US Federal Funds Rate to Drive the Market Today

The market is expected to be very volatile today, as the U.S. announces the Federal Funds Rate at 18:15 GMT, which specifies U.S. Interest rates. The other factor that which is set to affect both the USD and Crude Oil is the publication of the U.S. Crude Oil Inventories at 14:30 GMT. In order for traders to start making profits today, it is recommended that they open their USD and Crude Oil positions as the trading day gets under way.



USD - USD Under Pressure Ahead of Interest Rate Announcement

The U.S. Dollar went bearish against most major currencies on Tuesday, as uncertainty ahead of today's Federal Funds Rate announcement put the USD under strong selling pressure. The greenback fell the most in 2 weeks against the EUR as European Central Bank (ECB) council member Axel Weber said policy makers have already used up their room to cut borrowing costs, indicating the Euro-Zone's Benchmark Rate will stay higher than the equivalent U.S. rate

The Dollar did rise against the Yen, to finish trading at the 95.54 level. This was despite U.S. data showing sales of previously owned homes in the United States rose less than expected in May. However, the Yen's losses may have been extended in late trading due to mixed data from Japan's economy.

Today, the Federal Open Market Committee (FOMC) is widely expected to leave its fed funds Rate target in a range of 0% to 0.25%. Investors will be watching to see whether the Federal Reserve unveils any changes to its Treasury and mortgage asset-purchase program to further boost liquidity.

The U.S Dollar has come under pressure in recent weeks as more upbeat U.S. economic data fueled hopes that a global economic recovery was on track. The USD may extend its declines after this week's Federal policy meeting, according to analysts.

EUR - EUR Rises to a 2 Week High vs. the USD

The EUR rose 1.6% against the Dollar to $1.4075 in late afternoon trading yesterday, after hitting a session peak of $1.4109. It was the biggest one-day percentage gain since May 8. The EUR also gained 0.9% against the Japanese Yen to finish trading at the 134.61 level.

Investors were also buying the EUR ahead of the European Central Bank's (ECB) first-ever one-year refinancing operation on Wednesday, aimed at encouraging banks to lend again. The European currency also rose against the British Pound to 0.8557 yesterday by the most in almost 3 weeks after Bank of England (BoE) Chief Economist Spencer Dale said a weaker currency was a key channel to spur economic growth.

Markets will be watching for the Federal Reserve's outcome today, as low Interest Rates would hurt the Dollar, and any move to expand the Fed's $300 billion Treasury buying program to keep long rates low could raise inflation concerns, undermining foreign appetite for U.S. assets.

JPY - Yen Falls against the USD on Economic Concerns

The Japanese currency fell sharply on Tuesday, falling against most of its major currency pairs, tumbling from creeping doubts about the sustainability of any economic recovery. The JPY fell 0.3% vs. the greenback to 95.54 Yen. The JPY also slipped against the EUR by over 250 pips to 134.61 Yen, as investors continued to cut bets on low-yielding assets, and sold-off the Yen against other major currencies.

Traders were also cautious ahead of a U.S. Federal Reserve policy decision on Wednesday, and this week's record $104 billion sale of U.S. debt. This has meant that renewed concerns about the global economy have actually fed through more into a weaker Yen than a weaker Dollar, analysts said.

Crude Oil - Crude Oil Inventories Data to Drive Oil Trading Today

Crude Oil prices rose nearly 4% on Tuesday to $68.59, as the U.S Dollar weakened and disruptions from OPEC member Nigeria stoked supply concerns. Crude prices also rose on expectations that Crude Oil Inventories in the U.S., the world's biggest consumer of Oil have fallen. Oil rose yesterday as the U.S. currency slipped the most in 2 weeks against the EUR on speculation that the Federal Reserve will temper expectations of an Interest Rate increase this year.

Inventories expectations and the weak Dollar are helping Crude Oil, analysts said. Commodities' trading was choppy with all the news ahead, such as inventories and the Federal Reserve's decision later today. Analysts expect the data to show U.S. commercial Crude stocks dropped 1.2 million barrels, according to a survey of analysts. Traders are also awaiting the Federal Reserve's statement at the end of its two-day meeting later today.

Article Source - US Federal Funds Rate to Drive the Market Today

Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)

Forex markets traded in narrow ranges in the overnight session as traders saw past the immediate data docket, looking for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies. May’s OECD Economic Activity Outlook for the Euro Zone may shake things up ahead if it mirrors the World Bank’s recent pessimism.

Key Overnight Developments

• Japan’s Trade Surplus Swells as Drop in Imports Tops Expectations
• US Dollar Range-Bound as Forex Market Eyes FOMC Announcement

Critical Levels



The Euro kept to a narrow 40-pip range in the overnight session, oscillating below 1.41. The British Pound followed suit, trading in a 50-pip band above 1.6420.

Asia Session Highlights



Japan’s Merchandise Trade Balance grew more than economists expected, printing at 299.8 billion yen in May from 69 billion in the previous month. Forecasters were calling for a 210 billion yen result ahead of the release. Notably, the uptick in the headline figure came courtesy of a steep decline in inbound shipments that outpaced the drop in overseas sales, painting a grim picture of the spending climate in the world’s second largest economy. Imports fell -42.4% in the year to May, printing within a hair of the 22-year record drop of -43% registered in February. Looking ahead, the headline figure may continue to grow as companies acclimate to lower global demand. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out…mainly due to progress in adjustments in local inventories” while consumption (including that of imported goods) remains weak as the “employment and income situation becomes increasingly severe.”

Euro Session: What to Expect



The Euro Zone Current Account deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%.

That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn.

This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given the increasingly negative global growth outlook, sinking top European exchanges. May’s edition of the OECD Economic Activity Outlook may prove to be a near-term catalyst in this regard if the report mirrors the tone of last week’s World Bank forecast which downgraded their Euro Zone forecast to call for a -4.5% drop in GDP this year, an outlook that is nearly twice as worse as the Bank’s previous call for a -2.7% contraction reported in March. On balance, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.

Barring significant surprises in the upcoming economic data, near-term price action is likely to remain subdued in European hours as in the Asian session as traders look for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies.

Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)

A little perspective please - Internal Polls in the US showed that Obama’s Honeymoon is Over

So with President Obama’s popularity waning, I thought I would take this opportunity to correlate the issues facing America right now and its affect on the all mighty Dollar.

As Forex online traders (and offline) we live and die, profit or lose, based on the Dollar, so this fine Tuesday morning in the latter part of June, 2009 is a great opportunity to reiterate that you cannot believe just words and that real knowledge truly is power in our business.

Yesterday internal polls in the US showed that Obama’s honeymoon is over. His social policies are unpopular and receiving criticism even amongst his own political party.

In his first six months as president of the largest economy in the world, he has virtually nationalized the banking sector, the auto industry and is now trying very hard to do the same to the healthcare industry, as I mentioned yesterday.

His Treasury secretary, Timothy Geithner, has been trolling the world giving speeches meant to boost the confidence that the investing world has in the Dollar’s value – and has been laughed at during these speeches in China, and most recently in Italy this past weekend.

North Korea is warmongering, Iran is blaming the US for their political unrest, Al Qaeda is threatening to use Pakistan’s nuclear arsenal on the US (should they get hold of it), Russia and China are openly calling for a new reserve currency on a daily basis and Brazil has removed the dollar as the primary currency used in trade with other countries. et, all the while we read reports that the economy in the US is rebounding and that things are getting better – well we need to look at these numbers to see just how good it is getting.

Monday, the US announced that the numbers of people on welfare have risen at the fastest pace since the recession began and are now at levels unseen since Bill Clinton’s presidency. Last Thursday they said that unemployment was at its highest rate in the US in over 30 years – hitting over 10% in 1/5th of the 50 states that make up the US and that interest rates are at the highest levels in close to a decade.

Let’s focus on these rates for a minute and how important they are – the interest rates set mortgage rates and personal loan rates – meaning, people looking to buy big have to pay more – and they are not buying and this is causing a trickle down effect.

Last week, the US government auctioned off 160 Billion Dollars worth of Treasury Bonds and Notes, and for the most part it was a success – even with the highest rates in years. But look closer, the record debt sale that went on saw the US Federal Reserve (a.k.a. THE central bank) as the biggest customer for these bonds.

This means simply that the US bought their own debt and is paying a larger price for it as well. And it is specifically this information which have brought Obama’s numbers down sharply – it’s one thing to preach fiscal discipline and take over industry after industry in the guise of showing them fiscal discipline – yet it is completely another thing to put into practice something entirely different.

And this is where the US is right now - they are not practicing what they preach and as we saw in China, Italy, France and Germany, the US is being laughed at when they tell people that an investment in the US is a good investment right now.

We might hear the pundits telling us that everything is great in the US of A, but looking at it logically, the use of the Dollar as a long term investment tool is not looking that smart anymore.

We have seen on the Forex and watched online as the dollar has dipped and has lost value – the DAC index is off nearly 30% from its highs – this says volumes about the Dollar – no matter how much they try to show us that all is ok in the USA.

Be careful – and if you were like me, watch down under – their Dollars are looking pretty good in comparison.