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Equities Weakness Following Fed Minutes Prompts US Dollar Recovery

FOREX
  • On Wednesday, the dollar was seen broadly weaker as commodities gained and equities held their ground following a large beat in the December US ADP employment change.
  • EURUSD had extended gains back above the 1.13 mark, slowing edging to session highs of 1.1346.
  • However, with the Fed discussing faster rate liftoff on inflation risk and the minutes of December meeting indicating some discussion of tapering MBS faster than Treasuries, the US dollar reacted positively as US equity indices came under selling pressure.
  • EURUSD gave up around 35 pips to trade below 1.1310, with particular weakness seen in risk proxies where the likes of AUD and CAD fell over 0.5% to fresh session lows post the release.
  • Overall, the US dollar index remains 0.1% lower on the day but is higher for the week as we approach the December NFP report on Friday.
  • Of note, EURGBP is approaching a key support at 0.8333, which when flipped represents 1.2000 in GBP/EUR. While a psychologically significant pivot point, corporate interest ahead of and at this GBP/EUR level bolsters the potential short-term support and medium-term implications of a break below. For reference, there has been just one weekly close below this level since mid-2016 and therefore should be closely monitored in the upcoming trading sessions.
  • Tomorrow in Europe, markets will see preliminary German CPI data before Friday’s Eurozone HICP flash estimate. In the US, ISM Services PMI will headline the docket.
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