COMMENTARY

• U.S. Dollar: Nothing Wrong With Being Predictable
  Written by Kathy Lien
  Last updated 3/16/2010 5:00:27 PM ET
  There was quite a bit of volatility in the forex market following the FOMC announcement even though there were no major surprises from the Federal Reserve. The Fed kept interest rates unchanged at 0.25 percent, continued to unwind their emergency measures and reminded the market that they are not ready to raise interest rates. This is the same message that Fed officials have been delivering at every opportunity but given the improvements in the labor market and consumer spending, market expectations got ahead of themselves. Traders temporarily forgot that we are dealing with a very cautious central bank that has come under a lot of fire. Unless there are clear signs of a strong recovery, the Fed will hesitate to telegraph something that could renege on in the future. When it comes to being a central bank, there is nothing wrong with being predictable and we believe that is the sentiment the Fed shares. In our FOMC Instant Insight, we have thoroughly dissected the FOMC Statement and the key takeaway is that the economy is doing better but there could be problems in the housing market that extend beyond the weather related depression of housing starts in February.
  1 comment
• Fed Leaves in Extended Period Language, but Lots of Upgrades
  Written by Kathy Lien
  Last updated 3/16/2010 3:04:37 PM ET
  The Federal Reserve left interest rates unchanged at 0.25 percent and included the words “extended period” into their FOMC statement. Going into the Fed meeting, traders were looking for 2 things – the inclusion of “extended period” and the number of dissenters. Once forex traders saw the words reappear in the statement and saw that Hoenig was the only dissenter, they bailed out of dollars. However when they took the opportunity to actually read the FOMC statement, they quickly realized that tone was not nearly as dovish as the headlines suggest. Not only were there a number of upgrades in the language used to describe the U.S. economy, but the Fed will be completing their asset purchase programs this month and shutting down its final special liquidity facility at the end of June. Although the Fed stopped short of talking about tightening monetary policy, they also failed to mention additional easing.
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• Housing Numbers Will Not Discourage the Fed
  Written by Kathy Lien
  Last updated 3/16/2010 8:59:38 AM ET
  Forex traders were completely unfazed by the mild disappointments in this morning's U.S. economic data. Since today is FOMC day, the only thing the market is worried about is the outcome of the Fed meeting and whether the Fed will underwhelm.
  3 comments
• Pound Turnaround on Short Squeeze
  Written by Boris Schlossberg
  Last updated 3/16/2010 7:02:09 AM ET
  The pound staged a massive short covering rally in morning London trade piercing the 1.5100 figure after tumbling to 1.4980 a few hours earlier. The fall was triggered by critical comments from the European Commission which stated that, “"The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced. A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned.”
  8 comments
• RBA Minutes Suggest A Pause
  Written by Boris Schlossberg
  Last updated 3/16/2010 2:22:21 AM ET
  The RBA released its minutes of the March meeting at 20:30 GMT today and the overall tone of the report suggested that Australian monetary authorities will proceed cautiously with any further rate hikes in the near term. The RBA policy officials noted that economic conditions continued to improve, stating , “Domestically, most economic indicators continued to point to a strengthening in economic activity. Staff estimates suggested that the national accounts, to be released the next day, would show economic growth of ¾–1 per cent in the December quarter. January data suggested that the labour market had continued to firm, consumption spending had held up reasonably well overall and a pick-up in dwelling activity was under way.”
  1 comment
• Will EUR/GBP Resume Downtrend at 0.9195?
  Written by Bradley Gareiss
  Last updated 3/15/2010 7:20:39 PM ET
  A bearish butterfly pattern is forming on the EUR/GBP.
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• U.S. Dollar: How to Trade Fed Meeting
  Written by Kathy Lien
  Last updated 3/15/2010 5:09:58 PM ET
  The U.S. dollar traded higher against every major currency ahead of the Federal Reserve’s monetary policy meeting. There are a few reasons why forex traders should be nervous today, but we believe that the rally in the U.S. dollar is a reflection of the market’s hope that the Fed will come through tomorrow by growing more hawkish and optimistic. Equities are hovering near their yearly highs along with 2 year bond yields which indicate that the sell-off was not primarily induced by risk aversion. With some Wall Street economists calling for job growth well in excess of 150k, the Federal Reserve is under pressure to act sooner rather than later. However Fed officials do not easily buckle under pressure because they know that once something is telegraphed, it cannot be readily retracted without triggering sharp volatility across the financial markets. The Federal Reserve has not raised interest rates since 2008, but they are in the process of gradually implementing their exit strategy. In our FOMC Preview, we wrote at length about how traders will be paying particular attention to the inclusion or deletion of the phrase “extended period” and to the number of dissenters.
  4 comments
• 10 Dimes Make a Dollar
  Written by Roger Stojsic
  Last updated 3/15/2010 1:54:08 PM ET
  Successful trading not just about winning and losing individual trades—it’s about sustaining profitability over time...
  8 comments
• Will the FOMC be Hawkish Enough to Satisfy Dollar Bulls?
  Written by Kathy Lien
  Last updated 3/15/2010 1:31:55 PM ET
  The U.S. labor market is improving, consumers are spending and the manufacturing sector is chugging along. With this backdrop, the Federal Reserve will decide tomorrow whether to recognize the improvements in the U.S. economy and signal additional plans to unwind emergency measures or to remain at status quo by keeping the FOMC statement virtually unchanged. Traders have been buying dollars on the hopes that the Fed will grow more optimistic and we believe they should but as a central bank, they will have to carefully balance the risks and rewards of inserting language that would surely impact the market’s expectations for monetary policy. The central focus of this upcoming meeting will be on two words – “extended period.” If the Fed decides to drop the phrase, the dollar will probably rally as the Fed’s hawkishness satisfies dollar bulls but if they leave the phrase intact, traders will most likely express their disappointment by selling dollars. Another key factor to watch is the number of members who dissent and say the phrase is no longer needed. As usual, interest rates should remain unchanged at 0.25 percent.
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• Dollar Rallies as Traders Mull External Risks
  Written by Kathy Lien
  Last updated 3/15/2010 9:49:41 AM ET
  A mild degree of risk aversion has settled into the forex markets this morning, pushing the U.S. dollar higher against all of the major currencies.
  3 comments
• Sterling Drops as Downgrade Warnings Weigh
  Written by Boris Schlossberg
  Last updated 3/15/2010 5:04:39 AM ET
  A quiet night at the start of week’s trade with very little event risk on the economic calendar in both Asia and Europe and most high beta FX contained to very tight ranges, with the exception of sterling. Sterling tried to test the 1.5200 level in early London trade but failed miserably falling 100 points lower as shorts came out of the woodwork. The UK economic calendar carried only the Rightmove housing data which printed much weaker at 0.1% versus 3.2% the month prior. However, the true reason for sterling’s weakness was a report by Moody's noting that both US and UK are closer to losing their triple A ratings as the costs of servicing their massive fiscal deficits begin to rise.
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• What Will It Take For China To Revalue the Yuan?
  Written by Boris Schlossberg
  Last updated 3/15/2010 3:08:15 AM ET
  At a press conference on Sunday Chinese Premier Wen Jiabao dismissed the possibility of a yuan revaluation in the near term noting concern over the “the unsteady, uncoordinated and unstable development of the Chinese economy," and even bringing up the specter of a “double-dip” recession. In words that no doubt many US authorities will find especially ironic, Wen stated, “"I understand that some countries want to increase their exports, but I don't understand the practice of depreciating their currency and forcing others to appreciate theirs in order to accomplish this. I think this is a type of trade protectionism."
  12 comments
• Bonus NZD/USD Trade; Buy at 0.6912
  Written by Bradley Gareiss
  Last updated 3/12/2010 6:54:38 PM ET
  A bullish Gartley pattern is emerging on the NZD/USD.
  5 comments
• Why Dollar Bulls Shrugged Off Retail Sales
  Written by Kathy Lien
  Last updated 3/12/2010 4:58:57 PM ET
  Based upon the price action in the financial markets on Friday, the U.S. retail sales report failed to impress traders and investors. There was no ambiguity in the strength of the consumer spending report yet equities and bonds ended the day virtually unchanged. In the currency market, the U.S. dollar rose initially following the report but gave back its gains as equities failed to follow through. For once there was some consistent behavior in the U.S. dollar as the greenback sold off against every major currency. Interestingly enough, the biggest gainer against the dollar was the Swiss Franc which rose to the highest level in more than a month against the greenback and the highest level in more than a year against the euro. Although the decline in consumer confidence is said to have offset some of the optimism, the drop in the UMich survey was very modest. Instead, we believe that it was a classic buy the rumor, sell the news type of price action that should be temporary.
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• Short-Term EUR/GBP Buy Emerging
  Written by Roger Stojsic
  Last updated 3/12/2010 12:13:36 PM ET
  An emerging bullish Gartley pattern (beginning at X1) points to a...
  1 comment