Yesterday, on August 20th, the US Dollar made a sharp increase against a basket of 6 other majors instantly after the Fed revealed its meeting minutes. The minutes read that the central bankers acknowledge higher inflation along with a better state of affairs in the US labor market.
As the result of this reassuring report, investors regained confidence regarding the first interest rate hike. At this point, most of them expect the Fed to trigger the monetary toughening in mid 2015. Today, on August 21st, the US Dollar continued its rally. As a result, the price managed to set another local high at 82,36.
It should be mentioned that yesterday's meeting minutes published by the Fed indicated that the central bankers are likely to have changed their set of mind from mild to more aggressive. The latest Fed meeting took place on July 29th-30th.
Before the meeting minutes were published, the US Dollar also showed some strength against other majors, which is confirmed by the screenshot below:
After the press release, the situation has changed the following way:
Most market participants preferred the US Dollar other major currencies and even commodities since the Fed acknowledged the fact that key economic indicators including inflation and employment were nearing their targets faster than expected, which may trigger sooner-than-expected monetary toughening. FOMC members say this decision will depend on further economic figures. Clearly, more active job creation favors higher inflation. Still, the rate of inflation may well stay below the 2% target in mid-term perspective, though close to it. Salaries and wages are still growing at a slow rate, which means the US labor market is currently not working to the full.
In order to make its policy more transparent and to avoid negative impact on financial markets, the Fed is planning to come up with a plan aimed at stabilizing the bank's policy long before the first interest rate hike.
It should also be noted that after the press release, US stock indices continued growing, thereby recovering from the decline seen earlier yesterday.
Dow Jones and S&P500 closed the trading day at 0,35% and 0,25% respectively, thereby showing the 3rd consecutive bullish session in a row. Meanwhile, Nasdaq saw a minor decline, thereby closing the day with a 0,02% decline. Wall Street showed one of the lowest trading volumes this year.
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The US bonds went sharply down after the FOMC release, thereby pushing the yield higher.
By the end of the American trading session, the yield was close to 2,42%.
Janet Yellen, who presides over the Fed, is going to make a speech yesterday. The speech will be dedicated to the current state of affairs in the US labor market.
US Dollar Index
According to Masterforex-V Academy, on August 21st, the price is developing a bullish reaction to a strong rally. This is confirmed by the H1 chart of the USD index. The USD index managed to set a new local high at 82,36.
Therefore, the price is moving within a bullish sloping channel. Once the price reaches the bottom of the ascending sloping channel, we are likely to see the price rebounding from it to trigger another upswing within the scope of the rally.
Otherwise, if the price does break and consolidate below the bottom of the MF sloping channel, we are likely to witness a further move down to 82,12, 81,95 and 81,86.
Once the price rebounds from the bottom, this may give way to 82,36, and further up to 82,52 and 82,66 along the red arrow.
