21.02.201902:43 Forex Analysis & Reviews: EUR/USD. What will the minutes of the Fed reveal?

The minutes of the January Federal Reserve meeting will be published tonight - the so-called "minutes". The results of the regulator's first meeting this year were disappointing for the US dollar. The Fed finally confirmed its policy of slowing down the tightening of monetary policy. In the text of the accompanying statement, as well as during the speech of the Fed chairman, the word "patience" was often mentioned, therefore the market does not expect any "hawkish" notes from the minutes.

A certain intrigue of today's release remains. The market will first of all evaluate - how monolithic the decision to slow down the rate of rate increase looks. If the number of "doves" will significantly exceed the "hawkish" wing, then the dollar will again be under additional pressure. Yesterday's comments by Loretta Mester (which, by the way, has no voting rights this year) have weakened the greenback throughout the market. This suggests that dollar bulls are still sensitive to the soft statements of members of the Federal Reserve, even though the other central banks of the leading countries of the world have also taken a "defense position". The monetary policy outlook of the Fed is gradually coming to the forefront against the background of the expected breakthrough in the US-China trade negotiations. If Beijing and Washington find a common denominator this week and make a deal before March 1 (or announce it by extending the deadline for additional approvals), the dollar will lose a significant trump card for its growth.

Under these circumstances, the Fed may either increase pressure on the greenback, or become a "saving straw", especially against the background of softening the rhetoric of the ECB and other central banks. It is worth noting that the Fed's report, which will be published today, might provide unexpected support for the US currency. The fact is that the market expects too soft rhetoric from the members of the regulator. If the minutes demonstrates some disagreement within the Committee, the market reaction may disappoint EUR/USD bulls. In my opinion, the dollar can collapse throughout the market only if the regulator hints at a possible pause until the end of this year. And although this option is unlikely, it cannot be ruled out, given the recent speeches of Fed members.

This is not just about Loretta Mester, who was mentioned above. Today, her position was repeated by one of the most influential members of the regulator - the head of the Federal Reserve Bank of New York, John Williams. Moreover, he stated that he did not see the need to raise the rates - only if circumstances of a "shocking" nature emerge. In his opinion, the rate has already reached its neutral level - at least the lower limit of this range.

This rhetoric is very consonant with the position of Fed Chairman Jerome Powell, who at the end of last year designated the neutral level range of 2.5% -3.5%, while declaring that the monetary tightening cycle was gradually coming to an end. This year, the US regulator can more clearly articulate its idea: the rate has reached a neutral level, then the Fed will act according to circumstances, responding to incoming data. Although these findings have long been floating in the air, their "fixation" will provoke strong volatility in the market, and this volatility will not be in favor of the dollar. By the way, Williams in today's speech added that the Fed will continue to reduce the volume of the bond portfolio on the balance sheet - according to his estimates, the reduction process may end when the balance drops to one trillion dollars.

In general, the dynamics of today's trading confirms the fears of investors: the euro/dollar pair froze in a flat, especially against the background of a half-empty economic calendar. Here it is worth recalling that, in addition to the publication of the Fed minutes, the results of the meeting between the British prime minister and the head of the European Commission will be announced. If, despite all the circumstances, they will be able to move the situation from a dead point, the single currency will receive a strong enough support, which will undoubtedly affect the dynamics of the EUR/USD pair.

Thus, the events of today's evening can either lead the pair to the borders of the 14th figure (with an attempt to test), or return to the area of the 12th figure). Fundamental factors are too unpredictable, so it is almost impossible to talk about the probability of the implementation of a particular scenario.

From a technical point of view, it is important for EUR/USD bulls to stay above 1,1305 (Tenkan-sen line) in order for it to not lose the potential for growth and approach the next resistance level of 1,1390 (the lower limit of the Kumo cloud on the daily chart). Bears of the pair, in turn, need to consolidate below 1.1270 – in this case, the Ichimoku indicator will form a bearish "Parade of lines" signal, and the price itself will be between the middle and lower lines of the Bollinger Bands indicator on the same timeframe.