EUR USD (1.3195) Investors seem to have refreshed their opinionsof US QE prospects in a familiar fashion. A steep retreat to the dollarpanned out yesterday based on surprisingly hawkish FOMC meetingminutes. An almost identical development occurred earlier this yearwith February’s FOMC minutes, causing a positive reaction on apreviously weaker dollar. Dovish comments from the Fed Chairmanhad followed that FOMC meeting. For example, Bernanke spokebefore Congress and bemoaned the slow pace of recovery. Tradersseemed to have forgotten the sequence of events in the first instance,but one day later the dollar started to weaken anew. This time aroundthe minutes again suggested a high bar to QE. However, Bernankehas similarly made dovish comments since the FOMC meeting atGeorge Washington University lectures and at a NABE conference.The market seems to have forgotten it again. When considering thespeeches and data, nothing has changed: the bar for QE may be high,but with Bernanke highlighting the sub-par quality of jobs created, thesluggish recovery might be close to justifying the policy. In thiscontext, any outcome for Friday’s US non-farm payrolls should betaken with a grain of salt. The FX market seems prone to overreaction. The risk-limit of our prior bullish strategy was violated overnight exposing a very modest downside risk to 1.3110. To the upside, the level 1.3340, where much of yesterday’s trading volume was concentrated, will be the first hurdle.
Click here to read the full report: Daily forex 04.04.12
Deutsche Bank