Quick Thoughts on FOMC Minutes and the Dollar

The general tone of the FOMC minutes was considerably more dovish than any one had reason to expect.  It is not simply the case of not raising interest rates any time soon.  A majority wanted to avoid investors thinking otherwise.  Economists often disagree about what the signal is from Fed communication, but this time it seems as obvious as the nose on my face.  

One of the reasons the minutes read dovishly rather than hawkishly, as I and others expected, was that discussion of headwinds to growth.  Weakening impulses from the world, especially Europe, could have knock-on effects in the US.    The dollar's appreciation was largely discussed as a potential drag on growth.  I don't recall so much discussion about the dollar in FOMC minutes for many years, though if someone does a word frequency study, I would be curious of the results.  

US Treasuries and equities rallied.  The S&P 500 posted its biggest gain of the year.  The US 10-year yield fell to test the year's low near 2.30%.  Sufficient technical damage was done to the US dollar that the risk is a deeper and more protracted correction.  In addition the dollar closed on its lows.  

If this is a correction, traders need to take it one step at a time.  Counter-trends are less forgiving. The euro tested $1.2750.  There is immediate resistance in the $1.2775-$1.28; then $1.2860.    Sterling  peaked near $1.6180.  There is immediate scope for $1.6240

The yen was the weakest of the majors.  It was the only one that fell against the dollar. The technicals appear to be the least clear of the majors.  The dollar's five day average is about to cross below the 20-day average, which it has not done since late July.  I would peg resistance near JPY109.30.  A break of JPY107.50 could spur a move toward JPY106.80.  

The Australian dollar is near $0.8850.  The next important level is $0.8870 and then $0.8935.  The US dollar is testing the 20-day moving average against the Canadian dollar near CAD1.1090, after posting an outside down day.  There is scope to test the uptrend of the July and August lows that comes in near CAD1.0965-70.  

The developments in the US will likely lift global stock and bond markets on Thursday.  Emerging markets too can can rally.  The biggest beneficiaries could be more related to market positioning, as in who has been beaten up the most, rather than pure fundamentals.