Dollar Looks To Fed Chatter, US Data For Direction As QE3 Bets Resurface

By Ilya Spivak, Currency Strategist

Talking Points
  • Dollar Has Scope to Rise Unless Fed Chatter, US Data Adds New Fuel to QE3 Bets
  • Aussie Dollar Lags on Disappointing Chinese Industrial Profits Data in Asian Trade

The US Dollar (ticker: USDollar ) corrected narrowly higher in overnight tradeas the greenback digested a 0.4 percent drop over the preceding 24hours that brought the benchmark currency to the lowest in threeweeks. The AustralianDollar underperformed after China’s IndustrialProfits fell 5.2 percent in the 12 months through February, markingthe first annualized decline since August 2009.

Looking ahead, a quiet economic calendar inEuropean hours is likely to keep the focus on US monetary policyexpectations. Stocks rose while the Dollar tumbled yesterday after Federal ReserveChairman Ben Bernanke said accommodative monetary policy was neededto stoke improvement in the labor market, fueling hopes that athird round of quantitative easing (QE3) may be in the cards. Adisappointing set of US economic data offered a fitting backdropfor the Fed chief’s comments.

With this in mind, the spotlight turns to theConference Board’s US ConsumerConfidence gauge and the Richmond FedManufacturing Survey index. Both measures are expected to pull backin March, likely reflecting February’s run-up in oil prices.A busy Fed speaking calendar is likewise on tap, with FOMCmembers Bill Dudley and Elizabeth Duke – both of whom lean to the dovish side ofthe policy spectrum –scheduled to come across the wires. BenBernanke is also scheduled to give the third of a series oflectures at George Washington University, although the first twooutings didn’t prove to contain market-movingcontent.

On balance, this seems to set the stage for arepeat of yesterday’s price action. The markets arenoticeably unwilling to commit to directional momentum however,with S&P 500 stockindex futures flat in overnight trade. This warns thatinvestors may not be quite as sold on the prospects for QE3 asyesterday price action would suggest. Indeed, Bernanke’smention of accommodative monetary policy need not have referred toasset purchases at all and may have been aimed at the pledge tokeep rates low through late 2014.

This hints to the possibility for a reversal as yesterday’s move begins to look overdone and a correction ensues. The likelihood of such an outcome depends squarely on the ability of the US calendar to meaningfully advance the argument that growth is faltering and additional stimulus is an active point of discussion at the central bank. Outcomes in line with the tone set on Monday are unlikely surprise at this point and so may not prove adequate to fuel follow-through, whereas upside surprises stand to trigger sharp snap-back as markets backpedal.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

25:50

JPY

Corporate Service Price Index (FEB)

-0.6%

-0.4%

-0.4% (R-)

1:30

CNY

Industrial Profits YTD YoY (FEB)

-5.2%

-

25.4%

5:00

JPY

Small Business Confidence (MAR)

48.7

-

45.3

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Import Price Index (MoM) (FEB)

0.9%

1.3%

Low

6:00

EUR

German Import Price Index (YoY) (FEB)

3.5%

3.7%

Low

6:00

CHF

UBS Consumption Indicator (FEB)

-

0.92

Medium

7:00

EUR

German GfK Consumer Confidence (APR)

6

6

Medium

10:00

GBP

CBI Reported Sales (MAR)

-5

-2

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3245

1.3421

GBPUSD

1.5857

1.6030

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

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me 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 is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/03/27/Dollar_Looks_to_Fed_Chatter_US_Data_for_Direction_as_QE3_Bets_Resurface.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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