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• US Dollar Gains on Fed-Induced Flight-to-Safety - Watch for Q1 GDP Revisions on Thursday
• Euro Surges Against the Swiss Franc on SNB Intervention, But Slumps Against the Rest of the Majors
• FX Carry Trades Retrace Early Gains as US Equities Show Negative Response to FOMC Statement
• New Zealand Dollar Could Fall If Q1 GDP Results Lead to Shift in Rate Expectations

US Dollar Gains on Fed-Induced Flight-to-Safety - Watch for Q1 GDP Revisions on Thursday
The US dollar started out the day on a rather strong note, gaining through the European and US trading sessions, as data showed that US durable goods orders surprisingly jumped 1.8 percent in May, as forecasts had called for a slight contraction. This marked the second straight increase, and better yet, non-defense capital goods orders excluding aircraft rose 4.8 percent, signaling an improvement in business investment. Ultimately, the news adds to signs that the worst may over for the US recession.

Meanwhile, US dollar strength was only exacerbated by the 14:15 ET release of the Federal Open Market Committee's (FOMC) latest policy statement. The FOMC left the fed funds target range at 0.0 percent - 0.25 percent, as expected, and indicated that this should remain the case for an extended period. Furthermore, the statement once again said that the Committee's policy focus is to support the functioning of financial markets via quantitative easing (QE) and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The fact that we saw risk aversion start to take a hold of the markets at this point, as evidenced by the decline in US stock markets and rallies in safe haven currencies like the US dollar and Japanese yen, suggests that traders were anticipating either (or both) upgraded growth outlooks or an expansion of their QE program.

Looking ahead to Thursday, the third and final round of US Q1 GDP estimates are due to hit the wires, and the results could be market-moving if they miss expectations. At the time of writing, a Bloomberg News poll of economists reflected consensus forecasts for GDP is forecasted to go unrevised at -5.7 percent, which marks an improvement when compared to the Q4 2008 result of -6.3 percent. However, if Q1 GDP is revised higher, the news would likely provide a huge boost to risk appetite as it make the US economy appear to be in a better position to stage a recovery later in the year. On the other hand, downward revisions would have the potential to take FX carry trades and equities lower.

Related Article: US Dollar Weekly Trading Forecast

Euro Surges Against the Swiss Franc on SNB Intervention, But Slumps Against the Rest of the Majors
The Euro declined against most of its major counterparts today following deeply negative Current Account data and news that the European Central Bank would be lending a record €442 billion to banks for 12 months, and this was just the first of three auctions. The ECB's move is somewhat contradictory to comments from ECB council member Axel Weber, who said that the central bank had used the room for rate reductions that was created by waning inflation risks and a dramatic worsening of the economic situation. While the auctions are certainly not the same as lowering interest rates, the amount allotted today will ultimately have much the same effects as improved liquidity should lead money market rates to decline and should provide the necessary credit for struggling businesses and consumers.

Meanwhile, the euro surged against the Swiss franc today in what looks like intervention by the Swiss National Bank, though they would neither confirm nor deny the speculation. The SNB has said multiple times in the past that they would do so, as an appreciation of the Swiss franc against the euro threatens to increase deflation risks since the Euro-zone is Switzerland's biggest trading partner. That said, EUR/CHF made an important break above a falling trendline connecting the July, August, and December 2008 highs near 1.5200 and also pushed out of its recent trading range of 1.5000-1.5235, suggesting that this could be a bit of a change in trend for the pair.

Related Article: Euro Weekly Trading Forecast

FX Carry Trades Retrace Early Gains as US Equities Show Negative Response to FOMC Statement

FX carry trades like AUD/USD and NZD/JPY were generally making solid headway during the European trading session, but the release of the Federal Reserve's latest policy statement triggered some risk aversion in the markets, leading the US dollar and Japanese yen higher and carry trades lower. Likewise, the DJIA, which has spent most of the day in positive territory, fell negative after the release of the statement and ultimately closed down 23 points at 8299.86. The interesting part of this was that there was no groundbreaking news revealed, as the FOMC statement was really just a repeat of their last one: low rates for an extended period, no quantitative easing expansion, and no major changes to the growth and inflation outlook.

Related Article: GBP/JPY Head and Shoulders Formation

New Zealand Dollar Could Fall If Q1 GDP Results Lead to Shift in Rate Expectations
The New Zealand dollar will face event risk at the very end of Thursday's US trading session. Upcoming GDP reports are anticipated to show that the New Zealand economy contracted for the fifth straight quarter during Q1 at a rate of -0.7 percent, which could push the year-over-year rate down to match the Q4 1991 low of -2.3 percent. Indeed, the New Zealand economy has been hit hard as demand for exports has fallen, unemployment has climbed, and consumer spending has faltered. As it stand, Credit Suisse overnight index swaps are pricing in a 26 percent chance of a 25bp cut by the Reserve Bank of New Zealand (RBNZ) on July 29, but if New Zealand GDP falls more than expected, speculation of such a move could rise and weigh on the New Zealand dollar.

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Written by: Terri Belkas, Currency Strategist
for DailyFX.com and Stefan Tifigiu
E-mail: tbelkas@dailyfx.com