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Traders sit tight ahead of FOMC minutes

15.30 AEST, Wednesday 22 August 2012

Traders sit tight ahead of FOMC minutes
By Tim Waterer (Senior Trader, CMC Markets)

When taking a look at the performance of the Euro this week, one could be forgiven for thinking it has miraculously become the currency of choice in the FX market, as counter-intuitive as that may be.

The recent surge in the Euro is premised heavily on hope that the ECB will be delivering the goods come September, by subduing Spanish and Italian yields. The EURUSD rate has moved from a 1.22 handle to the 1.24 handle in quick time based on talk alone with hopes that actions from the ECB will soon follow. Whilst the single currency is sailing along nicely now, a return to more troubled waters below 1.20 could become reality if the ECB do not cement a plan before the market loses patience.

With the Euro receiving much of the attention in FX circles this week, the AUD has been trading in quite indifferent fashion as it bides its time primarily in the 1.04-1.05 region, with most risk assets generally in a holding pattern until we find out the FOMC and ECB intentions on stimulus efforts.

Today, the AUD has not deviated far from the 1.0450 level with caution the order of the day ahead of the upcoming FOMC minutes, which will be heavily scrutinised for signs of imminent monetary easing in the US.

The Euro is not the only beneficiary of the faith shown by markets in the ECB coming to save the day in September, as the oil price also continues to tick higher. The price of US crude is inching closer towards the psychological US$100 per barrel, however if the FOMC minutes serve to dissipate market enthusiasm we could see a halt to the climb higher by crude oil.

The Australian share market delivered another fairly ho-hum performance Wednesday, with traders quite happy to sit tight ahead of the FOMC minutes. Overall, the ASX200 took on a somewhat rudderless appearance with traders reluctant to take on new positions without the ECB and the US Federal Reserve first showing their hand on stimulus measures.


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