The US currency ignored the minutes of the last Federal Reserve meeting that was published yesterday, although dollar bulls, as a rule, do not ignore this document. But this time everything was too predictable – it is obvious that the Fed will hold a pause after the mad March, when the central bank urgently trimmed the interest rate twice, bringing it almost to zero. Actually, this idea runs through the minutes of the last meeting of the Fed members.
The document states that the Fed will keep the rate at the current level until the US economy copes with the consequences of "recent events", and will not be on the way to achieving maximum employment and price stability goals. The last meeting was held unscheduled on March 15, that is, before the first failed releases on the US labor market. But it seems that the Fed members foresaw such a scenario (I wonder if it is on such a scale).
It is worth recalling here that the latest NonFarms data, which has yet to fully reflect the epidemic's consequences, were weaker than even the weakest forecasts. The number of people employed in the non-agricultural sector decreased by 700,000 in March, while the forecast was of a decline of 100,000. The number of employees in the private sector of the economy decreased by 713,000, while it fell by 18,000 in the manufacturing sector. The unemployment rate jumped from 3.5% to 4.4%. And according to some experts, the real situation is much worse. First, although NonFarms reflect the situation after the beginning of the epidemic, they are still two weeks behind the report on applications for unemployment benefits. According to data, some states do not have time to process requests on time, so even such a huge increase may be understated. According to experts, the dynamics of growth in these applications corresponds to a 10% unemployment rate.
Given the rhetoric of the above minutes, it can be assumed that the regulator will return to the issue of raising the rate only when the unemployment rate stabilizes around the five percent mark. In the meantime, the US market is experiencing the opposite dynamics. For example, data on the increase in the number of applications for unemployment benefits is expected to be released today in the US. This figure increased by three million the week before last, and by six million last week, and it is expected to have similar dynamics this week – five and a half million new applications.
And if the Fed's minutes was ignored by dollar bulls (since its main theses were voiced by Powell earlier), today's release could cause some volatility for the pair – especially if the indicator exceeds the 6-million mark. It is also necessary to pay attention to the US producer price index, which is an early signal of changes in inflationary trends. It declined quite significantly in February – on a monthly basis, and it fell into a negative area and updated the two-year low. A decline is also expected in March, both in monthly and annual terms. If this index also comes out in the red zone, this will put background pressure on the greenback, especially in the run-up to the publication of key inflation data (the release is expected tomorrow).
The consumer sentiment index from the University of Michigan is also of some interest – a preliminary estimate for April will be published today. Over the course of six months, that is, from September to February, this indicator has consistently and steadily increased, reaching its peak at 101 points. But it sharply fell to 89 points in March. A further decline is expected today, according to preliminary forecasts - up to 80 points. In this case, the fact of the decline has already been taken into account in prices, but if the index falls below the 80-point value, the dollar bulls' reaction will be negative.
However, if we directly talk about the euro-dollar pair, we should still maintain a wait-and-see position until the market reacts to the results of today's negotiations between the EU finance ministers. Let me remind you that the previous 16-hour negotiations ended without result: the warring parties (the southern European countries "led" by Italy and the northern states "led" by Germany) stood by their positions and could not agree on a package of financial assistance.
They will try again today. And here it is necessary to emphasize that the European currency will sharply react to any outcome of today's dialogue – the only question is in which direction. If the negotiators still find a compromise, the EUR/USD pair will not only enter the ninth figure, but also go further, to the Kumo cloud on the daily chart, that is, to the borders of the 10th price level. But if the ministers take another timeout, the pair will collapse to the local low of 1.0763, and if it breaks through – to the bottom of the seventh figure. Do not rush in making trade decisions in view of this uncertainty – the direction in which the pendulum will swing will be clear in the next 24 hours.
The material has been provided by InstaForex Company - www.instaforex.com