Markets steady ahead of MPC minutes

The Greenback is struggling to make progress following Fed
Chairman nominee Yellen’s comments last week. There seems to be
little transparency as investors continue to second guess the
timing of Fed tapering while Fed officials appear to be giving
contradictory hints. Nevertheless, some explanation will be sought
from Fed Chairman Bernanke’s comments later tonight. In the
meantime, the large increase in USD speculative positioning give
additional reason to be cautious on further USD appreciation in the
short term. Alongside likely weaker data announcements, including
October retail sales, this will suggest limited upside to USD
potential.

The Aussie may benefit from the buck in the USD’s appreciation
trend, helped by the release of the November 5th RBA meeting
minutes. The minutes confirmed that the central bank is in no hurry
to ease policy rates further. Although they did note that the AUD
remains uncomfortably high, there was nothing new in such comments.
It increasingly looks as though the RBA has reached the bottom of
its easing cycle, something that will likely help to provide the
AUD with some support over the coming months. In the near term,
AUD/USD will attempt to take a crack at resistance around 0.94
although a speech by governor Stevens on Thursday will give further
direction and could hold risks to AUD especially if he attempts to
talk the currency lower.

Sterling has been relatively buoyant in the wake of some
positive UK economic data releases. Attention will turn to
tomorrow’s Bank of England MPC minutes which will be dissected for
clues to a possible change in the 7 per cent unemployment rate
threshold. Already it seems that the BoE is closer to raising
policy rates than previously thought as indicated in last week’s
Quarterly Inflation Report. Cable may benefit from some general USD
consolidation although its gains will be restricted ahead of the
MPC minutes. Near term support GBP/USD is seen around 1.60, with
risks of profit taking on recent GBP gains likely to restrict
upside potential in the currency.