The USD remains under pressure as the markets await the conclusion of the two day FOMC meeting in Washington. Â Most analysts expect the FED will announce the expansion of the amount of asset purchases by $45 billion considering that Operation Twist expires at the end of the month. Â Also at the conclusion of the meeting,
Federal Reserve officials are expected to release updates to their economic and policy projections. Â There is no expected shift in the economic outlook, but analysts are wondering if the FED will adopt a new approach on how they release these projections.
The addition of asset purchases seems to be a foregone conclusion and this usually weakens the USD.  As stated yesterday, traders tend to be “fickle†when it comes to currencies and over the last few days, the EUR seems to have traders’ “affectionsâ€.  Better economic releases in the Eurozone combined with further FED easing equals a lower USD and higher currencies, such as the EUR, GBP, CHF, CAD and AUD.  In fact, except for the JPY, the USD is being pressured across the board.
The JPY fell overnight after it was announced by the Japanese government that North Korea launched a rocket at approximately 10 am, Japan time. Â The rocket apparently flew over Okinawa before falling into the sea near the Philippines. Â The JPY is already under pressure ahead of the elections that will take place this Sunday, December 16. Â The latest polls show over 70% over respondents expecting the JPY to weaken under a new government. Â Adding to this speculation, the latest IMM data shows that short JPY contracts have risen to over 141,000 contracts, which is the largest amount since July 2007.
The latest election polls in Japan show no surprises. Â The LDP party is expected to win close to 300 of the 480 seats in the Lower House of the Diet. Â If the New Komeito party wins the seats they are expected to win, the two party coalition would have nearly a two-thirds majority. Â This majority could overrule any veto in the Upper House. Â The polls also expect Shinzo Abe to be elected the new Prime MInister and he has stated his intentions to add liquidity which will most likely weaken the JPY.
As far as the currencies are concerned this morning, we should expect the USD to remain pressured at least until the conclusion of the FED meeting.  EUR could retest the overnight high of 1.3025.  USD/CAD has tried to break .9850 support but to this point hasn’t made it through there yet.
Two final things. Â Today is 12/12/12, the last time month, day and year are the same this century, and for those who are concerned that next Friday could be the end of civilization as it is the last day of the Mayan calendar, the Vatican announced today that world will not end then. Â Whew!!! Â That makes me feel a lot better!!!
