EUR/USD is seeing some modest backing and filling as the market awaits the minutes of the latest FOMC meeting. The Fed modestly downgraded their economic outlook at that meeting so the market will comb through the minutes to gauge whether the Fed is preparing to push the panic button or just acknowledging a minor bump in the recovery road.
The Journal today suggests a major debate is underway within the Fed.
Bottom line: The Chair very much sets the tone on the FOMC and Bernanke seems to be far from panicked. QE 2, as the market has cleverly dubbed it, seems a ways away.
If the Fed were to signal a willingness to renew unsterilized asset purchases (quantitative ease) , expect the dollar to extend its slide. If they don’t discuss further asset buying, but just show ongoing concern about a choppy recovery, expect the “lower for longer” mentality to prevail. Expect no discussion of firmer policy in any way, shape or form in the near-term…
1.2735/40 is now support on pullbacks this afternoon. We trade now at 1.2755.
