EUR/USD was under pressure in early European trading but reversed higher following the North American open and extended gains after the Federal Reserve’s release of minutes from their last monetary policy meeting. The pair is on track to post a daily gain to snap a prior two-day losing streak.
Federal Reserve members were optimistic in discussing GDP growth and the labor markets but were somewhat divided on the inflation outlook.
While most noted that their earlier projections for economic activity were little changed, some participants expressed concern about the recent decline in inflation. Members, in turn, agreed to continue monitoring inflation developments closely.
Risks towards the inflation outlook according to policymakers are roughly balanced. Downside risks include a substantial appreciation in the dollar, a decline in longer-term inflation expectations or that the recent weakness could be more persistent than expected.
The upside risk is that inflation could increase above expectations as the economy operates above its longer-run potential.
On balance, policymakers slightly revised down their inflation expectations for the remainder of the year but continue to expect that it will be close to the longer-run objective in 2018 and at 2 percent in 2019.
The earlier released rate statement did not suggest that there was a bit of a division regarding the inflation outlook at the meeting.
Ahead of the Fed minutes, building permits out of the United States were reported at an annualized 1.22 million in July which was short of the analyst consensus of 1.25 million. The data triggered a brief push higher in EUR/USD, gains were not sustained.
EUR/USD made a second failed attempt to break below last week’s low of 1.1688 in early North American trading which led to a reversal higher into positive territory for the day following the Fed minutes release. Resistance at 1.1767 has held the rally thus far.
EUR/USD has the potential to extend higher although the drop below rising trendline support earlier this week combined with a succession of lower highs and lower lows printed from the early Month peak signals a bearish directional bias.
Seller’s may appear at the 1.1800 handle as the level carries a psychological element and as it was respected as support earlier this month.
Near term support is found at 1.1750, the level held the pair higher following the NFP reading near the start of the month and ahead of last week’s CPI reading. Slightly below the level, a horizontal level at 1.1743 acted as resistance in the recovery attempt yesterday.