Euro, Pound and Gold Flat Ahead of Fed Statement

The Euro, British Pound and gold are trading flat ahead of today’s Federal Open Market Committee announcement at 2:00 pm EDT. Many of the major players are on the sidelines not because of what the Fed may do, but because of what it may say.

All traders and analysts agree that the central bank will announce the end of its quantitative easing program while leaving its benchmark interest rate unchanged.

Traders and analysts aren’t sure, however, what the Fed will say about the strength of the U.S. Dollar, the impact the Euro Zone’s problems has on U.S. growth and the effect of lower crude oil prices on inflation. Some analysts believe the Fed will state that low inflation poses a risk to economic performance.

If the statement is perceived as dovish or if the central bankers express concerns about the strength of the dollar and its impact on the U.S. economy then look for the EUR/USD, GBP/USD and December Comex gold futures to rally. These markets will turn bearish if the Fed statement is hawkish.

Short-covering is helping to boost crude oil futures this morning. For some reason this week, many investment firms decided to turn bearish on crude oil. Contrarian theory suggests the market may be ripe for a strong short-covering rally. This could start with today’s weekly Energy Information Administration supply and demand report.

At 10:30 am EDT, the EIA report is expected to show an increase of 3.3 million barrels. Last week, the report showed an increase of 7.1 million barrels. Look for a rally if there is a decrease, or a substantial miss. Look for selling pressure if the increase is greater than expected.

Since the Fed is not going to release a new economic outlook and Fed Chair Janet Yellen will not have a press conference, look for volatility after the release of the Fed statement while traders try to figure out what the Fed is saying.