EUR USD (1.3330) Ben Bernanke’s latest comment that ‘no option is off the table’ is being interpreted by many as positive for the prospects of QE3. His reaction to the implications of higher oil prices suggest that he judges the impact as not too inflationary or growthhindering barring, of course, unpredictable shocks. But what has emerged from his latest detailed interview suggests that Fed’s voting process and the colour of the convictions (hawkish and dovish) of its voting members likely plays a decisive role for policy. When asked about parameters used for measuring inflation, Bernanke suggested that the impressions of all members about a particular issue matter, rather than a set of indicators (this is in contrast to Lawrence Summer’s recent appeal for ‘contingent commitments’). So while the Fed’s new communication policy may provide members, (with or without voting rights) to vent their opinions about the wisdom or otherwise of QE3, it is ultimately the convictions of the voters that tint the accommodative nature of the resulting policy. Since it is commonly thought that the majority of current voting Fed members are dovish, the market is likely planning that Fed is not going to tighten too soon and that discussion towards QE3 are alive and progressing. Although the euro broke our upside hurdle early in the week, it is only making slow progress towards the 1.3490 potential. Our bullish view remains valid, though, as long as the 1.3190 level holds.
Click here to read the full report: Daily forex 03.28.12
Deutsche Bank