Monday, September 21, 2009

Language Worth a Thousand Pips


Aside from Durable Goods and New Home Sales figures due out this Friday (both have positive expectations), the FOMC is expected to announce the Fed Rate this Wednesday, which is widely expected to remain at 0.25%. I'm not sure anyone on the planet expects rates to actually be hiked this Wednesday, however, there is debate about the language that will be used. The transcript to every Fed rate decision is carefully analyzed for certain key words that may have an enormous effect on the equity and forex markets. If the Fed's commentary is somewhat hawkish, signaling that a rate hike has moved up in its timetable, then the status of the USD as a pure "safe haven" currency will begin to diminish, and it will once again be looked upon as a high-yielding currency where investors can park their cash. This would undoubtedly begin a change in momentum for the USD against some of the majors, particularly the EUR and GBP. If the Fed makes it known that rate hikes will begin soon, the EUR/USD can easily come down from it's current 1.4600 level to the 1.3 level within weeks or months. If not, the current USD bearish trend may very well extend through the remainder of the year.

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