Never say never, Ewald!

Looks like we could get some volatility on Wednesday, if nothing else.

Interestingly, the change in policy on liquidity provision was not unanimous among ECB board members. The decision was taken by consensus, Trichet says.

EUR/USD has eased from 1.2848 session highs and now trades at 1.2832.

Elsewhere, traders report real money demand for USD/JPY, he;ping lift that pair to the 84.30 area.

Watch the press conference here.

ECB staff has revised upwards its GDP forecast to +1.4/1.8% and to 0.5%/2.3% in 2011.

ECB staff forecasts for inflation were revised higher, the 1.5/1.7% for 2010 and 1.2/2.2% in 2011.

Not too much going on. Sterling has had a poor morning, underminned by poor house price, construction PMI data.  Swissy on the flip side has had good morning,  underpinned by good  Q2 GDP, retail sales data.

EUR/USD firmer on day, up at 1.2825 from early 1.2790.  The pairing did suffer a bit of a swoon posting a session low 1.2777, but ready buyers emerged.  The sell-off seemed to coincide with announcement of Swedish rate hike, which saw heavy selling of the EUR/SEK cross.

Asian central bank and hedge funds notable buyers below 1.2800 this morning.  On the topside sell orders noted at 1.2830/50 and they’ve helped cap rally attempts at 1.2838 so far.

Cable down at 1.5400 from early 1.5445.  Poor UK house price/construction PMI data have weighed on sterling.  Real money buyer seen around 1.5375 low helping lend much-needed support.

EUR/GBP up at .8325 from early .8280, but sell orders noted at .8330/50 have capped topside at .8338 so far.

EUR/CHF down at 1.2980 from early 1.3015 having been as low as 1.2945 at one stage.  Swissy supported by strong GDP/retail sales data.  UK clearer notable seller in very early trade.

USD/JPY unchanged at 84.18.  Got as low as 84.01 before decent buying from a Dutch bank lent much-needed support.  The Danish bank, who has been notable buyer of late, was also said to have been in buying again.

Swedish crown rises vs euro in wake of move. Guess selling of EUR/SEK will be weighing on EUR/USD which is down at 1.2785.  EUR/SEK cross down around 9.3100 from 9.3321 just prior to rate increase announcement.

Euro zone data today:

05:30 GMT: French ILO mainland unemployment Q2 9.6%, unemployment rate 10.0%

08;00 GMT: Italian PPI for July expected +0.4% m/m, +4.3%

09:00 GMT: Euro zone Q2 GDP (prov) expectewd +1.0% q/q, +1.7% y/y

09:00 GMT: Euro zone PPI July expected +0.3% m/m, +4.0% y/y

11:45 GMT: ECB rate decision. Senn steady at 1.0% 

12:30 GMT: ECB press conference

After repricing after the US data this morning, markets have fallen into a quiet consolidation,  awaiting more economic data tomorrow and Friday. EUR/USD is at 1.2800, USD/JPY at 84.45 and AUD at 0.9080.

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Plosser says there is nothing the Fed can do to affect the unemployment rate through year end and downplays the utility of reinvesting the proceeds of its MBS portfolio. He sees the move having no measurable impact…

Markets are taking the comments in stride with the S&P still up 2.7%.

EUR/USD started around 1.2700 and made an orderly ascent in early trade. The overnight release of good Australian Q2 GDP  and Chinese August PMI data had set the tone.   The momentum increased as European stocks extended their gains, and stops through 1.2750 and 1.2780 were triggered on way to session high 1.2812.

Middle Eastern selling, probably including sovereign interest, has been noted above 1.2800. 

Cable at 1.5380 effectively unchanged on the day.  Early rally floundered after running into well noted sell orders up at 1.5415/25.  The release of demonstrably weaker UK manufacturing PMI has served to inhibit cable gains, despite the generally better risk sentiment which would usually lift the pairing. 

EUR/GBP UP AT .8316 from early .8255, with major Swiss commercial bank notable buyer of the cross after the weak PMI data.

EUR/CHF up at 1.2972 from early 1.2900, underpinned by the better risk sentiment, swissy losing a little of it’s safe haven premium. 

USD/JPY down at 84.00 from early 84.35, garnering absolutely no support from the better risk environment.  A touch worrying. Well not if you’re short I guess. 

AUD/USD up at .9055 from early .8975, underpinned by better risk sentiment.  Stops tripped through .9040 on way to .9061 session high.  More stops noted through .9080.

The final rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008, which, together, provide the CFTC with broad authority to register and regulate entities wishing to serve as counterparties to, or to intermediate, retail foreign exchange (forex) transactions.  

The final rule put in place requirements for retail foreign exchange products, including registration, disclosure statements, record keeping, financial reporting and minimum capital standards.  

The final regulations will be effective as of October 18, 2010.  The regulations were adopted essentially as written with the exception of two major issues:

• Leverage – while the proposed rules called for a maximum leverage of 10:1, the final rules allow the National Future Association (NFA) to determine the margin requirements for the currencies within a defined set of CFTC parameters.  Currently the parameters include 50:1 leverage for major currencies and 20:1 leverage for all other currencies.
• Forex Introducing Brokers – the proposed rules called for all forex introducing brokers to be guaranteed by a single future commissions merchant (FCM) or retain foreign exchange dealer (RFED).  The final rules allow a forex introducing broker to be either guaranteed or independent, consistent with other regulated futures introducing broker (IB).    FCMs and RFEDs are required to maintain net capital of $20 million plus 5 percent of the amount, if any, by which liabilities to retail forex customers exceed $10 million.

Major currency dealers oppose these changes.    Dealers argue that it will actually have a negative net affect on retail currency traders.   Instead of protecting the consumer, the CFTC’s actions will drive small volume retail traders to overseas dealers where leverage can be as high as 700:1!    There are also unregulated dealers overseas who will take advantage of retail traders seeking 100:1 leverage.   

More importantly, final regulation will kill retail trading in the United State.   Dealers argue that forex is a $1 billion industry that provides millions of solid jobs in the United States.     The final regulation will drive small retail customers offshore.   The result will be less fraud protection for the retail trader, a loss of millions of jobs in the United States, and no significant gain in consumer protection as a result.

Details are here.

At first glance, it appears that the vast majority of the members are on the same page and that differences are just a matter of degree.

Here is the staff economic forecast the members are working off:

n the economic forecast prepared for the August FOMC meeting, the staff lowered its projection for the increase in real economic activity during the second half of 2010 but continued to anticipate a moderate strengthening of the expansion in 2011. The softer tone of incoming economic data suggested that the pace of the expansion would be slower over the near term than previously projected. Financial conditions, however, became somewhat more supportive of economic growth. Interest rates on Treasury securities, corporate bonds, and mortgages moved down further over the intermeeting period; the dollar reversed its April to June appreciation; and equity prices edged higher. Over the medium term, the recovery in economic activity was expected to receive support from accommodative monetary policy, further improvement in financial conditions, and greater household and business confidence. Over the forecast period, the increase in real GDP was projected to be sufficient to slowly reduce economic slack, although resource slack was still anticipated to remain quite elevated at the end of 2011. Overall inflation was projected to remain subdued over the next year and a half. The staff’s forecasts for headline and core inflation in 2010 were revised up slightly in response to the higher prices of oil and other commodities and the depreciation of the dollar. Even so, the wide margin of economic slack was projected to contribute to some slowing in core inflation in 2011, though the extent of that slowing would be tempered by stable inflation expectations.

From a policy perspective, Bernanke laid out several alternatives at Jackson Hole, so that will be the most likely course for the Fed to follow going forward, but from a soap opera perspective, today’s minutes will be the most interesting in terms of the internal debates taking place within the FOMC in some time.

Bernanke was able to herd the cats last time (only Hoenig dissented) but we’ll have to read the minutes closely to see if there is a wider rift (or rifts) developing within the Federal Reserve Board.

If it turns out that there is a hawkish wing of the FOMC coalescing to oppose QE, that is a potential dollar plus from a yield perspective but a negative from an asset market perspective. Stocks won’t like it.

We’ve had movement for sure, but it’s felt rather pedestrian. Maybe it’s just me? Possibly.  Morning started with risk most definitely off and the situation has slowly improved throughout the morning, with European stocks managing to pare their early losses.

EUR/USD up at 1.2690 from early 1.2655.  Inbetween we got a low as 1.2626 as European stocks swooned early.  But well-noted buy orders at 1.2600/20 weren’t tested and we gradually improved as stocks cut their losses.  So far though, euro bulls haven’t been able to take out sell orders up at 1.2690/00.

USD/JPY up at 84.50 from early 84.25.  Option barriers noted at 84.00 and 83.50, and protection of the former helped limit early slippage to session low 84.06.  Buying from major Swiss name reported in late morning trade.  Sell orders noted 84.50 through 84.80 have proved durable upside barrier so far.  

Cable down at 1.5410 from early 1.5460. Usual month end buying of EUR/GBP has helped pressure cable, but buy orders down at 1.5380/00 soaked up early pressure. Session low 1.5396.  Subsequent Middle Eastern sovereign buying has helped the pairing  just about hold above 1.5400.

EUR/GBP up at 8235 from early .8180.