Tuesday October 12, 2010 - 13:16:15 GMT
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Forex Hound - www.forexhound.com
Short-Covering Ahead of Fed Minutes Driving Greenback Higher
The U.S. Dollar is trading higher against most major
currencies this morning. Short-covering ahead of the release of todayâ€™s Fed
Minutes is the catalyst behind the rally.
The Fed Minutes, scheduled to be released at 1 p.m. Central
time, will be watched closely by traders for an indication of how close the
Federal Open Market Committee is to implementing another round of quantitative
easing when it meets on November 3. The U.S. Dollar has been under tremendous
selling pressure since the last Fed meeting on September 21 when it hinted
strongly at increasing its balance sheet.
Recently the Greenback has shown signs of bottoming.
Currency traders are certain the Fed will begin easing soon. What the market is
trying to do now is price in the correct size of the asset purchase. Traders
have priced in the possibility of more than $1 trillion of additional easing.
Todayâ€™s minutes could move the markets if the report shows any sizeable
deviation from this amount. Falling short of $1 trillion is likely to trigger
more short-covering. Hints that the QE package may be substantially more than
$1 trillion could trigger another strong sell-off in the U.S. Dollar.
Comments from Fed member Janet Yellen are also contributing
to the Dollarâ€™s strength. Yellen was quoted on Monday as saying that the Fedâ€™s
current loose monetary policy has helped spawn an excessive risk-taking
environment. Some traders feel that Yellen may resist the FOMCâ€™s attempt to
further ease, but others feel that despite her pertinacity to be a dove, she
seldom votes against the majority.
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