FOMC Today

Instead of going away like a bad dream, Greece continued to press ahead for a referendum vote to be held publically on its austerity and financial bailout package. The EUR actually traded in a stable manner on Tuesday, but this was a day after a dramatic drop in value. The EUR is near short term lows along with the GBP and AUD, albeit for a complicated variety of reasons. The Greek government now faces a vote of confidence on Friday, it faces pressure from E.U. leaders who are red faced, and it faces the outright scorn of investors. European bond traders took their frustrations out on the Italian bond market yesterday sending its yields to new and expensive highs, while German bonds continued to find additional buyers sending its yields lower. In the meantime equity markets across the board in Europe all suffered from slings and arrows with bad results. Wall Street also declined. On top of the incredibly bewildering developments from Greece, the U.S. saw ISM Manufacturing PMI data that was worse than expected.

Things will not get any easier for investors today. The ADP Non Farm Employment Change numbers are on schedule, but more critically the Federal Reserve’s FOMC monetary policy statement will be released and Ben Bernanke will hold what has officially become a monthly news conference. The Fed has only recently taken on additional measures, including what is known as ‘Operation Twist’, thus it is doubtful that any further quantitative easing changes will come today. But it is the gist of what the Fed will say about the outlook for the U.S. economy that investors will be keen to hear. And traders must keep in mind that the official jobless report from the States will be published on Friday.

Trading is likely to remain somewhat cautious until the Fed’s statement. Bonds will have to be used as a barometer by investors as they gauge sentiment. Ranges will be put to the test, but values within Forex may remain tight unless additional news falls from the table in Europe. The story is getting more complicated and investors besides having to deal with the Fed today must stay focused on the Greece situation. Also to make matters even more interesting the ECB will hold its first monetary policy meeting with Mario Draghi at the helm tomorrow. The Greek ‘no confidence’ vote will be a key on Friday. If the government can withstand the vote than the public referendum is likely to go ahead. If the government falls than it is likely new elections will be held in a few months time to elect new leadership.

In the meantime the EUR did have a rather quiet day on Tuesday. But what comes next and how the Single Currency will see its value tested in the next 3 days will be very interesting. The GBP reacted with stability in the face of U.K. data yesterday that pretty much matched its anticipated targets. The AUD did lose value as Australia cut a key interest rate and indicated it may do so again sometime in February if economic conditions warrant further action. The JPY stabilized and the Japanese currency could prove extremely noteworthy considering the recent intervention because Asian investors tend to use the JPY as a risk adverse vehicle. Risk appetite has certainly been pushed back and it is risk adverse trading that seems to have the upper hand for the time being.

The broad market will likely remain tentative until the FOMC statement, but the Greek situation is a dangerous lynchpin which could ignite rapidly. Commodities will likely face another choppy session today including Gold.