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 monitor
U.S. economic data for signs of a sustained recovery that will
stimulate jobs growth without triggering high inflation.
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.
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.
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
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 program.
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 1.4194.
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.