a sideways bias ahead of today’s Fed meeting minutes. Should the bulls reign over, we may see the index break the 3900 (R1) line and aim for the 4010 (R2) level. Should the bears take over, we may see the price action break below 3780 (S1) line and aim for the 3675 (S2) support level.

Other highlights for the day:

We would also like to highlight Switzerland’s yoy CPI rate and France’s yoy preliminary HICP print both for the month of December. Furthermore we note, the release of the S&P Global Services PMI figure for December for both France and the Eurozone. In tomorrow’s early Asian session we point out the release of the final Services PMI figure for December by Australia, but also China’s Caixin Services PMI figure for the same month.

USDIndex H4 Chart

Support: 103.70 (S1), 103.10 (S2), 102.55 (S3)

Resistance: 104.60 (R1), 105.30 (R2), 106.00 (R3)

US500 H4 Chart

Support: 3780 (S1), 3675 (S2), 3570 (S3)

Resistance 3900 (R1), 4010 (R2), 4140 (R3)

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