FOMC meeting came and gone, with dollar being the clear winner out of that event! The reasons though are not because all of a sudden investors became positive for the US economic outlook, but quite the opposite.

Bernake delivered the news of 25 pbs cuts for both fund rate and discount rate, with a dovish statement that pointed out potential slowing in the economic growth and markets were clearly disappointed by that outcome. Under normal market conditions, news of a rate cut would make dollar dive instantly, however the fact that markets had priced in this scenario and clearly wanted a 50 pbs cut, made DOW JONES taka a dive and a sparked a wider liquidation in all carry trades.

The fact that Bernakne and pals didn’t do what markets expected, gave the impression that FED is not reliable and not able therefore to start the process of restoring the already negative economic outlook!

EUR/USD was steady ahead of the news, however when the decision hit the wires, traders decided to buy the dollar due mostly to risk aversion and therefore take the pair back down to 1.4635 where it bounced later on. The pair is clearly trading in a range of 1.4630-1.4750 these last few days and it might continue until we see a clear breakout of these levels. As long as the pair trades below 1.48, there are many possibilities for the break to happen on the downside for a quick retracement down to 1.4520, double bottom from last weeks low.

It will be interesting to watch the economic data from now until next meeting in order to see the amount of damage that has been done in other sectors of the economy. Let’s not forget that these are the numbers that our friends in the FED are watching too in order to decide their next move.

Today, after the European opening, carry traders got back in the markets and therefore took all yen pairs back up to test previous support levels. GBP/JPY has lost 500 points yesterday and today the pair retraced some of its losses. However, given the fact that the pound still remains weak and risk aversion is always round the corner, good shorting levels would be 227.50 first and then 228.25.A clear break of 229 however, might jeopardize the downward move and give the pair another go at 230 levels.

The only news worth watching today is the trade balance from the US. Although the number is forecasted to be wider than the previous, we might have a surprise for the dollar as due to the dollar weakness and high oil prices the deficit might narrow. It will be important to watch this number as one of the main reasons why America wanted a weaker currency these months was because that would eventually help narrowing the ever increasing trade deficit.

With CPI, PPI and retail sales out of the US tomorrow and Friday, dollar is not in the clear yet and more negative data might put the greenback back in the spotlight.

Let’s see if this week’s data will be good enough for the dollar to continue its correction, which started last week and still is trying so hard to complete. EUR/USD still looks good under 1.48 and if it continues like that throughout the week we might see 1.4530 again. The later level is very important support and it will be difficult to be taken out, however if that happens then it opens a clear way for 1.44 and maybe under...