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FOMC Unchanged - What's Next?

Last updated 11/4/2009 2:52 PM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The Federal Reserve has kept its overnight target rate unchanged maintaining rates between 0-25 basis points and more importantly kept the key language the same as the month prior stating, “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Clearly, the dismal US labor environment  continues  to constrain US monetary authorities from taking any more aggressive action. Today’s lackluster results from The ADP and ISM Services reports suggest that Non Farm payrolls next Friday will show a loss of greater than -200k jobs and will push the unemployment rate closer to double digit territory. As we noted yesterday, he Fed has never raised rates until the unemployment rate has peaked and therefore will not move to a more neutral posture until the employment conditions show some signs of stabilization.

Nevertheless, the Fed did signal a small move away from it ultra accommodative stance by noting that it will purchase $175 Billion of Agency debt versus $200 Billion initially announced. Risk assets were very volatile in their initial reaction to the news, but as equities rallied so did the high beta currencies. Still the reaction to the FOMC decision is notorious for its whipsaw like moves and any sudden decline in equities before the end of the day is likely to create a reversal  in risk currencies. 

Ultimately, the Fed statement offered little fresh news to the currency market and attention will now turn to the other   two key meeting this week with traders focusing on whether the BOE will announce further QE measures at tomorrow’s MPC meeting and whether the ECB is now ready to consider lifting some of accommodative measures  given the relatively strong performance of the EZ economy. For the time being the risk trade reigns supreme, but the key resistance levels of 10,000 Dow 1100 S&P and 1.50 euro dollar remain in place and are unlikely to be broken unless the market becomes more convinced about the sustainability of the US economic recovery.

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Comments (2)

FXDragon

November 04, 2009 at 03:07 PM ET

What agencies are those selling debt?

bschlossberg

November 04, 2009 at 04:02 PM ET

Ginnie Mae, Freddie Mac etc. Housing debt I believe

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.