Forex Mid-Day Technical Report
Dollar Higher Ahead of FOMC Minutes, EUR/JPY Remains Strong
Dollar is seen higher against Swiss Franc and Japanese Yen while remaining steady against Euro ahead of FOMC minutes. The minutes will be closely parsed by the markets for clues on future path of monetary policy of the Fed. But we believe that Bernanke should have elaborated most of the important points in the testimony to Joint Economic Committee. Those include change of wordings in last FOMC statement like replacing "additional firming", by "Future policy adjustments" which was then taken by the market as a clue for possible rate cut. Also, economic outlook was somewhat down graded, in particular the housing market was changed from "some tentative signs of stabilization" to "adjustment …is ongoing"
After all, Fed will likely remain hawkish and emphasize inflation as the predominant concern, in particular after core inflation bottomed at 2.6% last Dec and reaccelerated to 2.7% since then. As the economy continues to develop in a way that inflation pressure remains high, labor markets remain tight while capital spending and housing continues to slow down, the Fed's rate decision will become tighter. And hence, believe the most important focus should be the view of individual members and the change in hawkishness and dovishness of individual voting member will become more important. Before the FOMC minutes, Bernanke's speech will be also be closely watched.
Elsewhere, EUR/JPY remains strong and continues to make record higher today. Note that carry trade remains one key market moving factor with swissy and yen, as low yield currencies, continuing to weaken across the board. Sterling was earlier boosted by speculation that Treasury will propose allowing British based multinational companies to repatriate foreign profits free of tax, but upside against dollar is still limited by near term resistance of 1.9824.
