EUR/USD - Euro Gains on Risk Appetite Prior to FOMC

The Euro-Dollar pair rose overnight, stemming a downmove this week that had reached the 1.4090 level in today's overnight trading. With US stocks rallying at the NY open, and traders squaring their positions prior to the FOMC announcement, the pair rose to test 1.4245 prior to the announcement. Following the announcement, the pair fell in a knee-jerk reaction, falling to the 1.4125 level which corresponded with a more medium term line of support. The pair then retraced all of its fall in the wake of the release

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US - FOMC Offers End of Treasury Plan, but no Exit Strategy for ZIRP

In their statement the Fed reiterated their policy to keep interest rates exceptionally low 'for an extended period of time', though it did paint a more optimistic outlook in which economic activity is leveling out, with financial markets having improved. Still, the Fed was cautions about the fragility of that improvement, and with inflation expected to stay low, they gave no indication of an exit strategy to their zero-interest rate policy. They did announce that they will wind down the $300 billion program to buy long-term Treasuries.

USD/JPY - Greenback Rallies on Higher US Stocks

The Dollar-Yen pair, as we saw with the Euro-Dollar pair, moved in favor of the greenback following the release, but then pared those gains. The Dollar bounced up off a line of support at 95.15 with today's high a 61.8% retracement of the most recent downmove. The low was also the area where the Dollar was prior to its better than expected non-farm payroll release, so a second opportunity for traders trying to go long that may have missed that initial jump.

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USD/CAD - Loonie Gains 200 PIps on Stocks, Oil

The greenback was pressured against higher-yielders today, with the US Dollar-Canadian Dollar sliding 200 pips to find support at 1.0850. Overnight the pair's 4 session rally peaked at the 1.1075 area. Higher stocks and oil prices increased risk appetite around the pair. open

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AUD/USD - Commodity Currencies Rally in Today's Trading

Similar behavior was seen in the Aussie-US Dollar pair, as the Aussie managed to pare most of its losses from yesterday and it slide from the first half of today's session. The 0.8450 level however showed pretty stiff resistance so we'll see if we test that level again soon. As you can see there was a spike downward in the pair following the FOMC announcement, but any gains by the greenback were undone.

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UK - Unemployment Rate Increases to 1996 Levels

In other fundamental news today, the UK economy shed 24,900 jobs in July, and the number of people seeking work in the three months through June rose 220,000 to 2.44 million, the most since 1995. The unemployment rate for those 3 months climbed to 7.8%, the most since 1996. The labor market will continue to weigh on the UK economy, even as other measures like housing prices, services and manufacturing begin to show recovery.

UK - Low Inflation Expectations from BOE

The Bank of England's quarterly inflation report softened expectations for how fast inflation will rebound, dousing speculation of how fast the bank may move to raise interest rates. The bank's Governor Mervyn King said it's likely that inflation will slow below 1% during the rest of 2009, and that the annual rate will stay below 2% until at least the end of 2012. The central bank sees deflationary risks and has responded by expanding their asset-purchase program.

GBP/JPY - Pound Rallies on Risk Appetite

The Pound rose in today's trading against the Dollar and Yen, though the rally vs the Yen was much more pronounced. Following a close to 700 pip slide in the pair the last three session, the Pound found support at the 156 level, and managed to counter-rally almost 350 pips. That level of support was a 76.4% retracement of the recent rally in this pair from July 29th to August 7th while today's resistance came in at around the 38.2% retracement of the same Fibonacci levels.

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US - Trade Deficit Widens Less Than Expected

The US trade deficit increased in June to $27 billion from $26 billion in May, which had been the lowest trade deficit in a decade. Exports were up for a second straight month, though the balance widened as imports increased by more, pushed up by higher costs for oil. The trade gap did widen less than forecast, and with demand for US exports returning its a sign that the global recession is bottoming out.

Upcoming Releases

Tonight look for the manufacturing PMI from New Zealand while overnight Germany and the Euro-zone post their preliminary versions of 2nd quarter GDP.

Tomorrow, the US will release data on retail sales, import prices, business inventory and weekly jobless claims.