FOREX UPDATE - USD

The US dollar has traded in a 1.2698-1.2733 range against the EUR and a 117.33-117.55 range against the JPY this morning in Asia.

The USD continues to be stuck in its broad ranges against the majors despite the housing market continuing to slow as Fed officials so far have not signalled to the market that the next move in Fed funds will be down rather than up.

Yesterday the Fed's Lacker remained hawkish in an interview with Reuters, warning that he was not confident that US inflation was on a downward trend.

Lacker was the only member who voted for a rate hike at the last FOMC meeting on September 20 so his hawkish comments were not that surprising. Nevertheless while bond yields remain subdued below 4.60% for US ten year bonds, other Fed officials have so far not justified weaker interest rates at the long end. Last night the Fed's Hoenig also spoke arguing that while the economy will slow, inflation remains an issue and consumer optimism remains fairly high.

Thus with no cue yet from the Fed, the currency markets have not been able to break out of their ranges. Investors therefore need to keep watching Fed speeches and economic data for signs that the slowdown in the housing market will start to affect the broader economy.

Today we have the final Q2 GDP data and initial jobless claims. We think USD bears should remain patient waiting for either a surprise Chinese revaluation, weaker US data or a change in stance by the Fed to help push the USD weaker..