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US Dollar to Fall if Markets Find Support for QE3 Bets in FOMC Minutes

US Dollar to Fall if Markets Find Support for QE3 Bets in FOMC Minutes

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar to Fall if Markets Pull QE3-Supportive Message from Fed Minutes
  • Well-Established ECB Rate Cut Bets to Dull Impact of German CPI on Euro

All eyes are on minutes from June’s FOMC meeting amid hopes the Fed will deliver some relief following last week’s disappointing US jobs report and underwhelming stimulus efforts from the ECB and the BOE. Although Ben Bernanke and company opted not to initiate a third round of quantitative easing (QE3) last month, traders will be keen to gauge the degree to which such an option entered into the conversation to guide expectations that such a thing may be unveiled in the coming months.

While the Federal Reserve is surely not oblivious to the limitations of more QE, it is almost certainly sensitive to the fact that a strong signal against stimulus may trigger pandemonium across financial markets.That implies the door to further easing will be kept open, at least rhetorically.With that in mind, language perceived as increasing the likelihood of further accommodation is likely to boost risk appetite and weigh on Treasury yields, sending the US Dollar broadly lower against its major counterparts.

The final revision of June’s German CPI figures headlines the data docket in European hours. The release is expected to confirm the headline inflation rate sank to 1.7 percent (an 18-month low), reinforcing expectations of another ECB interest rate reduction at the August meeting. The outcome’s near-term impact on the Euro seems unlikely to prove meaningful barring a sharp upside surprise, however. Indeed, markets have priced in a hefty 82.5 percent probability of a rate cut at Augusts’ policy meeting since last week’s sit-down, according to data from Credit Suisse.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Tertiary Industry Index (MoM) (MAY)

0.7%

0.2%

-0.2% (R+)

23:50

JPY

Domestic CGPI (MoM) (JUN)

-0.6%

-0.4%

-0.5% (R-)

23:50

JPY

Domestic CGPI (YoY) (JUN)

-1.3%

-1.0%

-0.7% (R-)

0:30

AUD

Westpac Consumer Confidence (JUL)

3.7%

-

0.3%

0:30

AUD

Westpac Consumer Confidence Index (JUL)

99.1

-

95.6

1:30

AUD

Home Loans (MAY)

-1.2%

0.8%

0.5% (R+)

1:30

AUD

Investment Lending (MAY)

-4.6%

-

2.0% (R+)

1:30

AUD

Value of Loans (MoM) (MAY)

0.2%

-

1.2% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German CPI (MoM) (JUN F)

-0.1%

-0.1%

Medium

6:00

EUR

German CPI (YoY) (JUN F)

1.7%

1.7%

Medium

6:00

EUR

German CPI - EU Harmonised (MoM) (JUN F)

-0.2%

-0.2%

Low

6:00

EUR

German CPI - EU Harmonised (YoY) (JUN F)

2.0%

2.0%

Low

6:00

JPY

Machine Tool Orders (YoY) (JUN P)

-

-3.0%

Medium

6:45

EUR

French Current Account (€) (MAY)

-3.5B

-4.2B

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2212

1.2311

GBPUSD

1.5483

1.5553

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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