The euro-dollar pair at the start of the European session on Thursday is trading at the border of 5 and 6 figures. The minutes of the Fed's December meeting published Wednesday, on the one hand, did not help the U.S. currency (despite its hawkish nature), but on the other hand, did not allow EUR/USD buyers to develop an upward offensive to the borders of the 7th figure. Although there were such prerequisites, given the weak report on the growth of the ISM manufacturing index.
In general, the results on Wednesday demonstrated the indecision of traders—both buyers and sellers. The Fed's "minutes" did not change the situation and did not tip the scales in one direction or another. As a result, American stock indices ended trading with a slight increase, and the dollar sank slightly throughout the market.
Notably, today the greenback is trying to recover its positions: the U.S. dollar index is showing positive dynamics, and the major currency pairs of the major group are changing their configuration accordingly. All this is happening on the background of almost empty economic calendar. Thursday is not so eventful—the only thing of interest is the ADP report on the U.S. labor market. Also, China's services and composite PMI by Markit, which came out in the green zone, but at the same time, remained below the key 50-point value.
But let's return to the Fed's minutes, which, in my opinion, traders undeservedly ignored. After all, this document has indicated one important signal: the interest rate will remain at high values throughout the current year. While discussions on this issue quite recently (at the end of last year) exerted significant pressure on the greenback. This situation has developed due to lame communication. Following the results of the last two meetings of the Fed, market participants did not receive a clear and distinct answer to an equally clear and definite question: is the U.S. regulator ready to start lowering the interest rate in 2023, responding to the risks of recession and slowing inflation? Federal Reserve officials have tried in one form or another to clarify their position on this issue, but their rhetoric has been vague.
In light of such circumstances, the Fed's minutes published Wednesday are of particular importance for the market since this document, in fact, voiced a peremptory answer to the above question. And that answer is "no."
The text of the minutes indicates that high inflation in the U.S. is only taking root, so a slowdown in the pace of rate hikes should not be interpreted by the market as a change in policy (hawkish) course. The de facto regulator warned markets against expectations (which began to circulate actively in December) of an early reversal in Fed policy in 2023. None of the 19 members of the Fed's top leadership consider it "reasonable and appropriate" to cut the base interest rate in the next 12 months.
The phlegmatic reaction of the market is probably due to the fact that the minutes did not answer other important questions: does the regulator allow the option of a pause in rate hikes, and is it ready to revise downward the final point of the current cycle of monetary policy tightening?
But in my opinion, these questions were answered directly by Jerome Powell at the final press conference. The head of the Fed actually tied the pace of tightening monetary policy to the dynamics of inflationary growth in the United States. He admitted that the central bank could lower the upper limit of the current cycle (if necessary), while New York Federal Reserve President John Williams similarly allowed the option that the central bank could exceed the declared maximum of 5.1%—again, if necessary. In other words, everything depends on the dynamics of inflation indicators.
Thus, the "minutes" of the Fed were on the side of the U.S. currency. It answered the important question in the context of the long-term outlook, but kept the intrigue regarding the prospects for the next six months. Therefore, the reaction of traders was somewhat crumpled—neither in favor of bears nor the bulls of EUR/USD.
The downward scenario was also not realized for a number of other reasons. The dollar came under pressure after the publication of the ISM manufacturing index. The indicator came out in the red zone (48.4 points), continuing to show negative dynamics. The index of paid prices declined from 43 to 39.4 (another sign of slowing inflation).
The euro, in turn, receives indirect support from the energy market. Today it became known that the price of gas in Europe fell below $700 per thousand cubic meters for the first time since September of the year before last. At the same time, yesterday, the price of "blue fuel" for the first time since February 2022 fell to $750 per thousand cubic meters.
In summary, it is possible to conclude that neither of the parties—buyers nor sellers of EUR/USD have potential for breakthrough growth or decrease in price. From the technical point of view, the pair is on the middle line of the Bollinger Bands indicator and on the Tenkan-sen line on the D1 timeframe. All this indicates uncertainty. In my opinion, the pair will be fluctuating in a narrow price range until Friday's releases, moving away from the "base" level of 1.0600 by 40–60 pips (either up or down) and then going back. The spotlight now shines on nonfarm payrolls and European inflation: these reports, which will be released on the last trading day of the week, will determine the vector of the EUR/USD price movement in the medium term.