Article Highlights

  • FOMC minutes: Rate hike appropriate “fairly soon”
  • FOMC minutes: Even with gov’t uncertainty, risks remain roughly balanced
  • FOMC policymakers discussed downside risks from strong dollar
  • FOMC noted increasing upside risks to U.S. economy
  • French politics: Macron gains lead over Le Pen in recent poll
  • Canadian headline retail sales down 0.5% in Dec vs. projected 0.1% uptick
  • Canadian core retail sales down 0.3% in Dec vs. estimated 0.8% gain
  • U.S. existing home sales up from 5.51M to 5.69M vs. 5.55M forecast
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Rally and reverse! The U.S. dollar was off to a good start but was unable to hold on to its lead when the FOMC minutes didn’t seem all that hawkish.

Major Events:

FOMC meeting minutes – Market expectations are running really high for a March Fed rate hike so it’s understandable that dollar traders weren’t THAT impressed by the latest FOMC meeting minutes. After all, the transcript of the policymakers’ huddle last January 31 revealed that a rate hike is appropriate “fairly soon” provided that “incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee’s maximum-employment and inflation objectives increased.”

In other words, the Fed minutes appear to be suggesting that a March rate hike is possible only if the next batch of jobs and CPI reports don’t disappoint. Policymakers also noted that, even with all the uncertainty going on in the Trump administration these days, near-term economic risks remain roughly balanced and slightly tilted to the upside. They also mentioned that measures of consumer and business sentiment have improved and that they might even need to consider tightening at a faster pace.

In particular, if the U.S. economy shows signs of undershooting its longer-run normal unemployment rate while exhibiting faster economic growth, some members judged that the FOMC would need to hike more quickly. However, a few others argued that inflation expectations are still running low and that there are downside risks that could stem from a stronger dollar. Either way, a good number seemed to be on board with “continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting” since this would give the central bank more flexibility in adjusting to future changes in economic conditions.

Downbeat Canadian retail sales data  – The economic situation wasn’t as sunny in the Great White North as retail sales figures revealed that Canadians weren’t in a shopping mood last December. Headline retail sales fell 0.5% versus the projected 0.1% uptick while the core figure printed a 0.3% drop instead of rising by 0.8%. To top it off, the November core figure was downgraded to show a 0.1% dip from the earlier 0.1% increase.

Components of the December report indicated that the slump was primarily due to lower sales at motor vehicle and parts dealers, putting the three-month positive streak in consumer spending to a screeching halt. Even with the holiday season, sales at clothing and accessories stores were down, along with purchases of electronics and appliances. Other components such as purchases in food and beverage stores, supermarkets and grocery stores, and gasoline stations posted gains.

Major Market Movers:

EUR –  The euro was the comeback kid for the session as it recouped its earlier losses when the latest updates suggested that a Le Pen victory isn’t in the bag just yet. In case you’re wondering why this is a big deal, check out Forex Gump’s article on French politics.

EUR/USD bounced off a low of 1.0493 to a high of 1.0575, EUR/JPY found support at 118.59 then rallied back to a high of 119.86, EUR/GBP rebounded from the .8400 area to test the .8500 resistance, and EUR/AUD climbed back to the 1.3750 region.

USD –  The scrilla wound up returning some of its gains after the release of the FOMC minutes as bulls realized that the next batch of jobs and CPI reports could make or break the chances of a March hike.

USD/JPY fell sharply from a high of 113.59 to a low of 113.02, USD/CHF retreated from a high of 1.0140 to a low of 1.0092, USD/CAD dropped from 1.3210 to a low of 1.3142, and NZD/USD popped higher to .7199.

Watch Out For:

  • 12:30 am GMT: Australian private capital expenditure q/q (-0.4% expected, -4.0% previous)

See also:

London Session Recap

Asian Session Recap

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