US Dollar bulls wake up post-FOMC Minutes

• The FOMC minutes show that all members agree to raise rates gradually.
• US core annualized inflation came in at 2.1% above Fed’s target. 

The US Dollar Index (DXY) is trading at $89.59 on Tuesday as the FOMC Minutes’ report released in April is quite hawkish and supportive for the US Dollar.

The FOMC says that they all agree that gradual rates hikes are appropriate while the economic outlook has strengthened in recent months.  
  
Additionally, on the Personal Consumption Expenditure (PCE), favorite gauge of inflation by the Fed the report says “recent readings on key factors that influence consumer spending—including gains in employment and real disposable personal income, along with households’ elevated net worth—continued to be supportive of solid real PCE growth in the near term,” which is rather hawkish. 

On the tax reform, the minutes say: “the lower tax withholding resulting from the tax cuts enacted late last year, which was beginning to show through in consumers’ paychecks, would likely provide some impetus to spending in coming months.” 

Meanwhile, earlier in the day, the Core Consumer Price Index (CPI) year-on-year in March matched analysts expectations at 2.1% increasing 0.3% from February readings at 1.8%. The Fed will be more likely to hike three times this year as its 2% target has been reached and even surpassed. The lower readings in the recent CPI were due to cell phone data pricing. The weak US Dollar should also help inflation to pick up in the coming months. The skill shortages increase in the job market should support the wage growth, according to James Smith, an economist at ING.

“The inflation number was Fed-friendly and should have been dollar-positive. But today is really about the geopolitical story. There’s a bit of a flight to haven assets and Treasury prices are rallying too,” said Minh Trang, senior FX trader at Silicon Valley Bank. 

The geopolitical context is one of the main market drivers. President Trump said to Moscow to “get ready” for an airstrike on Syria. Meanwhile, in Saudia Arabia, a ballistic missile was intercepted by the Saudi’s air defense. Yemen’s Houthis sent a missile attack in retaliation of "air raids by a Saudi-led coalition fighting the Iran-aligned armed movement.” According to Reuters.

  
US Dollar Index: 4-hour chart

Immediate support is at $89.35 while further down, support lies at 88.94 swing low and at 88.25 cyclical low. Resistances are seen at the $90 mark and $90.59 swing high.