US Dollar Index (DXY) Continues Recovery as FOMC Minutes Have Minimal Impact

US DOLLAR, EUR/USD KEY POINTS POST FOMC MINUTES:

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The US Federal Reserve released the minutes of the November FOMC meeting a short while ago with no real surprises and a rather subdued market reaction. This shouldn’t come as a surprise given the data and the reaction market participants since then with the recent US Inflation print in particular facilitating a broad sell off in the US Dollar.

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Although the outlook might have changed for Fed members since the meeting some the key takeaways include that the September staff projections remained unchanged. The Fed once again reiterating their desire on data-based decision making while participants noted that further policy tightening would be appropriate if information showed progress to inflation goal was insufficient. As mentioned earlier, the recent CPI print would no doubt have buoyed members but there is still work to do as Fed policymakers have been quick to point out of late.

Fed policymakers do remain unhappy about the limited progress in bringing down core services ex housing inflation while confirming the need to see a more sustained push lower on the inflation front to breathe easier. According to the FedWatch tool, Fed rate expectations little changed after the Fed minutes, first rate cut seen likely in May 2024, fully priced in for June 2024.

Tomorrow is the last day of high impact data from the US for the week with Durable Goods Orders and Michigan Sentiment Final print due. Neither of these are expected to be particularly exciting and could end up having a minimal or short-term impact on the US Dollar.

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US ECONOMY

The US Economy has shown positive signs of late for the Fed in particular as inflation and the labor market show signs of cooling. This should not come as a surprise given the current interest rate environment and factors such as the resumption of student loan repayments at the end of September. This has no doubt affected the consumers pocket and thus have a knock-on effect on demand. This would in tun affect retail sales and thus push prices lower if this momentum continues.

The holiday season and Black Friday lies ahead and could throw a spanner in the works should consumers splurge once more. A difficult task given the current environment but as pointed out by the New York Fed yesterday, the application rate for credit cards continues to remain robust in 2023. This is why the December batch of data may prove to be a tricky one and not represent the overall economic environment. One thing that looks a certainty right now, and that is that any rate hikes at the Fed’s December meeting and early 2024 looks unlikely.

MARKET REACTION

Following the data release the dollar index remained relatively unchanged which shouldn’t come as a surprise. The DXY does face some resistance at the time of writing as it has tapped the 200-day MA which could provide some resistance tomorrow as well.

Dollar Index (DXY) Daily Chart- November 21, 2023

Source: TradingView, prepared by Zain Vawda

EURUSD has already begun its selloff thanks to the DXY recovery today. This has seen EURUSD push below the 1.0900 level with market participants keeping a close eye on whether the move will be sustainable.

Immediate resistance around the 1.0950 area and todays daily high with a break higher leading EURUSD toward the psychological 1.1000 handle.

EURUSD Daily Chart- November 21, 2023

Source: TradingView, prepared by Zain Vawda

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— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda