Dollar is mildly lower again in Asian session as stocks are lifted by rumors of so called "bad bank" initiative from Obama administration. Under the initiative, US will create an institution, run by FDCI chief Bair, to remove toxic assets from bank's balance sheets. Yen is also mildly lower as Asian stocks climb modestly on the news. Though, the currency markets are generally bounded in tight range as focus is turning to FOMC rate decision in the US session.
Fed is no doubt expected to hold rates unchanged at the target range of 0-0.25% today. Though there are still a few areas that markets will focus on. Firstly, the Fed may discuss inflation targeting and even though FOMC might not adopt a target, the statement would probably emphasis Fed's strong intention to avoid deflation. Secondly, the committee's focus will probably further turn to quantitative easing. Thirdly, the statement will probably discuss further plans from Fed to purchase treasuries to boost lending. After all, FOMC might come as a non-event today and markets could stay directionless until Friday's Q4 GDP release.
Another focus today will be Germany CPI, which is expected to drop -0.3% mom in January following an increase of 0.3% in December, while HICP is anticipated to have contracted -0.4% mom in January after gaining 0.4% a month ago. Ease in inflationary pressure was driven by lower energy prices and further moderation in cost of food. Gfk consumer sentiments was unchanged at 2.2 in Feb.
Australian CPI dropped -0.3% in 4Q08, the biggest decline in 11 years, but less than expectation of - 0.4% decline. On yearly basis, CPI slowed from 5% to 3.7%. Westpac released a report showing leading economic index plunged -1% in November. These data evidenced Australian economy is heading for the first recession since 1991 and RBA will very likely cut interest rate in the meet next week.
Technically, Dollar index is still trading with a soft tone today and intraday bias remains on the downside. Sustained trading below the channel support will argue that whole rise from 77.69 has completed. More importantly this will leave such rise in corrective structure (at least not clearly impulsive). In other words, it will imply that such rise from 77.69 is merely a leg in the consolidation that started at 88.46, which is still in progress. That is, in such case, another test of 77.69 could at least be seen before resuming the medium term rally. Break of 81.19 cluster support (61.8% retracement of 77.69 to 86.81 at 81.17) will confirm this case. Though support from the current level and break of 84.59 minor resistance will indicate that rise from 77.69 is still in progress for retesting 88.46 high.
