FOMC update and trade results-19th Feb ‘09

FOMC news trade last night was such a bore. I was expecting a stalemate as i didn’t expect much of a surprise news to be heading out of this, but i did expect some strong USD rallying if we had the risk aversion mindset being cemented further with the USD hoarding. This will also cause JPY to further weaken, which will cause the yen pairs to rally further upwards. On the flipside, if risk appetite is to return, i was expecting a stagnation of USD/JPY and Eur/Jpy and Eur/Usd to rally as Eur at that moment was slightly oversold or was the currency that was relatively in a weaker mode and would naturally be the attractive option in an uptrend rally.

However, after the news release, the market absolutely didn’t blink an eyelid and we saw almost all pairs caught in a range with absolutely no movements.

Here is a summary of what the FOMC Minutes was about;

FOMC minutes provide a bit more detail on Richmond Lacker’s dissent in which he favored expanding the Fed’s monetary base by buying Tsy debt rather than using targeted credit/lending programs. He was primarily concerned that such lending programs “channeled” credit away from other worthy borrowers and would worsen moral hazard risk. In his view, purchases of Tsys instead would minimize distortions to private credit flows and maintain a clear distinction between monetary and fiscal policies.

The FOMC held a conference call on Jan 16th to discuss the issue of adopting an explicit inflation target but “no decision” was made on it. The notes show that “most” meeting participants said such an explicit target would be “fully consistent” with the Fed’s dual policy goal. A “number” stressed that “more clarity” on longer-run inflation goal would help Fed communication but not involve any “substantive” change in monetary policy. “Many” saw a numerical inflation target would be “helpful at least to some degree” in anchoring inflation expectations. But others saw extending their regular central f/casts might attain the same benefit while several saw risk of confusing the public in the current financial/economic turmoil.

In reflection, the majors hardly moved and we saw heavy congestion/range;

Eur/Usd was tightly contained in a 1.2550-1.2570 range

Gbp/Usd was just around the 1.42 area

And Usd/Jpy was slightly below the 94 region at 93.60 range, which is an interesting region i will be watching, which is once it has surpassed the 93.0 handle, the 94.00 handle breached will give new found strength of the Usd against the Jpy. This will cuse fresh rally of the yen pairs, esp Eur/Jpy and Gbp/Jpy.

Regards,
Seeni

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