Mon, Mar 27, 2023 @ 23:18 GMT

FOMC Minutes In Focus

Today, the Fed will release the minutes of the March FOMC meeting, where the Committee raised interest rates by 25bps, as was very widely expected. However, the signals we received were not particularly hawkish. Even though the Fed upgraded its forecasts for the US economy, the “dot plot” was left largely unchanged, and Chair Yellen was rather cautious in her press conference.

What we understood at the time was that this hike did not reflect heightened optimism on the economic outlook, and did not imply that future rate hikes will be faster than previously anticipated. It would be interesting to see whether the tone of the minutes is equally cautious, as something like that could push somewhat back market expectations regarding the timing of the next rate hike and thereby hurt USD a little. However, we believe that Friday’s employment data will probably be a much bigger determinant of when investors will anticipate the Fed’s next move and thus, of the near-term direction of the dollar.

USD/JPY traded somewhat higher yesterday, after hitting support near the 110.35 (S1) level. Nevertheless, the recovery remained limited below the 111.00 (R1) resistance. In our view, the fact that the rate fell back below the key obstacle of 111.60 (R2) on Friday shifts the short-term outlook back to cautiously negative. Therefore, we expect a cautious tone in the minutes today to encourage the bears to pull the trigger for another test near the 110.35 (S1). A dip below that line could aim for the psychological zone of 110.00 (S2), where we expect the rate to settle for a while and wait for the NFP.

Second French presidential debate has little impact on the euro

Overnight, the second French presidential debate was rather uneventful, at least in terms of market response. According to a snap poll conducted after the debate, Melenchon was the most convincing performer, followed by Macron, Fillon, and Le Pen in that order. The reaction in the euro was muted after the debate, possibly due to Le Pen’s poor performance, which was in line with what happened at the first debate as well.

Moving forward, we expect EUR traders to pay an increasing amount of attention to this race as we approach Election Day. We expect new opinion polls to have a greater impact on the euro compared to previous ones, considering that polls conducted just a few days before the election may carry greater importance for investors.

Given that Le Pen has lost the first round lead in the polling battle recently, we think that fresh polls showing her behind would simply confirm that that she is unlikely to win and may thereby have little positive impact on the euro. On the other hand, polls that show Le Pen gaining back ground could cause a much larger negative reaction, as they would come as a surprise given the current consensus.

As for the rest of today’s highlights:

During the European day, we get the UK services PMI for March. The forecast is for the index to have risen somewhat. Nonetheless, following the disappointing manufacturing and construction indices, we see the risks surrounding the services forecast as tilted to the downside, perhaps for an unchanged print, or even a decline. In such a case, GBP could extend its recent losses. EUR/GBP is currently trading slightly below the key resistance zone of 0.8600 (R1) following a rebound from near the long-term uptrend line taken from the lows of November 2015. A disappointing services PMI today could prove the cause for a break above that resistance zone and encourage the bulls to remain in the driver’s seat. Such a break could initially open the way for the next resistance of 0.8630 (R2).

From the US, we get the US ADP employment report for March. The private sector is expected to have added 187k jobs, less than the 298k in February, though still a strong number that is likely to raise speculation for the NFP figure to meet its forecast of 185k. We also get the ISM non-manufacturing PMI for March. We don’t expect a major reaction from USD on these releases though, as market participants are likely pay more attention to the Fed minutes later in the day.


Support: 110.35 (S1), 110.00 (S2), 108.80 (S3)

Resistance: 111.00 (R1), 111.60 (R2), 112.20 (R3)


Support: 0.8545 (S1), 0.8500 (S2), 0.8480 (S3)

Resistance: 0.8600 (R1), 0.8630 (R2), 0.8660 (R3)

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