A GLOBAL RALLY MAY BE SHORT-LIVED

By Kathy Lien (www.gftforex.com)

A GLOBAL RALLY MAY BE SHORT-LIVED

For the most part, markets today expressed a tone of relief and satisfaction for global economic events. We have seen the classic pattern of dollar and yen weakness across the board that is quite the mainstay in markets that think the worst is over. However, we are cautioning that this brief level of renewed sentiment may be short lived. In the US the euphoria that was left over from European trading seemed to dwindle in the latter part of the trading day. The Dow finished one of its typical whipsawed trading sessions, falling off of highs of more than 100 to dip in to negative territory. The index did finish in positive ground. This level of uncertainty definitely casts some doubt on the continuation of this renewed confidence in the financial markets.

What is the Fed Prepared to Do?

It is never too early to start speculations for potential policy shifts in the upcoming FOMC meeting. Ceremoniously, we will no longer refer to it as an interest rate decision because interest rates will not be changed. However, we are waiting on something more important; a telling factor for continued monetary policy decisions. One possibility is that the Fed announces a target as to the size of its balance sheet. They would therefore be able to present something more concrete to the market as an explanation that they are coming to the rescue. It is very likely that the central bank continues to expand the levels of assets it purchases. Many expect that the Fed will reignite purchases of very long-term treasuries in an effort to push down yields enough to improve long-term borrowing. Regardless of which actions the Fed puts into action, the true face of American monetary policy has changed as a result of the near-zero interest rates.

EUR/USD: Currency in Play for Next 24 Hours

EUR/USD will be our currency pair in play on many important economic releases expected for tomorrow’s trading. The important German IFO, which covers expectations, business climate, and current assessment, is expected at 4:00 am ET or 9:00 GMT. The Euro-zone Current Account will be released at the same time. The US will release Consumer Confidence at 10:00 am ET or 15:00 GMT.

The technicals on EUR/USD price action are very bullish at the moment. Prices finally managed to exit the Bollinger band sell zone, after remaining in our sell zone for eleven trading days. This could provide a foundation for further advances in the pair. Resistance stands in the way of continued rallies at 1.3225 or the 23.6% retracement from mid-December highs to yesterday’s low. The most immediate support is located at yesterday’s low of 1.2765. Of course, if this level should be breached, there is the multi-year low at 1.2228 that should support further declines. However, the break out of the sell zone was very significant and may result in a continuation of today’s rally.