FX.co ★ The Fed's minutes may disappoint investors

EUR / USD, GBP / USD

On Tuesday, the markets were under moderate pressure due to the expected release of the FOMC meeting minutes later this day. US government bond yields have increased, while the oil fell by 0.8% mainly because of the closure of current futures contract. Gold and aluminum lost more than 1%. The sentiment index in the business circles of the eurozone ZEW fell but came in slightly better than forecasts. German ZEW Economic Sentiment for February was 17.8 against 20.4 in January against expectations of 16.0, while the indicator of the euro area showed a value of 29.3 against the January 31.8 and expectations of 28.4. The January estimate for German producer price index rose by 0.5% against the forecast of 0.3%. The consumer confidence index in the euro area for February was 0 against 1 earlier. Britain's balance of production orders from the CBI for this month amounted to 10 points against the forecast of 12 and the January value of 14, but the British currency did not change by the end of the day.

So, what do investors expect in the "minutes" of the Fed today? The general sentiment of the business press shows the tightening of speech in connection with the latest positive data on inflation. The positive CPI data and other indices that came out after the FOMC meeting on January 31 could possibly be included in the final minutes of meeting, since it is always adjusted by 1-2 weeks prior the publication. But it seems to us that such moods are overly optimistic. Other economic indicators were not in the best shape, particularly the January estimate of industrial production which showed a decrease of 0.1% and capacity utilization fell from 77.7% to 77.5%. Earlier, before inflation became the main ideology of the world's central banks, the Fed closely followed the loading of production capacities and adjusted the rate, depending on the real indicator of business activity. In the current situation, the Fed makes sense to keep the investor's mood only at three rate hikes. The main reason of the Central Bank to maintain a highly aggressive policy is the sharply increased burden on the budget for servicing the current debt of 20.760.158 trillion and will increase by another trillion at the end of the year.

In the afternoon, PMI eurozone will be released its preliminary estimates for the current month. The Manufacturing PMI is expected to decline to 59.2 from 59.6. Services PMI is expected to 57.7 from 58.0 earlier.

According to the United Kingdom, the employment data for January will be issued. The number of applications for unemployment benefits may reduce from 8.6 thousand to 2-4 thousand. The unemployment rate is expected to remain unchanged at 4.3%. Salaries over the past three months may increase by 2.5%. Good data can be on budget needs shows net borrowings of the public sector in January are expected to decline by 11.5 billion pounds against the growth of 1.0 billion in December.

In the United States, the February estimate of Manufacturing PMI by Markit is projected to decrease from 55.5 to 55.5. While PMI is in the service sector, it is expected to increase to 53.8 from 53.3. Sales of houses in the secondary real estate market in January are projected to increase from 5.57 million to 5.61 million. The Fed's minutes will be published at 7:00 PM London time.

As a result, we are expecting the growth of the single European currency and the British pound despite investors' disappointments in the regulator's intentions. The target for the euro is the range 1.2520 / 40, and the British pound at 1.4150.

Nevertheless, we are also considering a negative option which can be realized if the Federal Reserve intends to begin the dollar strengthening, and had written earlier about its reasons. In this case, the minutes can really give a hint of a fourfold increase in the rate, even if it is not planned. In this scenario, the first target of the decline in the euro could be the range of 1.2210 / 30 and further movement towards the level of 1.2120. According to the British pound, the first target is 1.3840, then 1.3740.

USD / JPY

The Japanese yen was able to avoid negative developments. Large investors seem to have intervened in the situation and raised the yen by 165 points for the past three days. The sign of the dollar's redemption against the yen indicates that the growth yesterday was 75 points against the fall of the US stock market by 0.58% (Dow Jones lost 1.01%). Today, the business activity index in the manufacturing sector for the current month showed a decrease to 54.0 from 54.8, with the expectation of growth to 55.2. The activity index in all sectors of the economy grew in January versus the expected 0.5%. On the other hand, the growth of the USD/JPY pair on relatively low volumes indicates the absence of strategic sellers, as the market drop below the 108th figure due to the closure of stop-loss buyers.

The Japanese stock index Nikkei225 is down by 0.34%, the Australian S & P / ASX200 came in at 0.10%, and the Indonesian IDX Composite lose 0.22%.

We are expecting for the price in the range of 108.40 / 70, then at 109.30 and in the range of 109.75 / 90.

* The presented market analysis is informative and does not constitute a guide to the transaction.