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Dollar hesitant ahead of FOMC minutes, US jobs report

The US dollar was hesitant on Wednesday, after a strong rebound since the beginning of the week, ahead of key events that include the release of minutes from June’s FOMC meeting and Friday’s US jobs report. The EUR/USD chart shows this dollar rebound clearly, as the currency pair turned down sharply right after approaching its major upside target around the key 1.1450 resistance level late last week.

The FOMC minutes to be released on Wednesday will be meticulously scrutinized for more clues as to the Fed’s stance when it raised rates in June and the potential future trajectory of US monetary policy. Specifically, traders will be looking for indications as to whether the Fed was really as hawkish as it appeared during last month’s meeting, and how much of a role low inflation concerns may play in affecting monetary policy going forward. Also, the minutes will be dissected for any talk of recently lagging employment numbers potentially affecting the path of policy tightening.

With respect to employment, Friday’s jobs report will also be eagerly anticipated by dollar traders, as the past few months have been lackluster, generally falling significantly short of expectations for at least two out of the past three months. Friday’s headline non-farm payrolls number for June is expected to show an increase of 175,000 jobs. Any sustained weakness on the US jobs front could continue to hit both the dollar as well as the chances of another Fed rate hike this year.

From a technical perspective, the pullback in EUR/USD that has been driven by a strengthening dollar has approached a critical price juncture. On Wednesday, the currency pair came close to retesting the key 1.1300 level to the downside after having slid from 1.1450 resistance late last week. All eyes are now on the FOMC minutes and US jobs report. If confidence in further Fed tightening increases as a result, a stronger dollar could pressure EUR/USD below 1.1300 once again, extending its pullback. To the upside, lower confidence in further Fed tightening could erase much of this week’s dollar gains, pushing EUR/USD back up towards the noted 1.1450 resistance and possibly prompt a breakout towards the 1.1600 resistance target.

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