Dollar Keeping Post FOMC Gain, ECB Awaited

Dollar was given a mild boost after the rather non-evental FOMC statement overnight and is holding on to its gain so far. Retreat of risk appetite ahead of the highly anticipated ECB press conference today also help supports the greenback and sent Asian equity indices broadly lower. Yen is also mildly softer after IMF's comments. Meanwhile, Aussie is lifted slightly by better than expected trade and retail sales data. But after all, markets are staying in consolidation mode with all eyes on the ECB meeting.

The FOMC meeting was a rather disappointing one as policymakers failed to deliver any new measures to boost the deteriorating economy. While we had anticipated that the Fed would be refrained from announcing QE3 in August, we thought it would at least extend the low rate guidance to 2015. Yet, the Fed decided to leave it unchanged. Policymakers were maintaining easing bias but few changes were found in the languages of the accompanying statement. We expect the Fed was still gauging the impacts of the operation twist which was extended last month. We maintain our view that the QE3 will be announced at the next meeting.

ECB's meeting will be the major focus today. The market has been eagerly awaiting the meeting after President Mario Draghi's comment last week that the central bank would do whatever it can to preserve the euro. This has raised speculations that the ECB would resume bond purchases in the form of SMP. However, there are many hurdles to this move, in particular opposition of the Bundesbank. While the case of ECB purchases of bond has greatly increased due to worsening of situations in Spain and Italy, the timing of the move is an important issue.

The ECB obviously prefer to see the Spanish government request support from the EFSF with conditionality in place before the central bank's involvement in bond purchases. However, this may not come earlier than the Thursday. In such case, we expect the ECB would not announce SMP in August, leaving it to September possibly. We also believe the central bank to leave interest rates unchanged this month, after the surprising rate cut in July. More in ECB to Disappoint in August. BoE is expected to stand pat today and issue a brief statement, and thus, could be a non-event.

IMF chief Lagarde pledged that it "never leaves the negotiation table" with Greece and will stand by the troubled country. She somewhat hailed that the achievements of Greek economy and Greek population as impressive. And she hoped that Greece will "go further and improve the situation" with a better consolidated coalition. Meanwhile, Lagarde also praised Spain's "huge effort" to lower the budget deficit She added that "there are factors at work to improve the Spanish economy but there are also external elements that cloud the horizon of Spain and that is the uncertainty in the euro zone in general."

In separate reports, IMF yen is "moderately overvalued" and urged BoJ to ease policy further to beat deflation. Meanwhile, if also warned that financial system’s massive holdings of government bonds leave it exposed to a spike in yields and is putting risks in the Japanese finance system.

On the data front, Japan monetary Base rose 8.6% yoy in July. Australian retail sales rose more than expected by 1% mom in June. Trade balance recorded a surplus of AUD 9m, defying expectation of AUD -375m deficit. But that's mainly due the -2% decline in imports. Looking ahead, Swiss SVME PMI, UK PMI construction will be released in European session. Challenger job cuts, initial jobless claims and factory orders will be released from US.