Fed Minutes Shake Out Dollar Bears

The FOMC minutes revealed what most marketwatchers already knew but the headlines were an excuse to squeeze dollar shorts. On the day, the Australian dollar was the top performer while the pound lagged. Aussie jobs data is up next.

The headline grabber from the Minutes was a line that most Fed members believed it would be appropriate to begin the taper this year and wind it down in mid-2013. Another headline was that the decision was a close call.

The market reaction was to buy the dollar on the timeline because most economists are now leaning toward January as the first taper date. EUR/USD fell below 1.3500, USD/JPY rose above 97.50 and cable dropped to 1.5920, capping a miserable day for the pound.

The movers reversed soon after because the content of the minutes were old news. Bernanke said in the post-Fed press conference that the timeline was intact and several Fed members said it was a close call. More importantly, the government shutdown and debt ceiling are gamechangers and will certainly alter the Fed's timeline to 2014 if they continue.

Another event on the day was small ratings agency DBRS putting the US rating under review. The market didn't react but the move foreshadows a similar possible decision from other, larger agencies. In particularly Fitch, which has signalled it's watching the debt ceiling closely. Watch out for a creditwatch warning from them in Thursday or Friday; it would be a signal to sell USD/JPY.

Finally, Yellen was introduced as the Fed nominee. He speech mostly lacked meaningful content but she did say the Fed 'must have vigorous debate, then unite behind response.' The nod to unity suggests the Yellen Fed will tolerate less public dissent.

Up later, Draghi speaks at 2200 GMT. He's unlikely to make waves outside European hours.The highlight is at 0030 GMT when the October Australian jobs report is out. The consensus is for a rosy +15K with unemployment unchanged at 5.8%. Aussie has been searching for direction this week and this report is likely to make a lasting impression.