Forex Go!

Today all eyes and ears are on the FOMC meeting and the new format, where Fed Chairman Bernanke will hold a Q&A session after the release of the interest rate decision. So make not of the time changes, as the rate decision has been moved up to 12:30 EST, with the press conference to follow at 2:15 EST, which was the old rate decision time.

It will be extremely interesting to say the least to see how this goes and whether or not Bernanke is a better salesman than the market believes. It is no secret that QE2 has been wildly unpopular with the public and that indeed it has been responsible for higher commodities prices despite the intellectual dishonesty surrounding that fact.

However, what QE2 has also done is help stabilize asset prices so that the economy did not become over-ridden by deflation.

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Today is a day marked by spin-jobs from the US Fed as they take their show on the road and try to convince the public that current policy is helping the economy move forward. The problem is that there are often conflicting speeches, and don’t tell the true story of what has taken place.Lat night, Big Ben kicked it off and said that he is keeping a careful eye on inflation leading some to believe that rate hikes may be coming sooner than the market thinks. The problem with this view is that the metric the Fed relies on to view inflation, core CPI data, is flawed. Too much of that figure relies on housing prices, which got so inflated during the bubble that they are bound to continue to fall for some time. So we could have $150 oil, $5 gasoline, but housing prices fall 10% and there is no inflation! D

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Tuesday’s Federal Open Market Committee (FOMC) announcement went under the investor microscope on Wednesday and the result was a flight to gold and other commodities. The dollar dropped sharply against major currencies while equity markets declined in light trading.

Many analysts were mystified by the language and tenor of the Federal Reserve announcement. Scott Anderson, a senior economist at Wells Fargo summed up the Wall Street sentiment, “They have to do a better job of communicating. The markets abhor the vacuum of uncertainty around QE2.”

The intentionally vague aspects of the Fed’s guidelines for the acronym QE2 for Quantitative Easing 2, had analysts reading between the lines as to what events would spark the second round of printing money. The consensus is that the Fed will do whatever easing it takes to prevent double digit unemployment and advance the slow moving recovery and places these priorities ahead of inflation concerns.

Precious Metals and Commodities Up

Gold closed in on the 1300 mark and hit record highs for the fifth consecutive session. Gold is

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Concerns that the Fed may engage in more quantitative easing is sending the U.S. dollar lower in currency trading on the FX market. Worries are that the Fed may move away from balance sheet reduction in favor of more economic stimulus.

So far, the economy has recovered but slowly, with the latest news out about stagnant incomes and consumer spending once again raising questions about job market recovery — and about economic recovery in the U.S.

As a result, the U.S. dollar is heading lower on the fundamentals. Even though risk appetite is fading from the FX market today, the dollar is not getting a boost, since traders are considering the fundamentals, and the possibility that monetary easing continues to weaken the U.S. dollar for the long term.