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The focus of the markets was on the dollar for the whole of the day yesterday on account of the FOMC meeting minutes that was going to be released late in the day. The anticipation for the minutes had been increasing since the beginning of the week as the market is waiting for a rate hike in March and they are also looking for further rate hikes during the course of the year and the traders wanted to know what the Fed thought about it.
EURUSD Suffers Due to Dollar Strength
So, the dollar has been growing in strength since the beginning of the week which has pushed the EURUSD pair towards the 1.23 region during this period. Then the FOMC minutes released and it turned about to be quite hawkish. But the markets did not interpret it in the right manner which led the stock markets higher and a weakening of the dollar was seen as a result. But this lasted only for a brief while. The market then had a long and hard look at the minutes and it became clear that much of the minutes was very hawkish.
This led the dollar higher as dollar buying kicked in and this has since forced the pair to move below the 1.23 region as of this writing. The correct interpretation of the minutes seems to indicate that there could be a good likelihood of more than 3 rate hikes this year but of course, this would be dependent on the incoming data in the coming months and this was the reason for the hawkishness.
Looking ahead to the rest of the day, we have the ECB monetary policy meeting accounts and this is likely to add some bullishness to the euro. But with the rate hikes by the Fed becoming clear, we believe that the dollar is likely to continue to gain in the short and medium term and hence, any kind of bounce in the pair should be viewed as an opportunity to go long in this pair.
This article was originally posted on FX Empire