Another day, another wave of selling in all dollar related pairs, with both EUR/USD and GBP/USD being trading high and latter touching Julys highs at 2.0655.
Yesterday we didn�t have any news in the economic calendar, therefore the lack of data, in combination with return of risky carry trades; saw big moves in all yen related pairs and sterling.
With tomorrow being the most important day of the week, it is natural that most traders are in a �wait and see mode� as there are clear risks in positioning for, or against the dollar a few hours before the announcement.
With many analysts predicting a rate cut of 25 points, and markets already pricing in this outcome, the only other way that we will see a big move in all dollar related pairs will be a surprise move by Bernanke and friends. The two other scenarios would be either to leave rates unchanged and therefore give dollar a temporary boost, or cut as much as 50 points like the last time, and so dollar can and will print new lifetime lows.
With oil nearing $100 per barrel, and EUR/USD almost at 1.45, Bernanke s job is made quite difficult, as whatever his decision will be, the reaction in the global markets is expected to be aggressive either way. The bank certainly doesn�t want to surprise the markets and cause a massive reaction like the September cut, so even if we see a 25 points cut, the rhetoric might be hawkish so the dollar doesn�t get hammered once again. Whatever the outcome, once thing is for sure: dollar will loose ground after the initial reaction as the sentiment hasn�t changed and markets target still is at least 1.45.
After the Wednesday�s events, let�s not forget that Friday is another risky day with non farm payrolls being the other major event for dollar direction.
Today, at the time of witting, GBP/USD is printing new multi yearly highs at 2.0665 and it looks like there is room for more gains in the pair, ahead of New York open. This pair is trading with heavy tone and one could argue that there are not a lot of fundamental or even technical signals to support the extreme of this move. House prices and loan applications fell yesterday, with the risk of tomorrow�s nationwide prices being negative again. This, will for sure catch up with the pair and if tomorrow�s decision favors the dollar, pound might get sold aggressively off its highest levels.
Until tomorrow though, there is still consumer confidence to look at later on, but we don�t think that traders will react much to that, as it is already being forecasted lower and it is widely known that the sentiment is negative�