The FOMC Minutes Will Determine Sentiments on Majors

From the middle of April, the dollar index (#DX) has been showing a pronounced upward trend. During this period, the US dollar has strengthened against the basket of world currencies by more than 4.5%. At the moment, #DX is testing annual highs. Demand for the US currency is still high amid rising yields of US 10-year government bonds. The indicator has risen to the highs of 2011 and has reached the level of 3.12%.

The key event in the current trading week will be publication of the minutes of the last FOMC meeting on May 23 (at 21:00 GMT+3:00). This report has a significant impact on the dynamics of major currency pairs. The minutes disclose the position of the US Central Bank and some FOMC representatives on the monetary policy. The FOMC minutes also contain information on further raising the Fed's key interest rate.

It should be recalled that in 2017, the Fed increased the key interest three times. This year the Central Bank predicts similar rates of tightening the monetary policy. At the same time, positive economic reports, a rapid increase in the yield of US government bonds, as well as optimistic inflation expectations gave reasons for a more aggressive increase in the interest rate. Some experts suggest that the regulator may raise the interest rate four times this year.

US Fed Funds Rate
Source: tradingeconomics.com

If the FOMC reports point to optimistic economic forecasts and more aggressive interest rate increase, the US dollar will continue to strengthen against the majors.

The analysis of the CME exchange data (Chicago Mercantile Exchange) allowed to distinguish the option levels of major players' interest for May 04 – June 08:
  • The resistance zone – 1.2150-1.2250
  • The support zone – 1.1700-1.1800
  • The option balance level – 1.1975
EUR/USD Pattern

At the moment, the EUR/USD currency pair is below the option balance level of 1.1975, which indicates the bearish sentiment. The MACD histogram also signals the power of sellers. The trading instrument is tending potentially to reduce.

If the price fixes below the 1.1700-1.1800 support zone, the EUR/USD quotes are expected to fall further. The immediate goal of profit taking is 1.16500.

Alternative option. If the FOMC minutes are pessimistic, the EUR/USD currency pair may test the option balance level of 1.1975.

When tracking positions, one should use a trailing stop.

by JustForex, 2018.05.22

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