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The market has become less clear over the past two weeks on the likelihood of the US central bank starting to taper bond purchases at next weeks’ Fed meeting. This has been partly driven by data, which has not moved decisively in the Fed’s favour, together with the messages coming from the Federal reserve itself, which with the messages not pushing hard for a scaling back of bond purchase this month.

The current expectation is that we’ll see a small notional tapering, which with an accompanying adjustment of the language.  This could lead to some disappointment on the dollar, with future tapering looking ever more dependent on the data.

Data/Event Risks

USD: Data calendar hotting up with PPI (factory gate inflation), retail sales and Michigan confidence data released. Retail sales probably the biggest one for the dollar, followed by Michigan. Sales are seen rising 0.5% MoM on headline basis, with firmer number helping support the dollar into the end of the week.

See how to trade the consumer confidence number with EUR/USD.

Latest FX News

USD: The move higher on the claims data proved to be transitory on the basis that one-off factors appeared to be at play in pushing the headline claims data below the 300k level for the first time in seven years. Nikkei report that Obama will name Summers as new Fed chair, which would be dollar positive as he’s seen as less of a fan of quantitative easing.  This gave the dollar  a lift at the start of the European session.

EUR: A wobble mid-session Thursday on the back of news that Greece faces funding gap of around EUR 4 bln next year (from the IMF). On face value, this is not news, but IMF was clearer on the basis that this will need to be addressed in the autumn before more loans are distributed.