FOMC minutes to the USD’s rescue?
Wednesday brings the US events back into focus with the minutes of the July 31 FOMC meeting. Recalling that the FOMC statement contained few new elements, market participants will be looking for some clarity and a possible timeline on the QE tapering plans. We suspect that the re-affirmation of the plan to taper will be more important than any split views over the timeline (i.e. September vs. December). This should offer support to the USD although the risk to that view is that the minutes include the discussion of new rate tightening guidance, including a lower unemployment rate threshold. Our long USDCHF trade recommendation was closed out with a 1.5% loss but we attribute the latest USD weakness to positioning and EM market gyrations rather than the market’s changed views on fundamentals. In that context, our underlying bias for medium-term USD strength remains intact and we will be looking to re-establish longs over the coming weeks
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