News and Events:

In light trading, risk appetite has stabilized with USD weakening, while equities and commodities temporarily halted their downside slide. The S& P closed slightly higher, CRB Commodity Index closed back above its 200d MA on the back of stronger crude, which closed up $2.07 to $69.22bll. However, the rationale for the sudden shift in sentiment for a third time this week is difficult to pinpoint. Some point to the rise in Germany's GfK index. However, we are leaning to soft US data and a short squeeze in the EUR. The EURUSD continues to gain momentum rallying off 1.3850 support to 1.4140 (safely above 21d MA). Renewed focus again on EURCHF, with the pair floating just above the psychologically critical 1.50 level, with reports of significant option barriers at that level. Given the SNB's comments about not targeting any specific level, we expect a test of 1.5000 near term. However, any break below should be short lived. The GBPUSD is testing range resistance and a break will have traders focused on 1.6830. Today Japan's May trade balance showed a trade surplus of Y299.9bn, which is slightly better than the market consensus of The headline reading shows a continued improvement in Japan's trade balance, due mainly to the larger fall in imports. Worryingly was the fact that exports to China were flat and exports to the US and EU continuing to drop suggests that Japan's export led recovery might be faltering. Today's key event will be the FOMC rate decision and accompanying statement. Markets are universally expecting no change in the Fed fund target rate and most participants are expecting a more upbeat outlook on the economy. In addition, the market is expecting stronger language to signal that rates would be on hold for a while in order to fight expectation of tightening in late 2009. Perhaps the main event risk today will be this wording and subsequent market reaction. It will be a delicate balancing act for the Fed on one hand saying that rates will stay low is an admission that the recovery is fragile, at best, while allowing rate speculation to continue could kill whatever “green shoot” have actually sprouted. Lost in the Fed hype is the US durable goods release, which is expected to drop sharply and perhaps reinforce pessimism about the US recovery.


Today's Key Issues (time in GMT):

01:30 JPY BoJ Policy Board member Nakamura speaks to business leaders

08:00 EUR Current account, € bn (sa) Apr -6.0 exp, -6.5 prior

08:00 NOK Unemployment rate AKU, % (sa) Apr 3.3 exp

10:00 GBP CBI distributive trades, reported sales Jun -15 exp

12:30 USD Durable goods new orders, % m/m (y/y) May -0.8 (-25.3) exp, 1.7 (-24.6) prior

13:30 GBP BoE's Mervyn King, Charles Bean, Paul Fisher, Andrew Sentance and Kate Barker testify before the Treasury Select Committee

14:00 USD New home sales, thous. saar May 360 exp, 352 prior

14:00 MXN CPI, % 2w/2w Jun 0.16 exp, -0.34 prior

14:45 GBP BoE's Mervyn King, Andy Haldane and Andrew Bailey speak on financial stability at Treasury Select Committee hearing

15:30 EUR ECB Executive Board member Bini Smaghi participates in a debate in Rome

17:15 CHF SNB Chairman Roth speaks

18:15 USD FOMC interest rate announcement, % Jun 0.00-0.25 exp

19:30 MXN Unemployment rate, % May 5.3 exp, 5.3 prior

The Risk Today:

EurUsd A remarkable recovery in eurusd seen in yesterdays move. The close above 1.4020 area limits downside risk for now. Resistance seen at 1.4180 .

GbpUsd The month long pennant remains intact as the very strong resistance at the 1.6560 level remains unbreached, but look for this again today. Buyers to be seen on the breakout.

UsdJpy Looking for 97.20/30 area to provide strong resistance on the topside today, with bearish moving averages still to the fore. 94.40 supports

UsdChf The head and shoulders low from early june has been breached, and with the consolidation around 1.0640/80 look for break lower. Furthermore the break of uptrend at 1.0723 provides first resistance on the day

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot