Dollar tests a fresh two-month low after FOMC decision

US Dollar:

The dollar can’t seem to catch a break. The benchmark currency slid for a fourth consecutive day on a trade-weighted basis Wednesday in the wake of a surprising dovish adjustment to the Federal Reserve’s pol¬icy statement and strong housing report. And, though the greenback is forging new two-month lows, astute trad¬ers are taking note of the decelerating pace of losses tabulated on a daily basis. This is a potential leading indi¬cation that the battered currency is primed for a reversal. However, both the instigation of a positive turn and the momentum that backs a subsequent rally is heavily dependent on the fundamental developments going forward. It just so happens, that we have a complicated and potentially volatile landscape ahead of us. Our attention is immediately turning back to Friday’s advanced 4Q GDP reading. Set against the UK’s disappointing growth reading, this indicator will be pressurized in its potential for a dollar impact. That said, the event risk crossing the wires before the growth report will come up short for market impact. Durable goods, pending home sales and the Chicago Fed’s National Activity Index are notable figures; but they don’t have the same clout as the quar¬terly GDP number.
DATA : Core durable goods orders, Unemployment claims and pending home sales.

Pound:

Taking a closer look at the Bank of England minutes, most members said that the balance of consumer prices moved to the upside, while adding that a rate increase might be misinterpreted and could hurt gross do¬mestic product and the regions confidence. Not to overlook, policy makers said that wage growth remained “moderate,” while noting that inflation risks are from commodity prices. Going forward, I expect the rally in the British pound to be short lived as growth concerns will likely outweigh inflation fears in the upcoming months as the rise in price pressures are expected to be temporary. Thus, the central bank may remain refrained from tightening throughout 2011 as the upward pressure on consumer prices are said to be temporary factors. Taking a closer look at price action, the GBPUSD has halted its two day decline, but remains capped by the 10-day moving average, while MACD looks poised to cross over back to the downside. Meanwhile, the weekly charts look to be carving out what may turn out to be a head and shoulders formation, with the neckline coming in around 1.5344 area.

DATA : No major data to be released today.

Euro:

The Euro extended yesterday's advance to trade at its highest level since November 22nd during the overnight session, with no real driver behind the move other than the better than expected German import price index for the month of December. Though the euro is marginally higher against the buck, it is worth noting that the yield on Portuguese and Spanish 10 year notes are up 10 and 7 basis points respectively. As concerns stay in the spotlight traders should not overlook the developments from the bloc and any comments from credit rating agencies. With that being said, during the European trade, Fitch said that doubts remain on potential asset qual¬ity problems, and added that Spain’s September deadline on banks is a “long timeframe.” Additional comments flowing through the news wire included German Chancellor Angela Merkel and European Commission Presi¬dent Jose Barroso who both said that there is a need for a comprehensive package to deal with the debt crisis.

DATA : No major data to be released today.

General:

• The New Zealand Dollar rallied despite apparently dovish commentary from the Reserve Bank of New Zealand

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