The sentiment in the global market took a turn for the worse with the down-grade of global growth from the World Bank, and seemed to be enough to push commodities and stocks lower in anticipation of reduced global demand. That has allowed the dollar to get stronger, but any bullish moves the Usd make are hampered by the nagging doubt that the market is showing in forex dollar based trade, TheLFB Trade Team said. Whether the Federal Reserve can buy back Treasury notes without increasing Treasury yields is a question that an increasing number of non-academics are starting to ask. Right now it looks as though Harry Houdini may be hard pushed to get himself out of that conundrum they said.
We will keep an eye on the expectancy building from the FOMC rate decision meeting that takes place on Tuesday and Wednesday, TheLFB Trade Team said, and will watch the release at 14:15 EDT for any signals that Fed members will use the statement as the chance to express the fact that they do not see overall U.S. interest rates (yields, overnight, and discount rates) increasing through 2009 and 2010.
That may be one thing that calms investor nerves, and allows stocks to find a footing, that in turn may de-power the Usd. Whatever the headlines say, a weaker dollar is in the economic best interests of the Fed and the administration at this time; reducing the 10 year Treasury yield from close to a near-term record 4% will allow some steam to be taken out of any dollar buying, they added.
Cable and yen are the two pairs that have not moved in-line with market buying of dollars, and as such we are looking for Gbp/Usd to play catch-up by moving lower if Wall Street equities open lower. We are however very much aware of the fact that stocks holding at the current futures levels, although in the red, and not being able to push the dollar higher may instantly reverse the expectancy of cable dropping. the Trade Team said.