Today, the minutes of the last FOMC meeting will be released. The minutes could give traders some insight into how the FED members are thinking about the economic situation and what the rate path will be going forward. However, today’s FOMC minutes may be much less important as a market driver because, after the last meeting, the jobs report was released with a massive surprise. Nonfarm payrolls increased by more than half a million without a significant fall in average earnings. Unemployment fell to 3.4% while the participation rate jumped, a rare sight which shows how strong the labor market is in the US right now.
After the big jobs report surprise, terminal rate expectations increased dramatically to over 5.3%, and the 10-year bond yield also jumped as it is testing the 2-year downtrend when the report was announced. Now the yield is near 4%, and the terminal rate pricing in the markets is where the FED wants it to be before the last FOMC meeting.
The jobs report was not the only economic data that could cause more hawkishness for FED members. The slowing of CPI also slowed down, mainly with the help of the strong service sector. Almost all the data that has come since early February signals a strong service sector with increasing prices, workers, and activity. However, today’s minutes will not be updated with all the new data, and because of that, it could be more dovish and could give the dollar index and S&P 500 a breather.
Here are some of the main topics for today’s minutes that the markets can focus on:
- Did the FED raise the rates by 25 basis points? Mester, a non-voter for the current year, stated that she supported a 50 basis point increase. The 25 points were unanimous with voters, but how many non-voters supported the decision?
- What are the thoughts about the terminal rate and how long it could take before rate cuts begin? The markets expect at least one cut before the year-end.
- Powell stated at the press conference that “the disinflation process has begun.” How many members think the same could be important, despite it being outdated?
Are FED members worried about loosening financial conditions and the gap between FED forecasts and market pricing? It could be important for how hawkish the FED can be going forward.
S&P 500 was holding strong until last week, but now rising VIX and yields are starting to take their toll on the index. A rising wedge formation is not a pretty sight, and the relative momentum index also gave a sell signal. The wedge formation’s lower line is supported by the 50-day moving average, creating strong support just below 4000. If this support is broken, it could trigger a short-term panic sell. However, the broken 14-month-long downtrend (orange) near 3900, with Fibonacci %38.2 retracement level, could also hold down pressure.
For upward moves, possible targets to follow are 4195-4210, if the minutes will be extra dovish.
Unlike the S&P, EURUSD has formed a falling wedge formation which usually tends to break upwards. There is strong resistance around 1.07, and if broken, the price could lead to the %38.2 retracement level at 1.0775 in the short-term. However, the FED’s favorite inflation indicator PCE will be announced on Friday, and up moves could be limited at least until the data is released. On the downside, the 1.06-1.0615 zone is the main support at the moment. When, as rare as it is, falling wedge formations break to the downside, they usually come with great force. EURUSD bulls should be careful if the 1.06-1.0615 support is broken after the minutes. The possible downside targets could be 1.05 and 1.0340.
