The FOMC meeting has been and gone, with markets not gaining too much new information concerning the state of the economy or the FED’s next move! Bernanke said in the statement that the economy is likely to contract further, however he sees a slight improvement possible at the end of the year.
Investors shrugged off the outcome and with news from House of Representatives that the $816 billion bailout plan been approved, futures went up and also the dollar rose once again!
The EUR/USD has traded heavily since the start of the week and the rally we witnessed during first few days ran out of steam at 1.3350. The euro fell on the back of negative ECB comments regarding the future of interest rates, as Mr. Trichet admitted today that rates may fall below 2%. So far the pair holds 1.30 as support, however as the downside seems more likely for now, a clear break of that level may open the way towards 1.29.
Today we had some important economic data out of the US, with Durable Goods Orders coming out much lower than expected and New Home Sales printing yet another negative number! The fact that the economic conditions are deteriorating further makes investors wary and therefore risk aversion comes back to haunt them. Market participants are getting ready for tomorrow's US GDP which will give us a hint as to how the crisis is affecting the economy and what the new Obama administration will do about it in the short term.
It is important to watch how the markets are moving these days, as the direction is not clear either way and one day's rally becomes the next day's collapse! Traders know that the FED is ready to tackle the crisis by maintain lower rates for the time being, however with the dangers of deflation appearing as a result, it makes things even more uncertain. With jobless claims at record highs, negative payroll data which could eventually give us 1.5M jobs lost in three month period, housing data reaching new record lows, it makes one wonder when we can see dollar gaining! The answer is more complicated than it seems as of late; the fundamentals have nothing to do with the currency moves we're experiencing! The Euro area is also suffering and the same goes for UK, however as the US is the biggest and will remain the biggest economy out of them all, gives investors a safe haven, which although seems absurd in the current economic environment, it justifies the dollar strength.
Let’s see how the markets will react towards the New York closing and with the end of the week looming plus the last trading day of January too, it will be crucial to see if dollar closes on positive territory once again.
Historical Economic Charts