A Mike Paterson Forex update

The US Federal Reserve has just left interest rates on hold at 0-0.25%, disappointing many in the market who had been factoring in some degree of further easing and after we had seen some USD selling in the past couple of hours.

The FOMC (Federal Open Market Committee) reiterated its outlook that …"economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013" and lowered it's forecasts seeing " “significant downside risks to the economic outlook”.

For the rest of the statement go here http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

They have added $400 billion in a tranche of Operation Twist but it's not aggressive enough for many, and they did not cut IOER (Interest on Excess Reserves) which some had been looking for:

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

With traders a little short of USD we saw a quick drop on EURUSD after an immediate spike that failed to get through key resistance between 1.3790-1.3800 and we've been down to 1.3660 as I type.. We will need to see EURUSD close above 1.3725 tonight if we are to avoid an acceleration in this move lower again.

GBPUSD also had a run up ahead of the announcement, capping just below 1.5700 again and now stands at 1.5575..

Gold is $30 lower at $1780 and the DJI is 125 points lower on the day at 11,285.

It's been a nutty day again and we can expect some further chaos and mayhem in thin NY markets and later in Asia as the market digests the full extent of the news..

Weekly Economic Calendar-HERE

Interbank Rates as of 19:30 BST

EUR/USD

1.3660

GBP/USD

1.5575

EUR/GBP

0.8771

GBP/EUR

1.1395

GBP/CHF

1.3925

GBP/AUD

1.5363

GBP/CAD

1.5608

EUR/CHF

1.2228

GBP/HKD

12.0760

GBP/ZAR

12.4196

 

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

Image: Wikimedia Commons (Dan Smith)

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