Talking Points

• US Dollar Consolidates Overnight, S&P 500 Futures Hint Pullback Ahead
• All Eyes on FOMC as Markets Look for QE3 Clues to Reboot Risky Assets
• German Jobs Report Likely to Pass with Minimal Response from Markets

Currency markets consolidated in narrow ranges overnight, with theUS Dollar pulling back a bit against its major counterparts having rallied decisively since the start of the trading week. All eyes now turn to theFederal Reserve monetary policy meeting as traders hold out hope that clues of a third round of quantitative easing will emerge in the statement accompanying the announcement or the subsequent press conference fromChairman Ben Bernanke.

On balance, the prospect of additional stimulus in the near term looks like little more than wishful thinking. The central bank announced the so-called “Operation Twist” at its last meeting on September 21, so it would be unusual to see another change the to the policy mix so soon without allowing adequate time for the current arrangement to prove itself and against the backdrop of seemingly improving performance. Indeed, data compiled by Citigroup shows the pulse of US economic news has been steadily improving since June, with an index tracking data surprises now above its long-run average at the highest level in over six months. The trend was reinforced with last week’s third-quarter GDP report, which showed that the annual pace of economic growth accelerated to the strongest in a year.

With this in mind, the Fed is likely to stick with a familiar mantra, telling traders that growth remains sub-par while unemployment much too high and reminding them that all options – including QE3 – are still “on the table” if the recovery meaningfully falters. While this doesn’t present any significant change from what has been seen in recently, markets looking for a reason to feel optimistic after two days of brutal selling seem likely to read the outcome as mildly dovish enough to force a short-term rebound in risky assets, weighing on the greenback.S&P 500 stock index futures are already firmly in positive territory andtechnical positioning reinforces the case for a pullback in the safe-haven currency.

German Unemployment figures headline the European data docket, with consensus forecasts suggesting the ranks of the jobless will shrink by 10,000 in October. TheUnemployment Rate is expected to remain unchanged at 6.9 percent. The report seems unlikely to draw much attention, with markets having amply priced in a rosy labor market in the Euro Zone’s top economy for some time now. Indeed, the jobless rate has been trending steadily lower since September 2009. Needless to say, that does nothing to dismiss debt crisis jitters, and traders’ attention is likely to remain on sovereign risk-related issues.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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