US Dollar Trading Sideways After Fed Continues Operation Twist

Despite there being a discounting degree in the market for having a stronger stimulating action than extending the current Twist Operations plan to the end of the year, the greenback has not come under pressure versus the single currency. The dollar is trading sideways as the extension of the TOs and has been read as considerable action by the Fed which looked concerned about the current pace of US economic growth and the continued depression of the US housing market. Choosing this option for driving the long term interest rate down for helping it at the moment of keeping the same monthly pace of TOs by $44.4b monthly till the end of this year before taking a decision of QE3 can be inevitable in the case of further deterioration of the economy which lowered its forecast of its growth substantially to be from 1.9% to 2.4% in 2012 from 2.4% to 2.9% as it has expected previously in April.

So, the market has seen in the Fed's Twist plans an extension of a greater possibility of having stronger stimulating by the Fed in the future. The Fed's officials have tried to revive their roles in stimulating the economy by extending its Twist plans to the end of this year selling $267b of its holdings of short-term less than 6-year Treasurys and buying longer term Treasurys, 6 to 30-year securities and Treasury Inflation Protected Securities

The Fed has maintained its plans of keeping short-term interest rates near zero through late 2014 with objection of Federal Reserve Bank of Richmond President Jeffrey Lacker who voted again against the committee's action as he is still expecting that does the economic conditions are not likely to warrant exceptionally low levels for the federal-funds rate through late 2014 for the fourth consecutive time this year.

The Fed's statement highlighted its worries about the financial strains because of the debt crisis in Europe and the weak labor market in US. It has not given clues about a third bond-buying initiative, but it kept its view of considering such possible action in the case of economic deterioration.

The Fed's chief in the press conference following the Meeting has tried also to refer to the importance of the governmental financial measurements and the policies makers' roles for stimulating the economy and shore up the labor market showing that the Fed is doing currently its best on the current economic conditions looking for these roles to take responsibilities too.

The market is waiting now for new stimulating actions in the eurozone with the next ECB meeting next month, ECB president Mario Draghi announced that the decision of keeping the interest rate unchanged at 1% earlier this month was not unanimously and there was voting favoring cutting of the interest rate. Draghi also claimed that the ECB has lowered its forecasts of growth to be from -0.5% to 0.3% in 2012 and to be from 0% to 2% in 2013 and also the inflation to be from 2.1% to 2.7% y/y in 2012 and to fall below the 2% yearly target of the ECB in 2013 to be from 0.9% to 2.3% y/y inside the eurozone making a belief in that a decision of cutting the interest rate again can be a matter of time with the persisting of the dovish economic performance and the sack of liquidity for reviving it.

In the case of rising, the single currency which is waiting for poised pro-bailing out plan government in Greece and EU summit for reaching an agreement of new EU banking union can meet now resisting level at 1.2748 again whereas it failed to continue rising versus the greenback in the beginning of this week easing back to 1.2555 whereas it has managed to rise again to this current level this week and in the case of breaking 1.2748, there can be a higher resistance at 1.2822 before the psychological level at 1.30 which its breaking can open the way for more resisting levels at 1.3063, 1.3180. This can be followed by 1.3281 which its breaking can open the way to 1.3384 again before 1.3489 whereas it has formed its recent top and in the case of breaking 1.3489. The way down can be met with supporting levels now at 1.2555, 1.2433, 1.2408, 1.2357 before 1.2286 which could hold the pair decent after US nonfarm payrolls release of May and the breaking of it can lead again to 1.2151. Breaking this level can open the way for 1.1876 again whereas the pair has rebounded forming its bottom on 7th of June 2010 which drove the pair later to reach 1.4939 on 4th of May 2011 whereas the pair has managed to ease back again.