Dollar Tumbled, Stocks Surged as Markets Saw FOMC Minutes as Slightly Dovish

US equities surged to new records while Dollar was pressured as markets perceived FOMC minutes released as slightly dovish ones. DOW rose 42.21 pts or 0.18% to close at 22872.89. S&P 500 rose 4.6 pts or 0.18% to close at 2555.24. Both were new record highs. 10 year yield was flat though at 2.345. Dollar index dipped to as low as 92.89 and breach of 92.94 near term support now suggests more downside in near term. Gold hits as high as 1297.9 in Asian session and is set to take on 1300 handle, comparing to last week’s low at 1262.8. That is consistent with Dollar’s weakness this week. Meanwhile, Sterling and Euro remain the strongest ones for the week so far, Yen trails behind Dollar as the second weakest.

Fed fund futures are pricing in 88% chance of a December hike, slightly lower that yesterday’s 93%. Nonetheless, Fed is still on track for a December hike. The markets seemed to be focused more on the split view regarding inflation, seeing the long discussions on the topic in the minutes. As the minutes suggested, ‘many’ participants continued to believe ‘cyclical pressures’ would ‘show through to higher inflation’ in the medium term and ‘many judged that at least some of the softening this year to be idiosyncratic’. Moreover, the members ‘continued to project that inflation would edge higher in the next couple of years and that it would reach the Committee’s longer-run objective in 2019’.

Note that the phrase ‘edge high’ is less hawkish that the term ‘increase’ used in July. On the other hand, the minutes also suggested that ‘several’ participants were concerned that ‘the persistence of low rates of inflation might imply that the underlying trend was running below 2%, risking a decline in inflation expectations’. On net, the FOMC ‘on balance’ forecasted that PCE inflation would stabilize around the target over the medium term. This was compared to ‘most participants’ in the July minutes.

More on FOMC Minutes

• Fed On Track To Raise Rate In December
• FOMC Minutes: Core Members Still Want To Hike In December
• Fed Minutes Show Confidence in Economic Outlook, But Some Concern Over Weak Inflation
• Fed Reaffirms Likely December Rate Hike Despite Concerns Over Weak Inflation

Fifth round of Brexit negotiations to conclude without conclusions

The fifth and final round of Brexit negotiation before EU summit on October 19/20 is set to end. So far, there is no positive news coming out from UK and EU officials s. Brexit Secretary David Davis and EU’s chief Brexit negotiator Michel Barnier will sum up the state later today. There is practically no chance for having "sufficient progress" to move on to post-Brexit trade agreements. And earlier this week, European Council President Donal Tusk warned that if the current "slow pace" of negotiations continued the UK and the EU would "have to think about where we are heading". And, it’s doubtful whether that no conclusion could be made even until December.

On the data front

Japan domestic CGPI rose 3.0% yoy in September. Australia consumer inflation expectation rose 4.3% in October, home loans rose 1.0% in August. UK RICS house price balance was unchanged at 6 in September. Eurozone industrial production will be featured in European session. US PPI, jobless claims and Canada new housing price index will be released in US session.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2431; (P) 1.2481; (R1) 1.2509; More….

USD/CAD’s break of 1.2448 minor support suggest that a short term top is formed at 1.2598, after failing to sustain above 55 day EMA. Intraday bias is turned back to the downside for 38.2% retracement of 1.2061 to 1.2598 at 1.2393, or even further to 61.8% retracement at 1.2266. But we’ll look for bottoming sign below 1.2266. On the upside, break of 1.2598 will resume the rise from 1.2061 for 1.2777 resistance.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we’d favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

Economic Indicators Update