FX.co ★ EUR/USD – August 20: Fed Minutes Indicate a Continued Hawkish Stance

EUR/USD reversed in favor of the European currency on Wednesday and resumed its advance, consolidating above the 100.0% retracement level at 1.1620. Thus, the euro may continue to rise today toward the next retracement level of 127.2% at 1.1700. A rebound from this level would favor the U.S. currency and some decline toward 1.1620. Consolidation above 1.1700 would allow traders to expect further growth toward the next Fibonacci level of 161.8% at 1.1802.

The wave structure on the hourly chart remains bullish. The latest completed downward wave did not break the previous low, while the new upward wave broke the previous high. All waves are currently extremely small. Geopolitical developments remain consistently negative: negotiations between Iran and the United States are not taking place, and the blockade of the Strait of Hormuz remains in place. However, the FOMC's stance, which is highly contradictory, currently matters more for the dollar.

The fundamental backdrop was rather weak on Wednesday. In the evening, the minutes of the July FOMC meeting were released and showed a much more hawkish stance than traders had expected. Let me remind you that only three of the twelve FOMC members voted for a rate hike in July. However, the minutes showed that the number of policymakers who considered tightening monetary policy in response to high inflation was much higher than three. The main message of the minutes was that if inflation does not continue to decline, rates would have to be raised. However, I would like to remind you that this was the Fed's stance three weeks ago. In August, labor market and inflation data were released. The labor market is weakening significantly, while inflation is declining. Therefore, the U.S. regulator's stance may currently be much more dovish. Tightening monetary policy would help reduce inflation, but it would also lead to a further deterioration in the labor market. The U.S. dollar was declining for almost the entire day, while the minutes proved hawkish. Accordingly, these two events were not related; otherwise, we would have seen the U.S. currency strengthen. Traders ignored the minutes, as expected, because after three weeks they have already lost much of their relevance.

On the 4-hour chart, the pair continues to rise and has consolidated above the 61.8% retracement level at 1.1649. Thus, the euro may continue to rise toward the next Fibonacci level of 76.4% at 1.1726. The upward-sloping trend channel indicates a sustained bullish advance. From now on, a strengthening U.S. currency can be expected no earlier than when the price closes below the channel. No emerging divergences are observed today, but the RSI has entered the overbought zone (above 80).

Commitments of Traders (COT) Report:

During the latest reporting week, professional traders closed 4,661 Long positions and 2,742 Short positions. Over seven weeks in February and March, the bulls' overwhelming advantage evaporated because of the war in Iran, while over the past twenty weeks, the situation has become more balanced amid the supposed ceasefire and the market's hopes for an end to the war. The total number of Long positions held by speculators currently stands at 197,000, while the number of Short positions stands at 257,000. The bears are once again taking the lead.

Overall, over the long term, large market participants continue to show greater interest in the euro. Of course, events of various kinds around the world, which have been abundant in recent years, affect investor sentiment. In particular, the market is currently keeping a close eye on the situation in the Middle East, where the war seems to end and then starts again. The market initially ignored the ceasefire and then ignored the resumption of the war. Thus, geopolitics no longer determines the dollar's fate on its own.

News Calendar for the United States and the European Union:

• United States — Change in Initial Jobless Claims (12:30 UTC).
• United States — Philadelphia Manufacturing Index (12:30 UTC).

On August 20, the economic calendar contains two entries, but I would not consider either of them important. The economic backdrop will most likely have no impact on market sentiment on Thursday.

EUR/USD Forecast and Trading Tips:

Buying opportunities were available after the pair consolidated above 1.1620 on the hourly chart, with a target of 1.1700. A close above 1.1700 will allow traders to keep long positions open with a target of 1.1786. Selling opportunities are possible today if the pair rebounds from 1.1700 on the hourly chart, with a target of 1.1620.

The Fibonacci level grids are drawn from 1.1620–1.1325 on the hourly chart and from 1.1849–1.1325 on the 4-hour chart.