The U.S. Dollar was trading mixed most of the day on Tuesday in a quiet, directionless trade. The Dollar was trading on both sides of even versus the Swiss Franc and the Euro at mid-session, down against the Yen, British Pound, New Zealand Dollar and Australian Dollar. The Dollar's only clear gain was versus the Canadian Dollar.

The fact that the Fed is in the middle of a two-day meeting could be the reason behind the mixed results. Traders do not expect any major policy changes when the FOMC makes its announcement Wednesday afternoon. The consensus is they will most likely reiterate their plan to provide as much liquidity as the market needs. There may be some additional commentary on providing liquidity for the mortgage markets. This could be good news for the economy if the housing industry responds favorably.

The Euro was under pressure early in the trading session as traders are beginning to price in an interest rate cut at the European Central Bank's meeting on February 5. For weeks the ECB has held the market in suspense as to whether they would leave rates unchanged at its next meeting. For the most part the Euro Zone economy has been deteriorating, leading speculators to bet on a rate cut. Today, however, the Ifo Institute figure came out better than expected. This triggered a short-covering rally. The sideways action on the charts is indicative of indecision at this time. Continue to look for range bound trading until traders receive a clearer course of action.

The short-covering rally in the British Pound continued on Tuesday. Currently, shorts are bailing out of positions ignited last week when the U.K. banking system looked like it was on the verge of collapse. News that Barclay's will not have to use government aid has reversed the downtrend.

Do not expect too much more upside in the Pound. The U.K. economy is in a recession and the banking system still has problems. Once the market finds equilibrium, look for shorting to resume.

The USD JPY is trading weaker on Tuesday despite a firm equity market. The weakness seems to be tied to the report that U.S. Consumer Confidence was down. This is triggering a flight to the safe haven Yen. Traders should be leery about taking on large long positions as the Yen is reaching an area which may attract activity from the Bank of Japan. The BoJ is watching the market carefully for excessive volatility and may intervene if necessary. The Japanese government is watching for another strong rise in the Yen. The strong Yen hurts exports and weakens the economy.

Trading is mixed in the USD CHF market. The strong stock market is increasing trader appetite for higher yielding assets and driving the Swiss Franc higher. On the other hand, the Swiss economy is weakening due to exposure to the deteriorating Euro Zone, Eastern European and Russian economies.

The Canadian Dollar fell on Tuesday after the government announced its first budget deficit in 10 years. Despite vows from the government to do all it can to avert a recession, investors are concerned that the drop in price of key commodity exports will turn into a deflationary scenario. Additional pressure came from falling gold, crude oil and wheat. It looks as if the Dollar's uptrend is poised to resume.

The stronger equity markets are helping to support the Aussie Dollar as traders increase their demand for higher yielding assets. Lower commodity prices are curtailing gains however. Although the AUD USD is up on the day, this situation is not likely to last without the support of the commodity markets. With the economy deteriorating because of falling exports, look for downside pressure over the short-term as the Reserve Bank of Australia gets ready to cut rates at its next meeting on March 3.

The NZD USD traded a little better on Tuesday due to the strength in the global equity markets. Lower commodity prices are hurting exports and the economy. Look for rallies to sell as this currency should come under pressure because the Reserve Bank of New Zealand is expected to its benchmark rate by as much as 100 basis points on January 29.

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