FOREX: Dollar See Little QE3 Potential in Bernanke Commentary, Looks to Risk Trends and Beige Book

• Dollar See Little QE3 Potential in Bernanke Commentary, Looks to Risk Trends and Beige Book
• New Zealand Dollar Likely to Experience Volatility on the RBNZ's Rate Decision
• Euro Furthers its Run Despite Growing Discord Over a Consistent Rescue for Greece
• British Pound Traders Showing Little Interest in the Lead up to Thursday's BoE
• Canadian Dollar Increasingly Dependent on Oil Prices and Risk Trends
• Japanese Yen: Is the Bank of Japan Preparing for another Round of Intervention?
• Gold Faces its Own Troubles with a Withdrawal in US Stimulus

Dollar See Little QE3 Potential in Bernanke Commentary, Looks to Risk Trends and Beige Book

The dollar is starting to find a bid into the opening trading hours of Wednesday's Asian session. This is a distinct change in bearing from Wednesday's restrained but steady retracement. However, it is far too early to call this a lasting reversal much less the beginning of a long-awaited dollar bull trend. To maintain and feed a meaningful rally for the greenback, we need a tangible fundamental driver. As of now, the top three considerations are speculation over the impact of the expiration of QE2; a meaningful shift in investor sentiment (risk appetite); or a general flight of capital from Euro-Zone event risk. Yet, none of these catalysts were showing through in the capital markets; so expectations for follow through should be reserved until there the masses are ready to take up the call for a concerted drive.

Referencing the benchmark currency's performance through Tuesday's session, the Dow Jones FXCM Dollar Index retraced the gains that opened the week; but bears would refrain from carrying market to new lows. It shouldn't surprise that the FX performance mirrored the intraday performance for the S&P 500 for the day. The benchmark equities index (and our favored gauge for risk appetite) moved up to test the conviction in its recent slide below 1,300 but fell short of hitting the even figure. In after-hours trade, the US index managed to nudge fresh two-and-a-half month lows; though follow through is still too weak to suggest we are looking at the beginnings of a strong risk aversion move. In fact, if we are going to see a meaningful slide in sentiment; it should keep an eye on the progress in performance through Asian and European session benchmarks. We can see that the Japanese Nikkei 225 Index is little moved through the day and technical traders note the frequented, 9,325-level of support is still in place. A similar floor still stands for the German DAX at 7,000. US markets can take up the responsibility to change the landscape of global market sentiment (it does more often than not); but there is a chance of a move before New York is online.

As for traditional fundamentals over the past 24 hours and over the coming 24 hours, the primary interest is in the central bank's activities. Dallas Fed President Fisher kept to the hawkish path by saying the central bank has “done enough if not too much” with its stimulus effort. Atlanta head Lockheart countered by saying he was concerned with a “lack of conviction in this economy” and was therefore wary of “tightening monetary stimulus”. For the policymaker whose opinion matters the most, Fed Chairman Bernanke's commentary was generally consistent with previous statements. His suggestion that support should be kept in place in the “frustratingly slow” and “uneven” recovery keeps with his general support for maintaining stimulus (which should not be interpreted as expanding it) until labor conditions boost economic activity and inflation. For Wednesday's session, the top event risk is the Fed Beige Book – the economic assessment the central bank uses for its next rate decision.

Related:Discuss the Dollar in the DailyFX Forum, John's Picks: USDCHF and CHFJPY better Reversal Opportunities but EURUSD a Watch

New Zealand Dollar Likely to Experience Volatility on the RBNZ's Rate Decision

There were four interest rate decisions scheduled for this trading week; and the ECB is facing some degree of controversy. However, looking at the build up to each of these meetings; the Reserve Bank of New Zealand's decision looks like it carries the greatest potential. This does not mean there will be a change to the benchmark. The money market is pricing in virtually no chance of a change to the benchmark and all 15 economists polled by Bloomberg expect a hold at 2.50 percent. Yet, we don't necessarily need a shift in rates for this event to generate significant price action – just look at the last ECB event. Over the past two months, the kiwi has rallied remarkably though fundamental appeal and risk appetite were relatively mute. If this strength was built upon expectations for the 50 bps cut to be reversed, we may see disappointment.

Euro Furthers its Run Despite Growing Discord Over a Consistent Rescue for Greece

If ever there were a good example of fundamentals and price deviating or speculative interests guiding an asset, it would be the euro. Adding to the suggestions Monday that there was in fact no consensus on Greece's next bailout; we learned this past session that Moody's had joined Fitch in warning that it would most likely treat a roll over in sovereign debt as a credit event (default). When risk collapses, the euro will suffer.

British Pound Traders Showing Little Interest in the Lead up to Thursday's BoE

At the beginning of the year, British pound traders were actively speculating on the collective interest rate forecast. Recently, though, the outlook for that first move to tighten the monetary reins has been pushed further and further back – leaving speculators notably frustrated. Now in the countdown to Thursday's rate decision, we see little of the telltale positioning before a major event. This is the perfect setting for a surprise…

Canadian Dollar Increasingly Dependent on Oil Prices and Risk Trends

Just taking a look at USDCAD, it becomes painfully obvious that there is a fundamental anchor at work here. The economic and financial connections between the US and Canadian economies work to stabilize the exchange rate – leaving only a few particular drivers capable of guiding price action. While we wait for US rate expectations return; we should keep a close eye on US oil and its primary catalyst: risk trends.

Japanese Yen: Is the Bank of Japan Preparing for another Round of Intervention?

The Japanese yen managed to a meaningful spike through the opening hours of the Tokyo session – roused by risk appetite trends. Without a clear break on the major market benchmarks for the session though, record highs are not within reach. That said, with USDJPY edging below 80, there is growing speculation of BoJ or G7 intervention. This is unlikely as this isn't a volatile move. Besides, their influence has proven flimsy.

Gold Faces its Own Troubles with a Withdrawal in US Stimulus

We have discussed the impact that a withdrawal of US stimulus would have on the US dollar; but what would it do to gold? One of the metal's primary selling points recently has been its value as an alternative to the greenback and currencies in general. Yet, that assessment will begin to change when investors are reminded that there will eventually be a yield on the dollar while gold offers no such return.

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Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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