Meeting minutes confirm Fed’s hawkish stance

Despite the December meeting minutes broadcasting the Fed’s hawkish aspirations the greenback failed to rally, closing the day in the reds. The contents of the report once again showcased that policy makers favor ongoing increases in the funds rate to meet the objective and remained resolute at keeping rates elevated for prolonged period until there is sufficient evidence that inflationary pressures are abating. Even though, the recent peak and fall of inflation was welcomed as positive news, the committee will need to keep their monetary policy restrictive enough until they see compelling evidence that inflation is heading lower, closer to the 2% target. The FOMC remained resolute and united in their views as “no participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023“, safeguarding their credibility status in the eyes of the market. The market on the other hand currently bets the Fed would pivot around the end of the second quarter. The main concern of the Fed is in regard to the tightness of the labour market. The central bank foresees that should the tightness persist, inflationary pressures run a critical risk at becoming deeply entrenched and for longer, which could impact the policy trajectory of the Fed. Should the labour market resilience persist the Fed might need to raise rates further and for longer, which invertedly increases the chances of something breaking.

Yesterday, the JOLTs report showcased that there was an increase in job openings in the month of November which supported the USD. Today, the spotlight is expected to fall on the release of the initial jobless claims and the ADP National employment figures as we will get a glimpse on the status of the labour market a day prior to the crucial NFP print. According to forecasts the ADP national employment figure is expected show an increase 150k in terms of changes in non-farm employment, higher than the 127k reported at the last release. In regards to the weekly initial jobless claims figure, it is expected to come out the same as last week, at 225k and should that be the case, the result validates that the jobs market is yet to show any cracks and remains resilient. Later today, St. Louis Fed President Bullard and Atlanta Fed President Bostic are scheduled to deliver speeches. The market anticipates that the FOMC members could provide clarifications and further hints in regards to the central bank’s future plans. Yesterday, Minneapolis Fed President Kashkari stated that the bank has at least 100bps of increases in the pipeline and then hold terminal rate near the 5.4% level in 2023. His forecasts more recently joined numerous other policymakers who see a terminal rate above the 5.1% median expectation.

USDIndex fell yesterday despite a hawkish Fed meeting minutes report. We maintain our sideway bias for the index with its price action being confined between 103.70 (S1) and 104.60 (R1) levels and supporting our case is the RSI indicator that currently registers a value of 51 showcasing indecision surrounding the index. 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.

XAU/USD extended its gains yesterday after the dollar faced shortcomings. We maintain our bullish outlook bias and supporting our case is the RSI indicator which registers a value of 67, showcasing strong bullish sentiment surround the precious . Should the bulls reign over, we may see the index break the 1865 (R1) line and aim for the 1880 (R2) level. Should the bears take over, we may see the price action break below 1846 (S1) line and aim for the 1833 (S2) support level.

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We would also like to highlight the UK and the US final S&P Global Services PMI figure for December, both Canada’s and the US Trade balance reports for November.