Summary:

• EURUSD, DE30 at the crossroads ahead of the key events this week
• Investors will look for signs of future rates hikes from Fed
• ECB could be divided regarding exit policy

Fed minutes (Wednesday, 7pm GMT)

Minutes will reveal a discussion from the last meeting chaired by Janet Yellen. What is important is that this meeting took place ahead of the market turmoil. Therefore investors will be eager to know if FOMC participants were closer to back a 3-rates hike scenario than they were in December. Recall that two members voted against a hike in December and minutes showed that some were worried about low inflation. The latest data has shown a pick-up in both wage growth and inflation but again, it was released after the January meeting. Therefore in our view the minutes might not be conclusive and investors could be left guessing until the March meeting – the first one with Powell at the helm. 

ECB minutes (Thursday, 12:30pm GMT) 

The ECB minutes could be far more interesting given the impact of a previous release. Let us recall that president Mario Draghi tried to be dovish at a post-meeting conference in December but the minutes showed that many members were already planning how to prepare markets for higher interest rates. The ECB president tried to ignore this dissonance at the January conference so the question is if there’s a broader agreement or minutes show a hawkish approach from other members again. While this would not be as much surprising as it was last month when it caused a 200 pips rally on EURUSD, it could surely affect the fx market.

EURUSD 

EURUSD is in a very interesting spot. The pair failed to break through a resistance zone last week (at 1.2525) but remains in upward trend on a D1 interval. In fact it’s testing the 50-day average again offering bulls a chance to push. If they fail, a 1.2215 zone could be a neckline for a double top formation. 

EURUSD is still in upwards trend on a D1 interval but a double top formation means a risk of reversal. Source: xStation5

One of the biggest puzzles on the fx market in recent months is a disconnect between yield spreads and FX rates, especially EURUSD. The spread moved a lot in favour of the US dollar but at the same time the pair rallied. However, this dilemma is unlikely to be resolved this week and the pair could react to messages of the central banks.

A 10-year bond yield spread moved sharply in favour of the US dollar but it failed to support the greenback. Source: Bloomberg, XTB Research 

DE30

DE30 (DAX30 futures underlying) recovered to a 38.2% Fibo retracement of the whole February correction but bulls have failed to crack this level at two occasions and they might be running out of time. The nearest support, separating a recovery scenario from a return to slump is at 12222 points where we can see a limit of overbalance.  

DE30 has failed to break above the 38.2% retracement of a recent correction. Source: xStation5