Beige Book Makes QE3 Look Pale
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Beige Book Makes QE3 Look Pale

Foreign currency markets were quiet in overnight trading as traders are digesting the contents of the Beige Book released yesterday afternoon.  The news from the Beige Book has somewhat dampened speculation that the FED will engage in a third round of quantitative easing.  According to the Beige Book, improvement in housing and retail sales in July and early August outweighed the slump in manufacturing.  

There were plenty of comments from Europe yesterday that have kept the EUR on an even keel.  Overnight ranges we limited to about 35 points.  Yesterday ECB President Draghi stated the central bank needed a larger role and that he believed that the EUR could be stabilized without each country sacrificing their independence.

Guest post by  Matthew Lifson, Foreign Exchange Trader,  Market Analyst of  Cambridge Mercantile Group.

He stated that economic and political integration could develop together.  After stating on August 2 that ECB will do anything in its power to preserve the EUR, including purchasing government bonds, he found that Germany was opposed to this plan of action.  He has spent most of the last month trying to convince German Chancellor Merkel to go along with this.  To that end, Merkel, after meeting with Italian Prime Minister Monti yesterday, said she was encouraged by the reforms that Italy is taking.  She also continued to state her opposition to granting a banking license for the ESM, since it is not compatible with EU law.  So, the “rift” between Merkel and Draghi continues and that is certainly not EUR positive.

The title of Friday’s speech by Chairman Bernanke is titled “Monetary Policy Since the Crisis”.  The market is split on which way this speech goes.  Does he give us hints of QE3 happening sooner rather than later?  Or does he maintain the path the FED has taken is working and that there is nothing else needed at this time.  With the ECB meeting and the non-farm payroll number for August due out next week, Bernanke may hold off any announcements until the FOMC meeting  Sept. 12-13.

The German jobless rate for August was released this morning at it remained at 6.8%, mostly in line with market consensus.  Unemployment rose to 9,000 against the 8,000 consensus and from 7,000 the previous month.  Earlier in the day, a comment made by Chancellor Merkel, to “defend the absolute political will” to stabilize the EUR, helped support the currency.  Chinese premier Wen also commented that China might be interested in buying European bonds.

Resistance levels today in EUR are 1.2575, then 1.2590.  The downside shows support at 1.2525 and 1.2500.

One more day to Jackson Hole.  Expect another quiet day of trading.

Asian and European equity markets are lower in overnight and early European trading. DOW Futures are lower this morning , indicating a negative start to today’s US equity markets.

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.