With the FOMC minutes fast approaching—the release is scheduled for 7:00 pm GMT today—the Dollar Index recently ventured south of its 200-day simple moving average (SMA) at 103.62, a move that many technical analysts may view as an early bearish trend signal.

US equity markets are unchanged as of writing, and the buck is trading off worst levels, poised to retest the underside of the aforementioned SMA. You will also acknowledge that daily flow out of the Dollar Index is rebounding from the lower Bollinger Band (set to two standard deviations based on a 20-day SMA) and the Relative Strength Index (RSI) is within touching distance of its oversold threshold. This echoes a mild bullish vibe and will be reaffirmed if the unit reclaims its position north of the SMA.

FOMC Minutes Unlikely to Rattle Markets

Some desks believe the FOMC minutes will fail to rattle the markets, with traders fully pricing in a hold at December’s rate decision and a 25% implied probability that the Fed could cut as early as March. This contradicts the Fed’s dot-plot that indicates one more rate hike could be seen this year; this is unlikely to come to fruition. Therefore, market participants will likely seek information regarding this in today’s minutes, albeit they are unlikely to get much.

In this morning’s First Light News, the FP Markets Research Team noted the following regarding the upcoming minutes (italics):

Overall, most desks expect the Fed’s vibe to remain unchanged. You will recall that the latest meeting noted that policy is restrictive and that the full effects of policy tightening have yet to be felt.

Since November’s meeting, CPI inflation (YoY) eased to 3.2% amid lower energy prices. Unemployment increased to 3.9% and jobs growth has slowed. Consumer sentiment remains on the downside, keying in a fourth consecutive monthly decline to 60.4 (prelim UoM), with retail sales also registering its first decline since April. Ultimately, this indicates downward pressure on both inflation and growth.

However, according to the advance Q3 release, economic activity jumped to 4.9%, up from 2.1% in Q2. This, as well as core CPI remaining double the Fed’s inflation target at 4.0%, shows there is still some work to be done. Couple this with Fed Chair Jerome Powell leaving the option of a hike on the table, the ‘higher for longer narrative’ is likely to remain for now.

Dollar Index Daily Chart:

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