US Dollar To Fall If Markets Find Support For QE3 Bets In FOMC Minutes

By Ilya Spivak, Currency Strategist

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 relie f 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+)

E uro 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

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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/07/11/US_Dollar_to_Fall_if_Markets_Find_Support_for_QE3_Bets_in_FOMC_Minutes.html