Quiet Fed Shift Underway

Fed members endorsed a roadmap to tapering in comments Thursday, something that could lay the groundwork for a US dollar rally. The yen outperformed for the third consecutive day while the pound lagged. The calendar is light as the Asian week winds down.

Ashraf wrote about the strong euro reaction, jumping to 1.3677 from 1.3543, and how it was all about what the ECB didn't say – namely the lack of dovish rhetoric. The other surprise is that an LTRO may be less likely than many analysts believed. Technically, the EUR/USD move is a breakout to the highest since Oct 31.

Initial jobless claims were strong at 298K compared to 320K expected. It was the lowest in two months but Thanksgiving may have skewed the numbers. Other data also pointed to a taper with Q3 GDP revisions pushing the estimate to 3.6% from 2.8% -- much higher than 3.1% expected. Core durable goods orders were also revised to -0.6% from -1.2%.

Data that points to a taper is generally good news for the dollar but that wasn't the case in US trading as the buck was battered on every front. USD/JPY slipped to 101.70 and other dollar declines were steeper.

One factor that could restore the dollar rally is a Fed effort to spell out how the Fed will complete the taper when the first move is made. The market expected a meeting-to-meeting approach but a roadmap, even if tentative, adds considerable certainty and is a hawkish move.  Atlanta Fed President Lockhart called for setting a timetable on QE tapering, adding his name to a list that includes Plosser, Williams and Fisher.

There are no major economic data releases in Asia and pre-NFP will also cap price action.