Will FOMC Minutes Boost the Buck?

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Market Drivers April 6, 2016

CNY Services bit better
FOMC Minutes on tap
Nikkei -0.11% Dax -0.27%
Oil $36/bbl
Gold $1226/oz.

Europe and Asia:
CNY Caixin 52.2 vs. 51.2

North America:
CAD Ivey PMI 10:00
USD FOMC Minutes 14:00

It’s been a quiet night of trade in the currency market with yen demand dominating trade in all the major pairs as risk on/risk off flow pushed the major up and down in 50 pip ranges. Cable continued to be the weakest major with GBP/USD falling through the 1.4100 level in early morning London dealing.

EUR/GBP which has been in a one way uptrend for more than a month hit a high of 8056 after breaking the key 8000 barrier a few days ago. Sterling is finally feeling the brunt of investor anxiety as more and more UK companies delay their capital spending plans in fear of possible UK exit from the EU.

As we noted last week, the prospects for Brexit should weaken markedly, the more cable falls, as UK citizens will begin to feel the weight of their decision. For now however, the pair remains under heavy assault and 1.4000 could give way before the end of the day as shorts look to have full control of the trade for the moment.

With eco calendar barren today, the focus in the market will be on the FOMC minutes due at 1800 GMT. The market wants to understand the sharp dichotomy between the very dovish stance of Fed Chair Janet Yellen versus the other more hawkish members of the committee. Most importantly traders will want to see any discussion of possible rate hikes over the next two meetings, given the current tempered expectations that predict only one hike this year.

Ms. Yellen’s dovish message has been the primary cause for dollar weakness over the past two weeks – a move that has resulted in driving USD/JPY towards the 110.00 level which pushing 10 year yields back to 1.70% mark. However, if today’s FOMC minutes suggest that the committee is far more amenable to tightening than the consensus view, the greenback could see a rally at the end of the day and USD/JPY could retake the 111.00 figure which has served as key support for more than a year.

Boris Schlossberg
Managing Director

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