Dollar Flat Overnight as Traders await Fed Decision
The U.S. Dollar is trading flat overnight against most major
currencies ahead of this afternoonâ€™s Fed FOMC announcement.Many of the markets are trading inside of
yesterdayâ€™s ranges, driven primarily by position squaring as traders try to
assess the Fedâ€™s next move.
The consensus says the Fed is likely to acknowledge that
economic growth has accelerated since its last meeting in December but risks
still exist to the economy because of tight credit conditions and
unemployment.Based on the evidence that
the Fed is pouring over, look for interest rates to remain low for â€śan extended
periodâ€ť.The FOMC will continue to
economic data for signs of a sustained recovery that will stimulate jobs growth
without triggering high inflation.
Like previous FOMC meetings, the markets will focus on the
phase â€śan extended periodâ€ť. At this time, this probably means 6-9 months.Taking out this phrase or altering it will be
a signal that the Fed is getting ready to act sooner than previously estimated.
This news will move the markets substantially and most likely trigger a rally
in the Dollar while putting pressure on Treasury futures. Equity markets could
have a knee-jerk reaction to the downside before stabilizing.
Since its last meeting in December, a couple of regional Fed
presidents have gone on record expressing their concerns over the current
mortgage-backed securities program. This stimulus measure is expected to end on
March 31, but St. Louis Fed President Bullard wants to extend the program while
Philadelphia Fed President Plosser says it should end on time.
The mortgage buyback program has helped reduce mortgage
rates 0.25 to 0.75 which has helped stabilize the U.S. housing market.Ending the program prematurely could stall
the housing market recovery. The key is to end the stimulus measure without
knocking the housing market recovery off course.
The focus of this Fed announcement may shift from â€śwhenâ€ť
interest rates will begin to rise to will the Fedâ€™s ending of its mortgage
buyback program stifle the economy enough to knock the housing market off its
path to recovery. Traders should watch for a two-sided move following the
announcement as some traders will focus on the â€śextended periodâ€ť language while
other will focus on whether or not the Fed ends or extends its mortgage buyback
The EUR USD is trading higher while sitting inside a tight
range. The recent bottom at 1.4029 was tested successfully. The current chart
pattern suggests the daily trend will turn to up following a breakout over
The series of inside moves the past three days is likely to
make the GBP USD the most volatile market. For the past few days, this market
has been establishing support inside a series of retracement levels. A strong
breakout to the upside is likely to trigger a near-term rally to 1.6355.A break to the downside targets 1.5895.
Demand for lower yields triggered by a possible slowdown in
the global economy continues to pressure the USD JPY. Light buying came in last
night when this market tested a major 50% price level at 89.30.
The USD CHF is trading weaker after failing to accelerate
through the last swing top at 1.0495. In addition, this market is nearing the
December top at 1.0507.Both prices are
potential breakout areas.On the
downside, a new main bottom has been formed at 1.0367.A trade through this level will turn the main
trend down on the daily chart.
The USD CAD is trading inside of yesterdayâ€™s range, which
could be a sign that upside momentum is weakening. A break through 1.0544 will be a sign that
this market is getting ready to break after a prolonged move to the upside.
Crude oil, gold and equity markets could have a big influence on this market
today after the Fed announcement.
The AUD USD is holding steady overnight. At this time, this
pair is trading inside a major retracement zone at .9031 to .8961.It is possible that a rally could start from
this retracement zone, but it will take increased demand for higher risk assets
to ignite such a move.
The NZD USD is trading inside of yesterdayâ€™s range. The
Reserve Bank of New Zealand
is expected to keep interest rates unchanged as well as its commitment to
maintain low interest rates until the middle of 2010.Demand for higher risk assets will be the
market force driving this currency pair today.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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