EUR slipped in response to the FOMC minutes of the June policy meeting. Almost all voting members agreed on the likelihood of further monetary tightening, albeit at a slower pace than anticipated.
We all remember that during the meeting, Fed policymakers decided not to raise the funds rate amid fears of a slowdown in economic growth, although most members were confident that further increases would be necessary. Citing the delayed impact of high borrowing costs and other concerns, with clear hints at the banking sector, policymakers saw an opportunity to skip the June rate hike after 10 consecutive increases.
The minutes say that leaving the target range unchanged at the June meeting will give policymakers more time to assess the economy's progress towards achieving maximum employment targets and stabilizing prices. "The economy has been hit by tighter credit conditions, including higher interest rates, for households and companies, which is likely to affect economic activity, hiring and inflation, although the extent of this effect remained uncertain," the minutes read.
Importantly, the unanimous decision to refrain from a rate hike was made given the significant cumulative tightening of monetary policy and the lag with which policy affects economic activity and inflation.
As expected, the markets gave a lukewarm response to the minutes, but then the pressure on risky assets resurfaced.
A more detailed study of the document reveals some disagreements between the members. All but two of the 18 voting members expected at least one raise to be appropriate this year, with 12 policymakers betting on two or more. "Participants voting for a 25-basis point increase noted that the labor market remains very tight as the economic momentum was stronger than previously expected. In their opinion, there are so far few signs that inflation is really on its way to returning to the target level of 2.0%," the minutes read.
However, even among those who advocated for a tightening, there was general agreement that further rate hikes would be much less aggressive than before. All in all, policymakers share the viewpoint that the central bank should not give up quickly in the fight against inflation and continue to act according to the plan.
Let me remind you that the US labor market data is due out tomorrow. The report could show some signs of softer hiring, though job vacancies still outnumber available workers by a ratio of 2 to 1. Fed officials stress the importance of reducing this inequality as they seek to curb demand pushing inflation up. The ADP payroll processor is due to unveil employment data. Another report worthy of note is a weekly update on unemployment benefits in the US.
As for the technical picture of EUR/USD, in order for buyers to regain control, they need to climb above 1.0860 and consolidate there. If so, the door will be open to 1.0900 and 1.0930. The next move will be a climb from this level to 1.0975, but it will be tricky to do this without new good data on the eurozone. In case the trading instrument declines, I expect any serious actions from large buyers only in the area of 1.0835. If no one is there, it would be a good idea to wait for the update of the low at 1.0780 or open long positions from 1.0740.
As for the technical picture of the GBP/USD, the demand for the pound sterling remains high, which indicates that the bull market is still going on. Traders will be able to bet on GBP strength after the level of 1.2735 is seized by the buyers. A break in this range will strengthen hopes for a further recovery to the 1.2770 area. Then, we could predict a jump to the 1.2805 area. If GBP/USD falls, the bears will try to take control of 1.2690. If they cope well, a break of this range would hit the bulls' positions and push GBP/USD to a low of 1.2660 with the prospect of a move down to 1.2620.