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The single most important topic that moves the dollar is QE3, or the lack of it. Since QE2 ended in June 2011, the debate is never-ending. Bernanke gave hints for QE2 in August 2010 in Jackson Hole, but didn’t repeat it in 2011, disappointing some market participants. Will he pave the road for QE3 now? Probably not.

The recent decision by Bernanke and his colleagues contained no new policy decisions. Those in the QE3 camp saw the worried words in the statement as a preparation for QE3 in September’s meeting. However, they seem to miss a simple reality of already low yields.

Are the low yields a result of QE3 hopes? Perhaps, but this is only one of the reasons. The slowdown in China, the deterioration in Europe and the muddy waters of stock markets also help yields stay low.

Housing isn’t that bright – but no action coming

Yields are low for the short end of the curve, as well as the long end, which the Fed continues targeting via Operation Twist. Also the 30 year rate for mortgages fell to 3.49% at one point.

So, targeting the housing sector in a new QE program (by buying MBAs) also seems to have little chances.

Another sing that housing doesn’t need help comes from house prices. Recent figures have shown that house prices continue rising. This is another sign showing that US housing found a bottom. However, growth from this bottom will likely be limited.

One of the reasons for limited recovery prospects comes from the high burden of student loans. This deters young couples from buying homes.

While prices are moving slowly higher, transactions remain limited. Existing home sales and new home sales aren’t really moving higher. Most of the market is existing homes, but new homes have a greater impact on the economy, as they boost home building, which creates jobs and other activity.

While housing remains cautiously optimistic, manufacturing looks a bit pessimistic. The ISM Manufacturing PMI fell for two months in a row, the Philly Fed Index is in negative ground and other figures also look slow.

The most important sector is services, which is around three quarters of the US economy. Here, the picture is also mixed. The PMI was positive, but the job component was negative. Consumer confidence is stable, but not climbing.

So, it is hard for to tell if the economy is struggling and needs help from the Fed. As aforementioned, the Fed has limited tools in terms of QE3.

This article is part of the Forex Monthly Outlook. You can download it by joining the newsletter in the form below, which appears on any article on  Forex Crunch.