The greenback bounced up directly after the release of the Fed's assessment which did not include QE3 plan or hinting to it but it came back under pressure on the Fed's decision of keeping the interest rate unchanged between 0% to .25% until the mid 2013 which was not discounted in the markets and weighed down on the US treasuries yields increasing the demand again for the US stocks as this decision can put pressure on the greenback value supporting the assets prices for a longer period of time than what has been discounting by the markets from the language of keeping the interest rate at this low level for extended period of time on the economic conditions which was required again by Fisher, Kocherlakota and Plosser.
The Fed maintained its inflation expectations over the long term expecting the prices to get down in the near future which is also priced in the market by the economic easing pressure negative impact on the inflation upside risks.
The US equities could continue rising after dipping down following the Fed's assessment release as the investors have seen in this decision an easing action has not been expected putting the greenback under pressure by this action which supported the risk appetite as it looked to the markets, what is in the Fed's hand currently with the interest rate has been already near this level on the back of the financial crisis and with new expected ties to be proposed on the Governmental spending which can cap any QE3 plans from stimulating the economy by buying more treasuries providing liquidity to the US bonds market, while the markets are focusing on the US debt which caused downgrading of the US long term debt by S&P to AA+ from AAA causing a strong wave of selling pressure in the equities markets and negative sentiment about the US creditability which can make it difficult to stimulate the economy financially by the government which is asked to do austerities measures for reducing its debt and so that what could be done by the monetary policy decision makers who surprised the market by the first time of determining a certain interest rate for a certain period of time by the Fed.
After S&P 500 index has fallen to 1100 following the statement from 1137, it could continue creeping up without a word about QE3 breaking above 1152 which stopped it during the day to close it at 1172 and God willing, in the case of gaining more momentum, it can meet resistance at 1192, 1222, 1267 then 1289 by 1300 psychological level again, while the way down can meet supporting levels now at 1100, 1080, 1036 then 1003.
FX Market Strategist
Walid Salah El Din