The price action in the NY session was nothing to sneeze at. The Geithner testimony turned out to be anti-climatic but kept the market rather heavy for the better part of the session. The FOMC statement, however, would eventually turn things around. One of the mark-ups to the economic outlook was the subtle change in the characterization of household spending from appears to be to is expanding. The committee also announced that most of the extraordinary liquidity programs will end on schedule, dealing a blow to those who thought the punchbowl would be left out for longer. Even the rate outlook was more hawkish at the margin.

While the Fed did leave in the language that rates will remain low for an extended period, one member voted against including this (he noted that it was no longer warranted). Ultimately, the statement proved a US dollar positive from the marginally more hawkish stance and also helped the stock market rally with the upgrade to the economic outlook. The reaction in currencies was, predictably, for higher yen crosses and a stronger US dollar against the Euro (which finally took out the 1.4000 barrier).

The focus overnight now shifts to the Obama State of the Union speech at 9pm ET. If past is prescient, he may very well detail policy initiatives that will not be taken very well by the markets. Witness for example, the dramatic fall in risk appetite on the heels of Obama's announcement wanting to ban proprietary trading at banks just recently. Should he continue to push for draconian measures that would punish the productive resources of the economy, expect this nascent rally in risk to prove extremely short-lived. We would especially be on the lookout for a correction lower in the yen crosses on the back of this, thus those long these crosses would probably do well to keep stops tight.