Dollar continues to head south in early US session but the weakness is mainly seen against Sterling and Canadian dollar so far. Stocks open higher ahead of House vote on Obama's $825b stimulus plan and trigger some reduction in risk aversion trades. Sterling is, on the other hand, lifted by comments from George Soros that he's no longer betting against pound after it reached $1.40. Canadian dollar is probably lifted by IMF's projection that Crude oil will average $50 this year and $60 in 2010. Swiss Franc remains soft though after release of much worse than expected Swiss KOF. Focus will now turn to FOMC announcement later in the US session.

Fed is no doubt expected to hold rates unchanged at the target range of 0-0.25% today. Though there are still a few areas that markets will focus on. Firstly, the Fed may discuss inflation targeting and even though FOMC might not adopt a target, the statement would probably emphasize Fed's strong intention to avoid deflation. Secondly, the committee's focus will probably further turn to quantitative easing. Thirdly, the statement will probably discuss further plans from Fed to purchase treasuries to boost lending. After all, FOMC might come as a non-event today and markets could stay directionless until Friday's Q4 GDP release.

Swiss KOF leading indicator continued the down trend and dropped from downwardly revised -0.45 to -0.53 in Dec, hitting a record low since 1991. Such a record low level since 1991 and the 18th consecutive month of decline indicate recession in Switzerland is deepening and the economy will continue to contract in coming months. It's believed that recent monetary policy easing and the proposed VAT cut is too late to reverse contraction in domestic demand. The SNB estimates GDP will contract between -0.5% and -1% this year. and rebound by a modest 1% in 2010.

RBNZ rate decision will be the main focus in the coming Asian session. A deep cut is widely expected but opinions on the 'depth' are divided, ranging from 100bps to as much as 150bps.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2190; (P) 1.2261; (R1) 1.2371; More.

USD/CAD's fall from 1.2765 resumes in early US session and dives to as low as 1.2024 so far. Break of 1.2104 support indicate that rebound from 1.1761 has completed. Further decline is now in favor to this 1.1761 low first. Also, note that consolidation from 1.3015 is still in progress and deeper decline might be seen to retest 1.1464 support. On the upside, above 1.2330 is needed to indicate fall from 1.2765 has completed. Otherwise, further fall is now in favor even in case of recovery.

In the bigger picture, there is no confirmation of completion of medium term up trend from 0.9056 yet. Such rise is expected to be developing into a five wave sequence (1.0378, 0.9823, 1.3015, ......). Consolidation from 1.3015 is treated as the fourth wave consolidation. Failure below 1.3005 suggests that such consolidation is still in progress and a test of 1.1464 support could be seen before completion. On the upside, note that decisive break of 1.3005/15 will confirm medium term up trend resumption and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.3469.