Surprise - Surprise?

The stronger than expected GDP numbers mixed with strong consumer spending, and sentiment, mix in lower oil and you now have this analyst stating that there is a 50-50 chance for a rate hike at today’s FOMC meeting. There are reports out recently that "Consumer Inflation" is running higher than 10%!

If there is a surprise rate hike to 5.5%, it will undoubtedly shock the markets. Almost 100% of analysts (make that 99.9%) believe that the Fed will hold rates steady today. Note: 45 minutes after the Interest rate decision - there may be reason for retracements or acceleration at 3pm EST as the Farm Report is released.

The GBP-USD has been testing levels below 1.95

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(Click on chart to enlarge)

As soon as the FOMC announcement is digested, traders start looking to Fridays Non-Farm Payroll and the upcoming G-7 summit for the next major move.

Want to get a message to the Fed?

It’s about time that the government is held responsible for accurate reports and minimal revisions! US House Democrat Barney Frank has requested an additional day of questioning in February. the traditional two-day hearing of Senate Budget Committee may be extended to the US House where the public is usually represented a tad bit more than by the US Senate elite.

Bloomberg.com reported on 1/16/07 "Rep Frank wants a discussion about interest rates because the Fed’s decisions are a “matter of values.” He’s considering a second day of hearings with “policy experts and people with real-world experience to comment on Bernanke’s testimony before his committee next month, spokesman Steven Adamske said." 

Go ahead - now is your chance to get a message to the Fed - US Rep Barney Frank Contact Information:   http://www.house.gov/frank/contact.html 

Be sure to tune in to the IEN-FX sponsored "1st on Forex - The Week Ahead" webinars every Monday at 12:00 GMT (7am EST) with Jerry Furst. To Register: http://www.fxstreet.com/live/sessions/session.aspx?id=152c5efa-528a-4d2e-a1da-b8210f2fe7d0

Good Trading to All - Jerry Furst is "1st on Forex" Sr Analyst IEN-FX
Contact: JerryB1st (@) IENWEB (dot) com

FOMC Decision Coincides with GDP Today

Traders will likely settle in for the all important US interest rate announcement today as the FOMC interest rate decision coincides with GDP and several other economic reports including the NAPM Chicago and Construction Spending Reports prior to the Interest Rate decision. Will the GDP report weigh in on Bernanke and Associates decision?

Hints about what that decision may be came last week as US Fed Official Yellen expressed concern that “inflation is still a threat”,  stating that she is being mindful of “output and employment” as well.  Does this point to a continuation of the “pause” before the US raises rates again?

The US is showing very strong signs as consumer spending and sentiment is doing just fine. The labor market is getting tighter and Walmart is handing out backpay! All this as Oil is settling in the Mid 50’s in the Mid of Winter. (Note: three years ago the mid 50’s for oild would have been unthinkable and horrifying!)

No Lowering in Sight

Most analysts now agree that a lowering of US interest rates is highly unlikely. Further there is talk that positions reflecting a decrease have been unwound over the past few weeks. Currencies will likely be relatively flat through mid week barring any unexpected news.

Pound Testing Resistance – Is $2 Next

The Sterling tested 1.9915 a 14 year high and calls for the Euro to surpass 1.35 in 2007 are becoming more common. (Click on Chart 1 to Enlarge)

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No Hike Yet for the Yen

After last weeks BOE surprise rate increase – Japan returned the surprise by keeping their rates steady. The BOJ has now started more concern and “buzz” than the eminent US FOMC decision. Will the US be next to surprise?

The BOJ meeting minutes supposedly showed insufficient data (no need) to raise rates until inflation is confirmed (or at least until the Japanese government approves.) What does this mean for the Yen? Well, even if the BOJ raises by a quarter or a half point, the carry trade will carry on. It will take a significant move to cause an unwinding of the Carry Trade.

On Thursday the Wall street journal reported that European officials “will seek a more forceful stance on Yen weakness. However it is unlikely that the Yen will have all the focus of the G-7 meeting taking place February 9-10 (Chart 2 EUR-JPY - Click to Enlarge)

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Be sure to tune in to the FOMC live webinar in FX Street.com with Jerry Furst broadcasting the announcement live! Space is limited: http://www.fxstreet.com/live/sessions/session.aspx?id=c7ef0245-34df-4bf9-9e3a-d28d19f98edd

Good Trading to All - Jerry Furst is "1st on Forex" Sr Analyst IEN-FX
Contact: JerryB1st (@) IENWEB (dot) com

This Wednesday January 31st - Tune in Live

Free Webcast - Watch Live coverage of the FOMC US interest rate announcement as FOMC Chairman Ben Bernanke and his FOMC associates get down to the business of setting US interest rate policy. This is the first rate decision of 2007. Although analyst consensus is pointing to keeping rates stable - You never know when there may be a surprise. The BOE did just that recently. Dont be caught off guard!

Coverage Begins at 18:30 GMT - Register now on FX Street.com

This economic event scheduled eight times per year is a fantastic short term trading opportunity. Traders love a setup and volatility - this is one of the best scheduled reports to trade - if you like volatility, and know what you are doing - Tune In and if you want to Trade Along! Live or Demo.

Agenda - Topics: Starting at 1:30 EST 18:39 GMT - Wednesday January 31st

• 1:30 pm EST (18:30 GMT) - Before: What makes this scheduled event so important
• 2:15 pm EST (19:15 GMT) - During: Watch the markets react with volatility spiking the charts!
• 2:30 pm EST (19:30 GMT) - After: What Happened and What to Expect Next!

Register Here

Register also for the Weekly Webinar with "1st on Forex"

Good Trading to All - Jerry Furst is "1st on Forex" Sr Analyst IEN-FX
Contact: JerryB1st (@) IENWEB (dot) com

The GBP Sterling is testing Resistance slicing through 1.98 and challenging the 1.99 level. Price is likely to take a break around 1.9850. (Click on Chart to Enlarge)

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The Euro has fallen through support to a 4 Year Low Against the Pound. (Click on Chart to Enlarge)

IEN-FX’s, Sr Analyst Jerry Furst presents live coverage of the FX Markets Every Monday at 7am and new in 20007 the FOMC rate announcements beginning January 31. Live Session starts at 13:30pm EST 18:30 GMT on FX Street.com - Free and Open to the Public - Hotcomm Room limited to 200 people.

Register for Password http://www.fxstreet.com/live/sessions/session.aspx?id=c7ef0245-34df-4bf9-9e3a-d28d19f98edd

It is often said that money makes the world go round… but it could be argued that it is really oil that spins the wheels and lubricates the gears of our current day.

Oil is testing new 18 month lows and testing lower - - Where will it stabilize at? Have the fundamentals changed.  There has been talk that the Euro will be replacing the US Dollar as the currency vehicle for oil transactions.

This has effects on all aspects of world economies. Oil first broke the $50 level in Sept of 2004 peaking in the summer of 2006 around $80! Resulting in the price of gas in the

US

going promptly from went $1.50 a gallon to over $3.00. The past knee jerk reactions of high prices at the gas pump do not seem to be realized in the reverse as prices are staying stable at an average of $2.50.

So What Do You Thik The Fed is Going to Do?

Friday morning, as the red hot NFP report was cooling, www.MarketNews.com was reporting that Boston Fed President Minehan, a voting member in 2007, made a commented that “a lower dollar… (will help) growth abroad boosting exports.” Minehan also stated that “Inflation is still a concern”. (Could someone please tell me what the

US

exports besides jobs, factories, and patents. My contact info is below!)

The Dilemma and Conundrum – Spelled Out in one Paragraph

The above underlines very simply the dilemma from a Fundamental Perspective. One way to describe the current paradox is that:

-          If you raise interest rates to head off inflation,

-          Then the dollar will strengthen, making US exports more expensive.

-          However, the Fed is indicating they would like a “lower dollar”

-          A lower US Dollar would mean higher prices for our imports

-          Resulting in inflation

So there it is and if you read between the lines, Could that mean no change in FOMC policy until further notice?

The fact that Minehan also mentions that he sees a “bottoming” of the Real Estate market in the

US

 is interesting, as most market bottoms are highlighted with visible pain to the sector du’jour being squeezed.  Living in

Florida

, I see a lot of oranges and grapefruits hanging low on the lawns and loans of homes with For Sale signs!

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Triangle Patterns that fail….Chart 2 shows that a Triangle pattern can fool, fail, and turn around quite quickly! Failing would have resulted in a continuation of the sideways consolidation range.that began December 6^th. That range was defined on the GBP-USD with a support of approx 1.9430 and a high of approx 1.9750. A triangle pattern with a lower slanting resistance line at 1.9726 had been broken and tested January 2 with a high of the range at 1.9750.

The next day, January 3 saw the enthusiasm for things British promptly fail as the cable fell from a high of 1.9752 and then making a low of 1.9482 – a swift kick in knickers down of over 270 pips!. This move also shattered the Triangle’s slanting support line at 1.9570. The sideways range of horizontal support was still intact at approx 1.9470-9430, until Friday’s US NFP that is…

Now it gets interesting! Chart 3 shows a Triangle pattern on the GBP-USD, if this pattern plays out completely as indicated by the green arrows, then a potential target of the GBP-USD would be approximately 1.9120. That’s another 170 pips or so down for the Pound.

Support and Resistance

Resistance Retracements seem to be at approx: 1.935, 1.938, and 1.943, Support looks to be at approximately: 1.9255, 1.9160, and then the completion target of 1.9120. Note: These numbers are not trade recommendations.

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