USD Frowns at Minutes

The steady-stream of US dollar positive news finally stalled when the FOMC Minutes failed to offer any clear nudge about a Dec liftoff. The pound was the top performer while the Swiss franc lagged. Japanese Oct trade data is due next. A new Premium note was issued on the FSE-100 ahead of tomrrow's UK retail sales release. GBPUSD, GBPCAD and GBPAUD Premium trades are also in progress.

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Throughout the early part of New York trading anticipation about hawkish Fed minutes was clearly building. The US dollar was solidly bid, pulling EUR/USD down to a fresh five-month low at 1.0621. The dollar bulls wanted a sign that a hike was highly likely.

Instead, the Minutes told us the things Fed officials have been saying for a few weeks. They're pleased with employment and will hike if they're confident in rising inflation and that no foreign troubles are brewing. That sparked a tactical retreat in the dollar as the 30-40 pip pre-Minutes gains dissipated.One part of the Minutes that stands out to us is some light commentary on the possible disinflationary effects of the dollar. Expect that to be a key theme in 2016 as the Fed begins to more actively jawbone against the US dollar, led by Fischer. It's a theme that's slowly been building and it's likely to be the reason the Fed delays hikes next year.

The turnaround in the dollar argues that a fresh catalyst is needed to spark gains. Fed rhetoric will be mum or repetitive over the next three weeks. Instead dollar trades may be driven by the other side of the equation. On Thursday, that means the ECB minutes and on Friday there is yet another BOJ decision.

In the shorter-term the focus will be on Japanese Oct trade data at 2350 GMT. The weaker yen surely hasn't delivered the spark Abe and Kuroda would have hoped for as Japan re-entered recession after this week's GDP data. The consensus is for an adjusted trade deficit of 343B yen, a slight decrease from the prior month. Exports are expected down 2.0% y/y and imports down 8.6%.  The soft yen, it seems, is hurting importers more than boosting exporters and that argues for patience on further QE and USD/JPY declines.