U.S. equity markets are
trading lower ahead of this afternoonâ€™s Fed interest rate policy
announcement. Traders have been nervous the past few days as economic
indicators have been pointing toward a global economic slowdown. In
addition, possible changes in regulations have been driving many trades
to lighten up long positions. This afternoon, traders will be focused
on whether the Fed votes to extend or end its mortgage buyback program
as this will have a direct effect on the U.S. housing industry.
this announcement turns out to be a non-event, then stocks could feel
pressure as the focus will shift back to the possible developing
slowdown in the global economy. This news has been causing traders to
take risk off the table as traders seek shelter in lower risk assets.
futures are trading higher. Weaker equity markets and greater demand
for safety are helping to underpin the March Treasury Bonds and March
Treasury Notes. Look for Treasury futures to rise if the Fed votes to
extend its mortgage buyback program. This stimulus measure has kept
pressure on interest rates.
The direction of February Gold will
be dependent on the direction of the Dollar. A stronger Dollar will put
pressure on precious metals. Any hint at higher interest rates is
likely to drive the Dollar higher and gold lower. A surprise
announcement about inflation will underpin gold, but this is a remote
March Crude Oil is trading lower at the mid-session.
Oil reversed its earlier direction after a report showed that
inventories rose. Demand for safer assets is also pressuring
commodities and stocks. Investors are focusing on a possible slowdown
in the global recovery which will lead to a drop in demand for
The U.S. Dollar is holding steady to better
at the mid-session against most major currencies ahead of this
afternoonâ€™s Fed FOMC announcement. Many of the currency markets are
trading inside of Tuesdayâ€™s ranges, driven primarily by position
evening as traders try to assess the Fedâ€™s next move.
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
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.
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
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 program.
March Euro is trading lower at the mid-session in very light trading.
The recent bottom at 1.4027 was tested successfully. The current chart
pattern suggests the daily trend will turn to up following a breakout
over 1.4193. A failure to hold 1.4027 could trigger a short-term
assault on 1.3800.
Talk of economic stability and U.K.
inflation is helping to underpin the British Pound at the mid-session.
Technically, the series of inside moves the past three days is likely
to make the March British Pound 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 1.6351. A break to the downside targets
The loss of appetite for risk in Asia is helping to boost
the Japanese Yen. Demand for lower yields triggered by a possible
slowdown in the global economy continues to support the March Japanese
Yen. Light selling came in last night when this market tested a major
50% price level at 1.1227. Currently, this market is hugging this
The March Swiss Franc is trading a little
lower at the mid-session after failing to accelerate through the last
swing bottom at .9530. In addition, this market is nearing the December
bottom at .9522. Both prices are potential breakout areas. On the
upside, a new main top has been formed at .9647. A trade through this
level will turn the main trend up on the daily chart. At this time, the
Swiss Franc is sensitive to the Euro. A weakening Euro could increase
the chances of an intervention by the Swiss National Bank.
March Canadian Dollar is trading inside of Tuesdayâ€™s range, which could
be a sign that downside momentum is weakening. A break through .9424
will be a sign that this market is getting ready to rally after a
prolonged move to the downside. Weaker crude oil, gold and equity
markets are having a big influence on this market today.