US Dollar Graphic Rewind: QE3 Speculation Shakes Up the Markets
The Dow Jones FXCM US Dollar Index (ticker: USDollar) gave back last week’s gains after a slow start to the week. The price action really picked up today after the Fed released a more dovish than expected FOMC minutes.
The market saw a rally in risk appetite on Tuesday in pairs such as the EURUSD, GBPUSD, and AUSUSD. The rally began around the same time as the release of a relatively hawkish Reserve Bank of Austria (RBA) minutes. The RBA minutes sited encouraging signs in the Australian economy such as job growth and an improved outlook on the housing market. The RBA went on to note that the Chinese economy seems to be stabilizing, which may lower the threat that a Chinese slowdown posses to the demand for Australian exports. After a short break the rally continued today, this time lead by the speculation of QE3. The market was unprepared for the dovish FOMC Minutes, leading to the largest spikes in hourly volatility the market has seen this year. The FOMC Minutes offered a unique insight stating that many of the members would be willing to offer a third round of quantitative easing if sustained economic growth does not pick up. Members of the FOMC went on to state that markets have the capacity to handle more QE. Speaking on the US economic conditions the FOMC expressed concerns that the recovery is vulnerable to economic shocks.
Volatility has certainly picked up this week, and market participants may be looking for the possible of that volatility being sustained for the rest of the week by the upcoming event risks. On Thursday Germany will release data on a number of economic indicators, and on Friday Greek Prime minister Samaras will meet with Germany Chancellor Merkel.
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