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The U.S. Dollar is trading weaker this morning amid speculation the U.S. Federal Reserve may act as early as August to provide additional stimulus to the economy. The first clues as to whether the central bank will implement additional easing measures could be contained in the release of the June FOMC minutes due out this afternoon at 2:00 pm Eastern time.
In June, the Fed decided to continue another round of Operation Twist, a move that was perceived by some as weak, triggering a sharp sell-off in the U.S. equity markets, but giving the dollar a boost. Today’s minutes will shed some light as to whether the central bank was considering additional monetary stimulus and if there was any dissension among Federal Open Market Committee members.
If the minute s show that enough FOMC members were in favor of more aggressive stimulus action than Operation Twist, then currencies and commodities may rise as the U.S. Dollar is likely to be pressured. This is especially true in the wake of the poor U.S. employment data revealed on Friday.
The EUR/USD is trading marginally higher ahead of the Fed minutes, mostly on the news that Spanish Prime Minister Mariano Rajoy increased the country’s austerity measures by an additional 65 billion Euros.
Technically, the Euro could accelerate to the upside on a short-covering rally if 1.2333 can be exceeded. Another key area to watch is 1.2286. A trade through this level will erase this week’s small loss and put the market higher for the week. Finally, regaining the former bottom at 1.2247 may also be enough to warrant additional position paring.
Although the formation of a support base could trigger a short-term rally, it is not expected to be a trend changing event. In fact, it may give the market some breathing room and allow bearish traders to refresh their positions at more favorable prices before eventually correcting to 1.1876.
After enduring several days of selling pressure, the GBP/USD is trading firmer today, but like the Euro, the move is far from turning the main trend to up on the daily chart. Most of today’s strength can be attributed to speculation the Fed minutes will reveal additional stimulus in the near future. Technically, the Sterling pound support this week in a retracement zone bounded by 1.5519 and 1.5458.
August Gold is trading better as traders seem to be positioning themselves for a break in the dollar. The motivation behind the Gold market still remains a mystery since traders don’t seem to know whether to treat it as a reserve currency or an investment. Technically, the market is in the midst of a non-trending triangle chart pattern that could lead to a volatile breakout move over the near term.
August Crude only is also being underpinned by the prospects of a weaker dollar. Demand remains low, however, bullish speculators are holding on in the hopes of a potential conflict in the Middle East. The $90 level remains solid resistance, but a breakout through this barrier could trigger additional short-covering. A solid support base has been built under $80; however, the market could still drift into a retracement zone at $83.13 and $81.74.
Look for tight trading ranges during the early morning and mid-session, but for ranges to expand after the release of the Fed minutes. Traders will be scanning the report for any news regarding additional stimulus from the Fed. The call for more stimulus will likely lead to a drop in the U.S. Dollar.