FOREX TRADERS

[ultimatepick]

FOMC Minutes And The $
http://www.forexfactory.com/showthread.php?t=31686

This will be the first of the big reports scheduled this week. Market participants will be reading the minutes very closely for a clearer picture as to how the Fed sees things.

We know from the statement that the inflation bias remains intact. We also know that they described the housing slowdown as "ongoing" and further Fed statements indicated they believe the problem to be contained and that they expect growth to be turning up in the second half of the year. They have continued to state they expect inflation to "moderate".

Observers will want see if members expressed concern regarding their forecasts for either inflation or growth. On the inflation side, the Fed mentions things like resource utilization and wage pressure-and BTW-wages will be a big part of the NFP figures.

On the growth side, they'll be concerned about housing and the sub-prime market as well as the consumer.

With this kind of report-I believe it's best to get a gauge of overall market reaction and what their perceptions are regarding future Fed moves.

It's all about the risks-the risks to the FOMC's inflation and growth projections. If the market percieves the Fed to me more concerned about the risks to their inflation projections-that will eliminate a rate cut and be supportive for the dollar. If the market believes the Fed to be more concerned about the risks to their growth projections, market participants will start betting on a rate cut and that will weaken the dollar.

Any hint of a rate cut will boost equity markets and carry trades with them. Bond yeilds will fall and prices will rise, especially on the shorter end of the curve. In a winding situation, JPY crosses appreciate as the dollar depreciates vs GBP,EUR etc.

Certainly, if the market percieves an increase is more likely equity markets will react negatively; carry trades will be sold, bond yeilds will rise and prices will fall. When carry trades are unwinding, the JPY crosses will depreciate as the dollar appreciates vs GBP,EUR etc.

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Growth:

In its forecast prepared for this meeting, the staff marked down the projected increase in real GDP in the first quarter...

...meeting participants agreed that, while recent economic data had been mixed, the economy was likely to expand at a moderate pace in coming quarters.

Thus economic growth likely would increase in coming quarters to a pace close to or modestly below the economy’s trend growth rate. However, additional evidence of sluggish business investment and recent developments in the subprime mortgage market suggested that the downside risks relative to the expectation of moderate growth had increased in the weeks since the January FOMC meeting.

The minutes are reflecting that staff economists revised down their growth projections for the first quarter, but that the FOMC members still expected a moderate pace of expansion going forward although they noted that the downside risks had increased since the January meeting. While it's virtually certain that FOMC members will still expect a moderate pace of expansion, it will be interesting to see if the risks have changed and if growth is still expected to be at the pace outlined above.

Inflation:

At the same time, the prevailing level of inflation remained uncomfortably high, and the latest information cast some doubt on whether core inflation was on the expected downward path. Most participants continued to expect that core inflation would slow gradually, but the recent readings on inflation and productivity growth, along with higher energy prices, had increased the odds that inflation would fail to moderate as expected; that risk remained the Committee’s predominant concern.

What will be interesting to see, is if FOMC members still see the level of inflation as "uncomfortably high", if most still expect the gradual slowing of inflation and if the "odds" have continued to increase or not. It's virtually certain that they will still see the risks of inflation as their "predominant concern".
Last edited by NewstraderFX : Today at 8:55pm.