Big Week Ahead!

In some weeks, the news highlight in the FOREX world is an Italian report on car sales. Other weeks, the major headline is that Nigerian workers are striking against the oil companies. However, this week, there’s plenty to be excited about, especially the most important gathering since the meeting of the Five Families: the U.S. Federal Reserve Open Market Committee Meeting.

Ladies and Gentlemen, start your engines.

Ok, perhaps this is not quite as important as Don Corleone and Co., but in the FOREX world, there are few planned events that can have as much impact as this one. Ever since Fed Chairman Bernanke announced an end to rate cuts a few weeks ago, anyone and everyone has circled this week on the calendar. Most analysts, traders, and “people in the know” are not anticipating a rate change, which would be the first time that FOMC has met and not done so in some time. However, despite a general sense of confidence that rates will be held constant, everyone connected to the market will be reading between the lines to try and get a glimpse of the Fed’s future moves.

With energy costs going nowhere but up, it has been argued that the Fed’s main concern might be that issue instead of their stated focus: inflation. Should the meeting’s outcome go as forecasted (no rate change), that would be a signal that inflation is not the only problem that the Fed is attempting to solve. If inflation is rearing its ugly head, the standard call out of the Central Bank’s Playbook has been to raise rates. However, there is a general worry that such a hike would only aid energy prices in their climb. As a result, most are predicting that the Fed will stand pat for now.

Though not this week, the ECB will be meeting soon, and will face a tough decision of their own. While the Fed only said that they are done cutting rates, the ECB has stated that they plan on raising rates. The problem with President Trichet’s plan, however, is that the economic data reported since that announcement has indicated that a rate cut might not be the smart move. Growth in the Euro-zone is slowing, and unless Trichet wants to play chicken with the economy and see who backs down first, a rate cut is being seen as less and less likely. However, Trichet is considered one of the most hawkish heads of a central bank in the world, so anything is possible.

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