With hours to go before the release of the FOMC minutes, the U.S. dollar is holding steady or trading higher against all of the major currencies. The risk for the FOMC minutes is to the upside for the greenback because any pessimism will be written off as the Fed’s reaction to old data while any optimism will be taken as a sign that the central bank will pass on QE3 in September. In the note that we released yesterday, we said the FOMC minutes will be as unsatisfying as the Federal Reserve meeting because we do not expect any fresh insights into the central bank’s monetary policy stance. The Fed is in wait and see mode and based on economic reports released since the last Fed meeting, there is very little reason for the central bank to pull the trigger on a third round of Quantitative Easing next month.

According to this morning’s existing home sales report, the housing market recovered slightly last month with sales of previously owned homes rising 2.3%. In June, sales dropped 5.4%, which means today’s rise represents nothing more than a rebound and unfortunately the increase was smaller than economists had anticipated. The average price of a home sold declined while the number of months that a home remained in the market fell. The data was released 30 minutes before scheduled and the reaction in the dollar was limited.

While commodity currencies are trading sharply lower against the U.S. dollar this morning, the mood in the FX market is still one of optimism and not pessimism as European currencies hold onto recent gains. Despite the absence of any news flow to support the moves, there is growing belief that the ECB and Germany will take further action to support troubled nations in the region and this belief has led to widespread euro short covering. Ten year Spanish bond yields ticked up slightly today, but have recently fallen to one month lows, reducing the strain on peripheral countries.