Does Weaker GDP Mean Pricing in QE3 and A Weaker USD

Today's US GDP data was interesting in that it came in weaker than expected and breaking down the report we see that personal consumption was pretty soft and much of the gain in the fourth quarter came from the restocking of inventories.

Therefore with a soft GDP report the usual response in the currency markets would be for risk aversion to take hold in which the US dollar and Japanese yen gain against the higher-yielding currencies - especially commodity bloc currencies as well as the EUR and GBP.

The question now however is with the Fed Chairman Bernanke and the Fed statement leaving the door open for more quantitative easing, the GDP report may further the case that more accommodative monetary policy is necessary. If so, that would have the opposite effect in that it would weaken the US dollar against its rivals.

The market reaction so far has seen stocks weaker and the Australian, New Zealand, and Canadian dollars pairing some of the gains they had against the dollar and the overnight trading session, but really trading withing the ranged established in the overnight session.

Which side will win? The risk aversion and safe haven play which favors the US Dollar or the increase in speculation of more printing and asset purchases by the Fed which should would weigh on the US dollar.

That is the fault line we find ourselves on as we head toward the end of this week and begin next weeks trading. In a look at the Dollar index we see that the strength in see in September and again in November and December may have run its course and is ready for a pullback. A break of an upward sloping support trendline and a push below important horizontal level of support (old resistance) are indications that from the technical side the USD may be ready for a further retracement of its recent rally.