US markets reacted to comments from the IMF and meeting minutes from the latest FOMC meeting on Wednesday, causing US stock indices to fall in tandem. The Dow Jones Industrial Average fell -0.56% while US treasury yields rose and the US dollar gained.
While there were few surprises from last month’s FOMC minutes, policymakers appeared divided as to how to market a new guidance plan.
EUR/USD
EUR/USD dropped on Wednesday, as the greenback strengthened, and the pair managed to retrace around half of Tuesday’s 60 pip advance. The currency started the day well above its pivot but soon fell back. The pivot did offer some support to the currency pair, but in the end, EUR/USD finished lower at 1.3734.
Looking ahead, EUR/USD could well be nearing a reversal. The currency has been up for 3 weeks in a row now but each candle has been deteriorating in size.
According to open position data from forex broker, Oanda, the market is also in a significant one-sided state. Only 20% of open positions are short positions even after yesterday’s decline. EUR/USD could easily drop back from here and alleviate the overbought condition.
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GBP/USD
GBP/USD traded in a choppy fashion on Wednesday and could also move downwards from here. The currency went higher last week but has had to deal with mixed signals this week out of the UK.
While there were no surprises from recent BOE meeting minutes, UK unemployment was up, at 7.2%, and inflation was also weaker than expected. Official figures showed UK CPI coming in at 1.6% (versus 1.9% expected).
Deteriorating inflation could delay the BOE’s future rate cut guidance so there is some uncertainty as to cable’s next move. For now, traders should bet against the crowd as the inflation and unemployment could overshadow BOE plans in the short term. Only 25% of open positions are short positions so there is also a one sided bias against longs.
