20.05.202108:48 Forex Analysis & Reviews: EUR/USD. Fed's minutes: A dovish document, with a hawkish result

The US dollar index managed to return to the area of the 90th mark before Wednesday's US session ended, showing the strengthening of the US dollar all over the market. Dollar bulls made a positive reaction to the published minutes of the last Fed meeting, the results of which were announced on April 28. It cannot be said that this document was "hawkish" in nature, but traders interpreted some phrases said by members of the regulator in favor of the US currency.

In this case, it should be noted that the current downward pullback of the EUR/USD pair can be considered a reason to open long positions. The supporters of the strong dollar's last hope was literally one phrase, which was announced even before the failed Nonfarm data, volume of the US retail sales data and Fed's "dovish" statements, who calmly assessed the latest inflationary release. In other words, the US dollar is growing on quite shaky fundamental factors, which indicates the riskiness of selling the EUR/USD pair.

So, the general intrigue in the camp of dollar bulls was provoked by only one phrase, which was voiced by one of the members of the Committee. Unfortunately, the minutes do not identify the authors of this or that rhetoric. The document states that "some Fed members said that if the economic recovery continues to gain momentum, it is appropriate at some point to discuss tightening the parameters of the current ultra-soft policy."

In fact, that is all. It was this wording that started the upward correction throughout the market. However, even if this phrase is ignored, it can be concluded that it does not carry "hawkish consequences".

First, the voiced opinion is not the opinion of the majority. This follows from the general tone of the accompanying statement, the subsequent speeches of the Fed Chairman Jerome Powell and many of his colleagues. During the previous week, about 10 representatives of the Federal Reserve spoke, confirming their commitment to the accommodative policy.

Second, this phrase is not about the inflation growth, but about the general economic recovery – in the context of comprehensive, sustainable and uniform growth. It is clear that the dollar bulls projected the voiced thought into the latest inflationary release, which actually reflects the surge in inflation. But after all, many key macroeconomic reports (in particular, the above-mentioned Nonfarm, retail sales, as well as data on industrial production growth) indicate that the US economy is recovering unevenly and with certain disruptions.

Third, if we abstract from other macroeconomic data and focus exclusively on inflation, then questions arise here too. Almost all the Fed representatives, who voiced their opinion last week, urged not to rush to conclusions regarding the prospects for monetary policy. In their opinion, inflation is growing rapidly primarily due to the effect of a low base: current price levels are higher compared to low indicators a year ago, when the US economy felt the consequences of the coronavirus crisis. In particular, the Fed's Vice President Richard Clarida warned that the growth of inflation indicators may be temporary, while for monetary decisions, he said that a stable dynamics is needed. Most of his colleagues agreed with him.

Therefore, the minutes of the Fed meeting in April published yesterday cannot really be called "hawkish", despite the above-mentioned phrase stated by one of the Committee members. The USD bulls took advantage of a very doubtful reason for a correction, while all other fundamental factors are playing against the US currency. This is proven by the corrective pullback: the downward impulse disappeared as soon as the pair returned to the area of the level of 1.21. During the Asian session, the pair was trading in a flat, showing the weakness of both sellers and buyers.

All this suggests that the current downward pullback for the EUR/USD pair can be considered a reason to open long positions. On the D1, W1 and MN time frames, the pair is located between the middle and upper lines of the Bollinger Bands indicator, and above all the lines of the Ichimoku indicator, which formed a bullish signal "Parade of Lines" on W1 and MN. The resistance level is set at 1.2245 (this year's price high updated yesterday). This is the first upward target, which is relatively close. The main target is the level of 1.2305 – upper line of the Bollinger Bands indicator on the weekly time frame. It is too early to talk about higher values.