Forex: US Dollar Looks to Fed Commentary to Set Direction Cues

Washington (Nov 18)  The US Dollar is looking to comments from Fed Dirrectors Dudley and Plosser to set the tone for this week’s FOMC Minutes release and guide QE “taper” bets.

A quiet economic calendar in European hours will see traders looking ahead to US event risk. While things remain quiet on the data front, the “fed-speak” schedule is noteworthy. Comments from New York and Philadelphia Fed Directors Bill Dudley and Charles Plosser are due to cross the wires. The remarks will help set the tone for the release of minutes from October’s FOMC meeting on Wednesday. Traders will look to the minutes to gauge the central bank’s level of concern about the impact of the US government shutdown on economic growth, and thereby on QE “taper” timing.

Recalling the ultimately unfounded fears of fiscal retrenchment from the payroll tax hike and “sequester” spending cuts on US performance earlier this year, Ben Bernanke and company are unlikely to have been compelled to alter their baseline policy trajectory, at least absent concrete data arguing otherwise. Hints of such an outcome in Dudley and/or Plosser’s commentary may reinvigorate QE cutback speculation, driving the US Dollar higher against most of its top counterparts after prices settled at chart support.