FOMC focus: Big 'bad' Ben steps up to the plate

A very quiet Asian session, for obvious reasons with US equities slightly softer on the close after a relatively weak session. Australian CPI data overnight came in softer than expected and on extrapolation puts the yearly rate at around 2.5 percent - somewhere smack bang in the middle of the Reserve Bank of Australia's comfort zone. Interestingly though (at least according to JP Morgan) another 25 basis point cut at the February 7 RBA meeting has apparently already been priced into the market. If this is really the case (clearly I don’t agree), what does this say about the pill popping AUD? This thing would definitely have to be on steroids to still be trading up here in light of rate cut expectations. My personal view is for no change at the next meeting, however a more dovish commentary to accompany.

Looking ahead for the day the main drawcard is tonight with the conclusion and announcement pending from the two-day Federal Open Market Committee Meeting in the US. Big 'bad' Ben is tonight going to embark on a new era of attempting to forecast rate projections as a means by which to give the market more transparency and perhaps tame the tide of speculation? Either way, this has the potential to become a feedback loop, in that it’s futility to keep the market well informed could backfire on the Federal Reserve as market speculators attempt to pre-emptively second guess what they have to say both in the lead up and post event. Cleary there will be no rate change and in my mind no further quantitative easing announced tonight either, the rhetoric however should be interesting as perhaps the mid 2013 guidance previously received could be somewhat altered.

Otherwise we have UK GDP and Bank of England minutes, German IFO (likely to be disappointing) and US pending home sales.

On the majors, here’s how I see them;

AUDUSD still trades firm as noted above but is going to run into decent offers at the 1.0570/80 levels, with sizeable stops sitting above. My preferred play is to fade rallies but do so rather cautiously, preferring to scale in rather than hit the offers will all my powder in one go. Be prepared to possibly exit at that level and above with stops possibly needing to go in above the 1.0650 area.

In the Cable, 1.5680 becomes the line in the sand and once we clear stops around the 1.5630/35 area (perhaps on data) good offers will come in around the aforementioned level. Faders here will also be prevalent, with associated stops above 1.5730. This is likely to only be an intraday play looking for 1.5550 downside targets. The overall move in this pair hasn’t quite finished and 1.5750/80 is still the ultimate target.

The EURUSD is back where we were less than 24 hours ago and tells a tale of further upside. Look for 1.3130 to be tested at some point in the next 24 hours.

And of course the move in USDJPY yesterday and still persisting this morning is perhaps the most exciting....

Helmets on folks.