Will FOMC Minutes Help the Dollar?

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Market Drivers for July 09 2014

Chinese inflation slightly cooler

AU Westpac consumer sentiment improves

Nikkei -0.08% Europe 0.28%

Oil $103/bbl

Gold $1324/oz.

Europe and Asia:

AUD Westpac sentiment 1.9% vs. 0.2%

CNY CPI 2.3% vs. 2.4%

GBP UK Halifax HPI -0.6% vs. -0.3%%

North America:

CAD Housing Starts 8:15 AM

USD FOMC Minutes 2:00 PM

Its been a very quiet night of trade in the currency market with eco calendar very thin and major tracing out narrow ranges in very lackluster dealing. Cable remained the weakest pair in G-10 as the unit continued to probe support at the 1.7100 level failing once again to breach the 1.7150 barrier.

In Asian session trade Chinese inflation data printed cooler than expected with CPI coming in at 2.3% versus 2.4% eyed while PPI dropped to -1.1% versus -1.0% forecast. This is the 28th consecutive month showing that producer prices have declined indicating that industrial demand in China remains soft.

Aussie however saw very little reaction to the news with the pair continuing to hug the 9400 barrier for most of the night. The unit was mildly supported by better than expected Westpac consumer confidence survey data which rose 1.9% versus 0.2% the month prior. Overall however the Westpac date remained weak with the bounce now putting consumer confidence only 2% above the recent low in May as participants continued to have little confidence in the labor markets or the fiscal budget and tax issues.

9400 appears to be the equilibrium level for AUD/USD for the time being as markets gear up for the main event of the week – tomorrow’s AU labor data. If the employment numbers show no bounce back from last month’s disappointing results then Aussie could once again test the 9300 level before the end of the week.

With no data on the EU calendar and nothing during the morning of North American trade, the forex markets may have to wait until this afternoon to see any price action. The release of the FOMC minutes promises to be the biggest event today with markets looking for any sign of hawkishness out Ms. Yellen’s Fed. The chairwoman is unlikely to change her dovish posture, but the dollar could get a mild boost if other members of the FOMC assume a more restrictive tone towards monetary policy given the recent improvement in economic data.

It’s doubtful that the FOMC minutes will be much of a mover either way, but if the discussion shows that many members are open to ending the extraordinary accommodation measures sooner rather than later, the buck could get a lift with USD/JPY once again trying to make a run to 102.00.

Boris Schlossberg
Managing Director

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