Minutes Leave Dollar Bulls Guessin', Ben Leaves ‘em Sweatin'

Bernanke's dalliance with a more hawkish stance was short-lived as he sank the US dollar with a dovish speech. Early in Asian trading, EUR/USD is trading close to 1.3000 from 1.2775 a day earlier. The Australian jobs report is the next main event on the calendar. New trades have been issued on EURUSD, USDJPY, EURGBP and USDCHF. All the latest charts and trades are found in the Latest Premium Insights.

The FOMC minutes left traders scratching their heads on mixed signals but dovish comments from Bernanke sparked an abrupt dollar selloff.

The initial reaction to the Minutes was a dollar decline as the newswire headlines highlighted that many on the FOMC wanted to see jobs gains before tapering. The reaction reversed as traders uncovered a line in the economic projections saying “about half” of the FOMC indicated that it likely would be appropriate to end asset purchases late this year. The consensus in markets is that the taper will begin sometime this year but few believed purchases would end until 2014. As a result, the dollar recovered its losses.

Soon afterwards Bernanke delivered an academic speech but in a Q&A afterwards he warned about deflation, said the unemployment rate understates weakness and that the mandate argues for accommodation. EUR/USD ripped more than a cent higher on the comments, hitting 1.2996. Cable broke 1.5000 to 1.5044 and it was much the same throughout the market.

The Australian dollar was especially volatile on the day, ranging between 0.9100 and 0.9200 several times on the day. We have emphasized the resilience of AUD to bad news but with the terrible Chinese trade numbers overnight, the Aussie is in a precarious spot.

The market is pricing a 61% chance of a rate cut at the upcoming RBA meeting but it will jump much closer to 100% on a soft employment report. The numbers at 2130 GMT are expected to show no job creation and a tick higher in unemployment to 5.6%. As always, the full/part-time jobs breakdown will be an important consideration. This is one of those times where the data will determine the path of the currency and it's best to hang on for the ride.