Forex Connect: Rate Decision Forex Legacy - Mar 17 10 10:25 EDT

Forex Connect: Rate Decision Forex Legacy

On Tuesday, the Federal Reserve left its benchmark interest rate unchanged and reiterated that interest rates would remain low for “an extended period”, says Brewer Futures Group. Catch Brewer Futures, and TheLFB trade team on ForexTV Live.

In its statement, it also mentioned that inflation remains subdued, and that the weak employment situation seems to have stabilized. While this may sound rosy, the Fed did express concerns about housing and employer reluctance to increase payrolls.

The tone of the statement suggests that while the Fed seems to have a plan as to how to begin reducing stimulus and returning interest rates to normal, it still is having trouble deciding when to initiate the first rate hike. One obstacle it faces is the possibility it will kill the recovery if it hikes too soon. The other more important obstacle is inflation. Although by its standards, inflation is low, there is a possibility that all of the liquidity that has been pumped into the financial system may trigger a spike in prices.

The overall dovish tone of the statement gave the go ahead for traders to continue to use the Dollar as a funding currency thereby driving up demand for higher risk assets.

The U.S. Dollar is trading lower overnight. This is triggering an increase in demand for higher risk assets such as equities, gold and crude oil.

The March Euro is trading better on increased demand for higher yielding assets as well as improving conditions in Greece. Traders still feel Greece will receive a bailout from Germany and France. Don’t forget about the huge amount of shorts in this market. A short-covering surge could occur at any time if short begin to panic because of the current rally. The charts indicate that 1.4009 is the next likely upside target.

The March British Pound is biggest gainer overnight. The initial move was fueled by a report showing that U.K. Jobless Claims unexpectedly fell in February. The strong surge to the upside was triggered by the news that the BoE members voted 9 -0 to leave its quantitative easing program unchanged. Following this news, a strong up move ensued, driving this market through a pair of 50% levels at 1.5271 and 1.5297. The next upside target is 1.5419.

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Overnight the Bank of Japan voted to leave interest rates unchanged. In addition, it doubled its loan program designed to combat deflation. The March Japanese Yen is trading lower this morning. The charts indicate that a break through 1.1019 is likely to trigger an acceleration to the downside. The increased demand for higher yielding assets is likely to pressure the Japanese Yen as traders continue to use this currency as the funding currency of choice.

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