QE3 until US Labor Market Improves

U.S. Dollar Trading (USD) stocks and commodities roared higher overnight as the FOMC decided to implement QE3 for an open period of time and keep rates exceptionally low until mid 2015. The market was not fully pricing in this dovish and extremely loose monetary policy decision and could fuel USD weakness for some time going forward. Looking ahead, UoM Consumer Sentiment forecast at 74 vs. 74.3 previously. August Core CPI forecast at 0.2% vs. 0.1%.

The Euro (EUR) EUR/USD broke above 1.3000 at the height of the USD weakness overnight and has crept higher to 1.3030 in Asia so far on Friday. The market is now well and truly in an uptrend with the fears of the debt crisis crash well behind investors. Yields on Spanish and Italian bonds continue to fall and this is creating more confidence. While it is too late to call the crisis over it has definitely retreated from the spotlight. The Sterling (GBP) the weak USD has sent the GBP/USD to 1.6200 and we are looking for even more gains as the sentiment remains strong. The EUR/GBP is continuing to grind higher lately as the Euro recovery extends. The UK has its own QE program but with inflation higher than expected BOE member Broadbent see less scope for action. Looking ahead, August EU Inflation forecast at 0 vs. 0.6% previously. 

The Japanese Yen (JPY) USD/JPY was damaged by the QE3 plans but the fall was immediately contained at Y77.50 as rumors circulated of BOJ rate checking overnight. The FinMin stated that he would not comment on FX and so the USD/JPY has been supported from fears that such intervention is happening. Australian Dollar (AUD) the AUD/USD is continuing to rally hard up above 1.0550 overnight and completing a 1 week move from 1.0160. The topside targets include 1.0615 the high of the last 6 months. AUD/JPY is above Y82 and providing the Aussie with lots of support in Friday Asian trade.

Oil & Gold (XAU) Gold was a major beneficiary of the US FED announcements and we saw a large rally to above $1770 from $1720 just prior. Gold is extremely overbought but has shown the ability to continue higher. OIL/USD is making a charge to $100 a barrel on the back of the weak USD and strong stock market. Currently at $99.40 in Asian trade Friday.


Pairs to watch

EUR/USD above 1.3000 to lead to more gains?

XAU/USD to make a move for the $1800oz level?




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