Coming Up Today (all times GMT)
- GBP Claimant Change (8:30)
- GBP BoE Inflation Report (8:30)
- USD Trade Balance (12:30)
- CAD Trade Balance (12:30)
- USD Crude Oil Inventories (14:30)
Yesterday, the Federal Reserve FOMC Committee announced its decision to re-invest proceeds of its maturing mortgage portfolio in long-term treasury bonds. This change of monetary policy is aimed at easing credit conditions in order to stimulate the economy. This decision comes after the release of several disappointing indicators that have shown a global slowdown in the US growth and a lack of confidence among businesses and consumers.
The news initially caused a huge spike lower in the dollar, however much of that move reversed over the following Japanese session, as Asian equity markets plunged on worries of a global economic slowdown.
The EURUSD looked primed to breakout to new multi month highs yesterday after the above mentioned FOMC Meeting caused across the board weakness. However, after hitting a high of 1.3230 and rallying around 150 pips from its lows, the pair has retraced nearly all of its gains. On the bright side, the pair has found support above yesterday's low of 1.3080, and Forex traders will be watching to see if this level holds.
The real action today is expected to be in the pound as the back to back releases of Claimant Changes and the BoE Inflation Report are expected to cause volatility in the GBPUSD. So far, Forex traders have been approving of the new UK Parliament and its budget cuts, what is yet unknown is the impact that these expense savings will have on the UK's economic recovery. Therefore traders will be awaiting the BoE's new economic forecasts as it will take into account future spending cuts. (For more on the BoE Inflation Report)
After the Fed's announcement, gold jumped above $1,200/oz, as investors sought protection against a dollar decline. Market participants are concerned by more money being injected into the economy. So far, the Fed has tried to reassure them, showing confidence in its ability to normalize its policy without damage. However, investors are turning risk averse and are renewing buying interest for gold.