Roll the Rate Dice

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All of the aforementioned troubles have been initiated or exacerbated by the ongoing U.S. housing market collapse. The impact of the housing debacle on U.S. consumers has been swift, sudden, and severe. American Express recently told analysts that financially stressed consumers are making fewer payments less often.

Conversely, dollar optimists believe intense commodity inflation will force an adjustment to Fed policy. The Fed's dual mandate has left them somewhat attached to a sinking economy, but they sometimes recognize that inflation risks exist. The fear of inflation and inflation are two different entities and the Fed has the job of keeping both under control. Imagine what the Fed is thinking right now.

Crude oil recently topped $119 a barrel. But beyond the heavily monitored energy prices, food has also been in high demand. Riots have broken out in Haiti because of food shortages. A handful of countries that include China and India have pulled back on their rice exports in order to sufficiently meet domestic demand. And the U.S. recently learned that Sam's Club and Costco are monitoring the amount of bulk rice purchases they allow customers to make.

Dollar optimists believe that inflation on commodities will ultimately warrant some kind of adjustment to Fed policy. Consequently, this would be good news for the greenback because few analysts will argue that the Federal Reserve needs to hike interest rates. But the possibility that the Fed may halt its easing campaign is growing among analysts.

A monetary policy revaluation could spark a legitimate dollar rally.

If Fed Chairman Ben Bernanke and Co. were to carve out a bottom-turn in their easing campaign, it just might give buyers enough reason to come out in support of the dollar. And a legitimate dollar rally would likely impact commodities, considering the extreme negative correlation that's existed between the two parties,"

If youre looking for some currency specific advice heading into Tuesdays FOMC meeting, have a look at the chart of the U.S. dollar index. It may offer up some guidance. Given the way things stand, Id say a rate cut of 25 basis points or fewer likely wont kick off an extended dollar decline. And if the Fed does opt out of rate cuts this time around, it would be a huge departure from expectations leading up to the decision.

That, of course, could kick off a sharp dollar rally."

The bias is slightly positive as we start the week, but do not expect the trading to be on a one-way street in various markets. There are some who are holding dice that say "No rate cut." Remain nimble.