Euro – dollar on a roll since FOMC minutes on Wednesday | Global equities decline impacts the Forex market

The release of the US Federal Open Markets Committee (FOMC) minutes of the July meeting on Wednesday seems to have acted as a catalyst for a regular surge in the EURUSD exchange rate.

In Asian trading overnight last night, the Single Currency (EURUSD) went sailing through the important resistance that was the 1.12 level (see chart) to reach its highest in about two months. Such a move would not have been normally anticipated in the quiet summer holiday period.

Global equities decline impacts the Forex market

While the release of the minutes marks the onset of the latest dollar fall (a rise in EURUSD means dollar weakness), the account of FOMC July proceedings only served to remind the markets of significant global issues, issues that will impact the decision of the FOMC to raise interest rates. These include a precipitate fall in global equity markets, with those in China to the fore; the recent devaluation of the Chinese currency; the fall in the price of oil and other hard and soft commodities; and persistent low-to-falling inflation in all major global economies.

China is a particular worry. The data that is available for all to see, such as that in relation to equities and the currency, raises doubts about those data that are not immediately observable. Yesterday, a Caixin / Markit China Manufacturing Purchasing Managers’ Index (PMI) release showed the worst reading since March of 2009 - at 47.1, significantly lower than expected. Any reading below 50 in these surveys is indicative of decline in the sector.

The markets seem to have now completely discounted a rise in core interest rates in the US in September. That leaves only the December meeting for the FOMC to do so this year. There is a meeting scheduled for October, but the accepted wisdom is that a rate rise cycle initiation will only occur at a meeting that is followed by a press conference. The October meet is not one of those.