EUR/USD Long For 1.1960, USD/JPY Short Target Lowered To 110.30

 | Nov 23, 2017 04:34AM ET

EUR/USD: Dollar under pressure after Fed minutes
Macroeconomic overview:

  • Many Federal Reserve policymakers expect that interest rates will have to be raised in the "near term," according to the minutes of the U.S. central bank's last policy meeting released on Wednesday.
  • The readout from the October 31-November 1 meeting, at which the Fed kept rates unchanged, also showed policymakers generally agreed the economy was poised for strong growth. Several Fed officials also saw improved chances that the U.S. Congress would pass significant tax cuts that would boost business investment.
  • While some policymakers said they still needed to see more data before deciding the timing of a rate hike, many of the officials said the jobless rate appeared to be too low for inflation to remain at its current weak level.
  • "Participants expected solid growth in consumer spending in the near term, supported by ongoing strength in the labor market," the Fed said in the minutes. "Many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term."
  • In the minutes, policymakers engaged in what has become a regular debate over why inflation has remained below the Fed's 2% target for several years. Most agreed that tightness in the labor market would likely fuel higher inflation in the medium term.
  • Some of the members who vote on policy, however, expressed concern over the inflation outlook, according to the minutes. These policymakers emphasized they would be looking at upcoming economic data before deciding the timing of future rate rises.
  • A couple of policymakers were concerned enough about persistently weak price gains that they suggested the Fed consider a new framework in which it committed to allowing higher inflation to make up for periods of low price rises.
  • Since the last policy meeting, Yellen has stuck by her prediction that inflation will soon rebound toward the Fed's target, although on Tuesday she said she is "very uncertain" about this and is open to the possibility that prices could remain low for years to come.
  • The USD weakened on the release of minutes from the Federal Reserve's most recent policy meeting and U.S. data.
  • New orders for key U.S.-made capital goods unexpectedly fell in October after three straight months of hefty gains, but a sustained increase in shipments pointed to robust business investment and economic momentum as the year winds down. The Commerce Department on Wednesday said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, declined 0.5% last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1% increase in September.
  • Orders of these so-called core capital goods increased at a 14.5% annualized pace in the three months prior to October, the strongest since June 2013. The market had forecast orders of core capital goods increasing 0.5% last month after a previously reported 1.7% jump in September. Core capital goods orders rose 4.4% on a year-on-year basis.
  • Shipments of core capital goods advanced 0.4% last month after accelerating by 1.2% in September, pushing the annualized three-month pace to 13.1%. Core capital goods shipments are used to calculate equipment spending in the government's GDP measurement. Business spending on equipment has buoyed economic growth for the past four quarters and is expected to make a solid contribution to GDP in the October-December period.
  • The economy's prospects were bolstered by other data on Wednesday showing a decline in the number of Americans filing claims for unemployment benefits. Strong business investment and tightening labor market conditions will likely keep the Federal Reserve on track to raise interest rates next month.
  • We expect thin trading today due to Thanksgiving holiday.
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Technical analysis and trading signals:

  • Bull sentiment is upped as Tuesday’s doji saw an upside extension on Wednesday. RSIs are biased up to bolster a bullish view. An inverse head and shoulders bottom might be forming. If that picture is confirmed strong gains will be likely.
  • We stay long for 1.1960.