The Federal Reserve has decided to leaves almost everything untouched today in the latest FOMC meeting of 2010. Interest rate remains at 0-0.25% and Bond/Buying program at $600 billions. "To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November," says the official FOMC statement.
The statement confirms that the economic recovery announced in November is continuing, but in an insufficient rate that has been unable to bring down unemployment. "Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate."
Regarding to the QE program, the FED says thet they will continue expanding its holdings of securities as announced in November: "The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."
The EUR/USD initially spiked to a American session high in 1.3441 on the Fed’s decision, then quickly turned to the downside reaching as low as 1.3360 before finding light support. "For EUR/USD, I think the optimism around some solution for sovereign debt will support EUR this week," comments Nick Nasad in his Fxstreet.com Fed decision live coverage, "While 1.34 and 1.35 were important barriers, a break above 1.35 means we target the 1.3650 area. A break below 1.3315 opens us up to bearish outlook."
Nasad continues saying: "I am going to say that the USD outperforms the EUR in the coming 2-3 months. And we are in the midst of a EUR relief rally, that can still go higher... I think EUR comes under fire again then. Even with a debt mechanism in place, the main chunk of debt auctions for European governments comes in January."
On the GBP/USD field, Nasad believes that the economy in UK has shown some strong signs of late, "The thing that got me was a very strong release on export orders for the coming three months. Stronger exports can help dent the blow from fiscal consolidation. Now the GBP/USD has been in an upward channel since Dec 3rd. GBP/USD seems to have topped off at 1.59, but we moved back down to the channel support and found support there. A break above 1.5850 might hint to a strong attempt to break above 1.59 to 1.60 level. Nasad concludes about cable: "I think we continue this climb."
Speaking about USD/JPY, Nick sees lots of noise in this pair, "But V shape action in between Resistance and Support is not surprising, we need a break above 84.40 to go to 86.00. the main level is 84.40, that's pretty apparent. We had the USD knocked back there to start the week following the Moody's warning, but following FOMC we see USD holding onto its gains from the NY session, which means the USD is being supported."
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