20:00 GMT (Global-View.com) Sep 21- No surprises from the Fed today, as we were expecting, they downgraded their economic outlook and reaffirmed that rates would be maintained at exceptionally low levels for an extended time period. Some feel the central bank has opened the door to additional quantitative easing (QE2) at the November FOMC. One reason why the central bank might have been reluctant to take any action today was that we are in a election period. Recent economic data have been mixed to negative and many are expecting their official economic forecasts to be lowered at their next meeting. Equities took some comfort at the prospect of an easier Fed policy.
Japanese PM Kan is scheduled to meet with President Obama in Washington on Thursday. At this time Kan will be able to explain the need for forex intervention to the U.S. administration first hand. We doubt if Tokyo would want to stir the waters before this meeting. Note also that the CNY has gained modestly today, perhaps in response to explicit pressure from Obama yesterday. In the minds of most, its not a question of if, its a question only of when, the BOJ resurfaces with yet another round of intervention.
The Greece, Ireland and Spain successfully tapped the short term markets for funds today and this has given the EURUSD a lift. Traders are skeptical about any long term implications for this. Today there has been a bit of a squeeze on short EURCHF positions.
UPCOMING DATA HIGHLIGHTS The Far East will see no major data. Chinawill be closed for a holiday. In Europe , EZ new industrial orders and Belgian leading indicators are due. In North America , Canadian Leading indicators and retail sales are slated. The U.S.will see weekly mortgage stats, and DOE (EIA) energy inventories.
The EURUSD is up on the day and the GBPUSD is higher. The EURGBP cross is up. Traders are still watching the European sovereign debt situation.
In the GBP, markets are keeping an eye on the U.K. economy.
The USDCHF is down and EURCHF is up. The SNB strong stand in supporting the EUR against the CHF has waned after massive FX losses. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is lower and the EURJPY cross is higher. While Japanese public finances are a mess, analysts point out that most JGBs are owned by Japanese, so Japan is not dependent on foreign investment. The government has been pressed the BOJ to promote growth and favors a lower exchange rate.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade continues to be turned on and off almost daily. As for the commodity currencies (CAD, AUD and NZD), they are higher vs. the USD. The Bank of Canada recently has been sending mixed policy signals. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, the RBA is likely to tighten in October. The RBNZ is now in a reduced tightening mode. Oil and gold are mixed. Gold is still favored as a refuge from paper money.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed mixed. European bourses were weaker. U.S. equities are up. The U.S. 10-yr was last 2.61%, -10 bps.
Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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