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Fed minutes underwhelm, as investor caution grows

The US Federal Reserve building

Yesterday was a mixed day for markets in Europe with little in the way of a significant driver one way or the other, while US markets also slipped back over increasing uncertainty about increasing cases of the delta variant, not only across the US, but across the globe, and in Asia specifically.

Further weakness in Asia markets over increasing uneasiness about China’s regulatory crackdown as well as the uncertainty over rising Delta cases looks set to feed into further uncertainty as we look towards a lower European open.

Last night's Fed minutes didn’t add anything significant to the sum of overall knowledge about the central banks future intentions with respect to monetary policy that wasn’t already known beforehand. If anything, the contents of the minutes were on the dovish side, with references to the lack of substantial further progress, but then they would have been given that the minutes pre-dated the July jobs data, as well as the upward revisions to the June jobs report.

The minutes certainly don’t alter the expectation that a taper is on its way, its accepted wisdom now that discussions on a taper are likely to start soon, with a slowdown in purchases starting sometime in Q4, despite concerns about some weakness in the more recent data, particularly retail sales and consumer confidence. Attention will now turn to next week’s Jackson Hole central bank symposium; which markets will hope offers further clues about timelines to a taper/slowdown in the pace of monthly asset purchases.

Today’s focus will be on the latest US weekly jobless claims which are expected to come down further to 365,000, from 375,000, and continuing claims which are expected to slow to 2.8m.

Earlier this week we saw a sharp fall in the Empire Fed manufacturing survey for August, so it will be instructive if we see a similar fall in the latest Philadelphia Fed manufacturing survey.     

EUR/USD – briefly dipped below the 1.1700 level but failed to follow through. A sustained move below 1.1700 retargets the 1.1600 area and last November’s lows. We need to push back through the 1.1830 area to retarget the 1.1900 area.    

GBP/USD – holding above the 1.3725 level, which is 61.8% retrace of the 1.3570/1.3985 up move. We still have resistance at the 50-day MA and 1.3870/80 area. A move below 1.3700 targets 1.3650.  

EUR/GBP – not much in the way of movement yesterday, and while above 0.8500 could squeeze up to the 0.8580 area. Support remains back at the recent lows at 0.8450 if we slip below the 0.8500 level. 

USD/JPY – having failed at the 110.80 level we’ve found some support at the 109.10 area, which has seen us move back to the 110.20 area.

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