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Forex: Markets Look to Fed Minutes to Help Pace QE Tapering Process

Forex: Markets Look to Fed Minutes to Help Pace QE Tapering Process

2014-01-08 09:46:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Comments from BOC’s Poloz Compound Canadian Dollar Selling Pressure
  • Yen Sold on Waning Haven Demand as Nikkei Rallies Most in Three Weeks
  • FOMC Minutes in Focus to Help Guide Future QE “Tapering” Dynamics

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The Canadian Dollar underperformed in overnight trade after BOC Governor Poloz said he is not under pressure to raise interest rates in an interview with CBC. The move followed on from yesterday’s dramatic Loonie selloff in the wake of a disappointing round of economic data. The trade deficit unexpectedly widened to the largest in three months. Meanwhile, the Ivey PMI gauge revealed business activity contracted for the first time since July in December. Economists were forecasting a pick-up ahead of the release. The Japanese Yen slumped as the Nikkei 225 stock index soared 1.94 percent, yielding the largest daily gain in three weeks and denting demand for the safe-haven currency.

A relatively tame offering of second-tier economic data in European hours is likely to see traders looking ahead to the release of minutes from December’s FOMC meeting later in the day. The fateful sit-down marked the beginning of the much-anticipated process of “tapering” the Federal Reserve’s QE3 program, scaling down monthly asset purchases by a cumulative $10 billion.

While the new Fed policy status quo is widely known at this point, traders will be keen to read the minutes nonetheless to try to decipher precisely what variables proved pivotal in pushing the rate-setting committee into action. This may establish a framework for interpreting US economic news flow, helping investors gauge the probability of acceleration or deceleration in the stimulus reduction process.

On balance, a relatively hawkish tone stands to boost the US Dollar against policy-sensitive currencies, notably the Australian Dollar and the Yen. Needless to say, a softer lean that paints the decision to taper as having been particularly narrow may trigger the opposite dynamic.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Construction Index (DEC)

50.8

-

55.2

0:01

GBP

BRC Shop Price Index (YoY) (DEC)

-0.8%

-

-0.3%

0:30

AUD

Job Vacancies (NOV)

-1.7%

-

3.0%

5:30

AUD

Foreign Reserves (A$) (DEC)

A$59.5B

-

A$59.9B

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

German Trade Balance (€) (NOV)

18.1B (A)

17.9B

Low

7:00

EUR

German Current Account (€) (NOV)

21.6B (A)

18.8B

Low

7:00

EUR

German Exports s.a. (MoM) (NOV)

0.3% (A)

0.3%

Low

7:00

EUR

German Imports s.a. (MoM) (NOV)

-1.1% (A)

3.0%

Low

8:00

GBP

Halifax House Prices s.a. (MoM) (DEC)

-0.6% (A)

0.9%

Low

8:00

GBP

Halifax House Price (3M/Y) (DEC)

7.5% (A)

7.7%

Medium

9:00

EUR

Italian Unemployment Rate (NOV P)

12.7% (A)

12.5%

Medium

10:00

EUR

Euro-Zone Retail Sales (MoM) (NOV)

0.1%

-0.2%

Medium

10:00

EUR

Euro-Zone Retail Sales (YoY) (NOV)

0.3%

-0.1%

Medium

10:00

EUR

Euro-Zone Unemployment Rate (NOV)

12.1%

12.1%

Medium

11:00

EUR

German Factory Orders s.a. (MoM) (NOV)

1.5%

-2.1%

Medium

11:00

EUR

German Factory Orders n.s.a. (YoY) (NOV)

6.1%

1.9%

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3505

1.3564

1.359

1.3623

1.3649

1.3682

1.3741

GBPUSD

1.6275

1.6340

1.6371

1.6405

1.6436

1.6470

1.6535

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

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