EUR/USD. Fed minutes and Trump's anti-China rhetoric

The minutes of the last fed meeting published yesterday were virtually ignored by the market. The US dollar index remained at the same position together with the key US dollar pairs. But during the Asian session on Thursday, there was some volatility wherein investors reacted to another anti-Chinese attack by Donald trump. However, it is not entirely correct to talk about volatility in this case, since in fact currency pairs showed weak price fluctuations of several dozen points. But against the background of General price stagnation, these bursts of activity can be mistaken for volatility.

So, let's start with the fed's "minutes". In General, they were not in favor of the dollar, although the main theses of this document were already voiced by Jerome Powell during the final press conference and subsequent speeches. There's still some intrigue on the eve of the publication of the Protocol. If we will remember, there was a certain split at the September meeting in the camp of the American regulator. Not all members of the Federal reserve agreed with the key phrase of the accompanying statement, which looks like this: "rates near zero will be maintained until labor market conditions are consistent with full employment and annual inflation accelerates to the two percent target level and aims for a moderate excess of this mark."

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Two fed members, Robert Kaplan and Neil Kashkari, disagreed with this statement as their positions were directly opposite. Kaplan insisted that the Fed should maintain a "more flexible approach" to raising interest rates. He opposed the designation of a specific leading indication. While Neil Kashkari on the contrary, called for "guaranteed" to maintain the current level of rates until core inflation shows a steady trend above the two percent target level. The market listened to Kaplan, interpreting signs of a split in the fed camp in favor of the US currency. The dollar briefly went up although it might just as well have fallen if traders had focused on Kashkari's opinion.

The minutes of this meeting published yesterday showed that there are no grounds for hawkish conclusions and the position of Robert Kaplan is "a voice crying in the desert". According to the text of the document, the majority of the regulator's members agreed that rates should be kept near zero until the labor market reaches maximum employment, and inflation does not reach the target two percent level and will exceed the specified level for some time. There is no question of any "flexibility" because of that. Moreover, following the results of the September meeting, the "fed points" (the fed members own forecasts) were published, according to which the regulator will start considering the issue of raising the rate no earlier than 2023 (some of them allowed 2024). The General consensus is that the US economy will recover rather slowly from the recession caused by the coronavirus crisis. Also, the fed members agreed that the regulator will continue to buy Treasury bonds and mortgage – backed bonds (the total amount is more than $ 120 billion per month). At the same time, some members of the Committee (unfortunately, their number is not given) made it clear that they allow changes or increases in the volume of bond purchases in the foreseeable future.

In other words, the Federal reserve has maintained its dovish position: the interest rate will remain at the current level until at least 2023 (the 2024 option is not excluded), and the bond purchase program can only be changed in the direction of increasing its volume. At the same time, the idea of a "flexible approach" was not discussed by the fed members and they did not support it.

After the publication of minutes of the meeting, the dollar was under background pressure. This pressure increased during the Asian session on Thursday, when Donald trump once again attacked China with criticism. In his video message, the US President again accused the Chinese authorities of being negligent about the emergence of the new virus and allowing it to spread around the world, including the United States. The head of the White house said that COVID-19 is China's mistake "and Beijing will pay a big price for its spread."

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It's worth noting here that trump and his supporters have repeatedly accused Beijing of failing to warn the world about the severity and scale of the coronavirus outbreak. According to polls, the "base electorate" of the current President mostly supports this position. Therefore, in this case, trump's anti-Chinese rhetoric must be viewed through the prism of the upcoming presidential election. According to the latest data, Joe Biden after the recent debate significantly increased the gap from the Republican, while the election itself is less than a month away. Given this fact, it is not surprising that trump is trying to make up for lost percentage points with his statements including with the help of anti-Chinese rhetoric. In this case, the market's reaction was restrained. During the election campaign, such statements are part of the campaign.

Thus, the Fed Protocol and Donald Trump put some pressure on the greenback. At the same time, these fundamental factors could not change the situation as a whole – the main currency pairs actually remained in the same positions. If we talk directly about the EUR/USD currency pair, there was a slight increase after the decline to the level of 1.1724. As of this moment, the upward direction trend has faded again, while buyers were unable to leave the area of the 17th figure. In my opinion, the above fundamental factors will have a limited impact. Today, traders will switch to the current news stream. Two events can be distinguished: the publication of the minutes of the last ECB meeting and the release of data on the US labor market (the number of applications for unemployment benefits). Since the pair could not even impulsively overcome the resistance level of 1.1770 (the Kijun-sen line on the daily chart), from the current positions, we can consider a short with a target at 1.1710 (the Tenkan-sen line on the same timeframe).

The material has been provided by InstaForex Company - www.instaforex.com