Talking Points

- FOMC minutes revealed only vague optimism over potential fiscal stimulus; only half of members incorporated prospects into forecasts.

- DXY has tested both sides of its 102.05-103.64 range in the past three days.

 The December FOMC minutes yesterday revealed only cautious optimism among policymakers that they would be able to hike rates more than two times this year, weighing down the otherwise strong US Dollar (in line with our expecations). Putting the policy statement in context of the composition of 2017 FOMC voters - who, on average, are seen as more dovish than the 2016 voters - and there may be signs that the notion of three rate hikes this year is far from a sure thing.

Certainly one way to resolve the dilemma over whether or not the Fed warrants a faster pace of rate normalization is to see how the US economy is performing: if the data is 'there,' the Fed won't hesitate about hiking rates faster. This was made clear in the FOMC minutes, whereby "almost all" policymakers voiced concern that the unemployment rate would likely undershoot over the coming year, pushing up wage and inflation pressures.

Fortunately for markets, the next few days should reveal plenty of insight as to the state of the US economy. The ADP Employment report, in conjunction with the ISM Services/Non-Manufacturing index, should help clarify expectations for Friday's December US Nonfarm Payrolls report. As it stands, markets are pricing in a +178K print, which if , could reinvigorate US Dollar bulls.

For now, the key levels to watch in DXY Index remain the topside and bottom side of the range that's defined price since December 15: 102.05 to 103.64. Both levels have been reached this week, although no daily close outside of this range has transpired. Until then, it's best to be patient to see if the US Dollar is: a) consolidating before another move higher (bull flag); or b) carving out a near-term top.