No news is good news for the “risk” trade

The steady-as-she-goes policy from the Fed is underpinning stocks and commodities and giving a lift to the risk trades in general. AUD/USD  is trying to establish a beachhead above the 0.9070 level and USD/CAD is getting comfortable below 1.0150. Cable is looking for a close above the former resistance at 1.5217 while EUR/USD has broken its downtrend and is chipping away at sellers stacked through the 1.3800 level.

Forex traders have a short attention span, so now that Greece has been taken off credit watch, the focus may shift to the US for a while. Lord knows there are enough US economic warts to exploit should the market turn its fire on the greenback.

An expensive new health care entitlement and an “infrastructure bank” announced today are just two new programs the government wants to adds despite $1trln deficits seen for the next decade or more.

A close above 1.3800 would go a long way toward swinging momentum against the dollar in the near-term, purely out of boredom, in my view…

BOE’s Bean: Policy could go either way, as needed

• UK deficits are unsustainable in the medium-term and are a factor behind the recent weakness of the pound
• Road ahead still bumpy, long way before recovery complete
• MPC ready to resume asset purchases (QE) or tighten policy if required.

Cable is holding firm despite the Bean comments. Usually we  would tumble on talk of unsustainable deficits, but the market trades as if it is short…Cable trades at 1.5230.

If we were to close right now…

…you would have to have to conclude that the euro and pound have made some some important technical headway today.

EUR/USD will have closed above the downtrend in place since the beginning of December and GBP/USD will have closes above the 1.5217 level that has capped rallies in that pair for the last three weeks.

EUR/USD trades at 1.3747 and cable at 1.5225.

Fed unchanged; gotta buy cable…

What do you do when nothing changes from one minute to the next? Why buy cable, that’s what.. The Fed was easy before 2:15 and they are still easy at 2:16…buy the pound!

The FOMC revealed nothing new in its statement, mildly upgrading their economic outlook as they have meeting after meeting but laying out significant roadblocks that still confront the US economy. Why anyone would use that statement as a reason to buy cable is one of life’s little mysteries. Hunting for stops is the most likely answer in thin markets, and a successful hunt it was. We reached 1.5243 after triggering stops in the 1.5220/25 area.

I wouldn’t fall in love with the pound up here…

USD/JPY easier after Fed; yields dip

Some anticipated a more hawkish Fed. Not today.

US bond yields are somewhat easier after the statement with 2-year yields now at 0.90% from 0.95% before.

I would not be surprised to see rates back at 0.95% this time tomorrow.

USD/JPY fell as low as 90.20 and has rebounded to the 90.45/50 area already…

Hoenig again a holdout

Hoenig voted against using the extended period language, saying he “believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability”.

EUR/USD rallied to a fresh high of 1.3779 as algos went into their typical post-FOMC frenzy. It quickly sold off and trades now at 1.3745. The statement is just what you would have expected and why we would trade from 1.3716 to 1.3776 on no news is a testament to the power of machines.

Fed leaves rates unchanged; “keeps extended period”

Looks dovish, at first blush…

Press Release

Release Date: March 16, 2010

For immediate release

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

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. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

US Treasury: Serious concerns on China forex policy; reviewing Senate bill–Reuters

A US Treasury official says they have serious concerns about Chinese forex policy and are reviewing the the Senate bill which seeks a WTO case with Chinese concessions.

The rebound in the Chinese economy and continued large accumulation of forex reserves shows China should resume CNY appreciation. China should move to a more market-oriented exchange rate, the official says.

EUR/USD is losing ground ahead of the Fed, in no small part on the uptick in trade tensions. Risk aversion is a theme that will likely accompany trade disputes.  EUR/USD trades at 1.3730.

January Statement to refresh your memory

Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

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. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

Markets firmly in neutral ahead of the Fed

With an hour to go before the FOMC statement, the markets are firmly in neutral. Offers remain above the market from 1.3770 through 1.3800 while bids are eyed on dips to the 1.3730 level.

Expect the Fed to retail its view that inflation is a long way off given resource slack in the economy. If the “extended period” language is removed expect it to be replaced with something like rates will stay low for a “prolonged interval”.