Cautious Markets After Fed's Minutes

Overall, the currency market bought the dollar again in the first part of the last day of trading, but soon after, trade desks headed against toward quality, rather than risk. In the Asian session, the market started cautiously after the Fed's minutes show that the bank is likely to adopt a quantitative easing policy for a longer period.

The Euro (Eur/Usd) tumbled a strong number of pips in the overnight session, but retraced back most of the move in the U.S. session. The pair fell as much as 300 pips, but closed the session only 120 pips lower. Furthermore, the pair formed a pin-bar, bouncing off the 61.8% retrace of the euro bull trend from the first part of December.

The Pound (Gbp/Usd) advanced a very strong number of pips, even though the BoE is expected to cut 50 basis points tomorrow, to the lowest level on record. In the last day of trading, the pound gained 220 pips and broke above the 20-day moving average.

The Aussie (Aud/Usd) fell lower in the early trading session, but then started to move up in the European and U.S. sessions. The aussie closed the last day of trading gaining 55 pips, slightly under the 100-day moving average. This is the first time the pair has touched the 100-day moving average since late July.

The retail sales trend in Australia has increased by 0.1 percent in November. This was in line with market expectations yet slightly lower than the previous reading. During November, food and other retailing increased while department stores, clothing and soft goods, household goods, and cafes and restaurants decreased. The trend estimate has increased by 1.9 percent for the Australian retail series in November of 2008 when compared to the previous year.

The Cad (Usd/Cad) moved lower in the last few days, aided by the oil link. The pair declined in the last day of trading nearly 70 pips, touching the lowest point since November. For the moment, the pair is testing the 1.18 level, which was an important price point in the past.

The Swissy (Usd/Chf) rose as much as 180 pips yesterday, but by the end of the U.S. session, the pair retraced half of the gains. As such, the swissy closed near the 20-day moving average at the highest level touched in the last three weeks.

The Yen (Usd/Yen) strengthened for the fifth consecutive day. The pair gained 20 pips, even though at one time it advanced as much as 140 pips. The pair also touched the 50-day moving average for the first time since September, but failed to close above it. Tonight, in the Asian session, the yen rose another 50 pips.

Asian Markets Reach Two Month High

Asian trade: Asian market followed the positive momentum from the U.S. session, and opened higher. The strong winning streak from the last few days helped the major Asian indexes rise up to the two month high.

Yesterday, the Fed revealed the minutes of the last meeting, held on December 15th and 16th. Back then, the central bank decided to reduce the targeted rate to 0-0.25%.

The minutes show that some members of the voting committee expect the current downturn to last a long period, while the Fed's balance sheets, are expected to gradually increase over the following quarters. This is important, because it informs the business environment that rates are likely to remain low over the coming periods, as long as the Fed is trying to expands its balance sheets and bolster liquidity.

It should be noted that, some analysts from the top Wall Street companies forecast the fourth quarter GDP as low as 6% annualized, or 1.5% in nominal terms, the biggest quarterly contraction in the last 26-years. During that time, some suggest the unemployment rate may reach 8% in 2009, even though the stimulus plan may be implemented in the coming months.

Tonight, the Nikkei gained 182.31 points (2.01%) to 9,263.15. The Australian S&P/Asx rose 55.20 points (1.47%) to 3,797.90.

Crude oil advanced as the oil supply is likely to be affected by the Gaza war. Crude oil for January delivery rose $1.00 to $48.65.

Gold extended the decline seen one session lately. Bullion for immediate delivery lost $3.40 to $857.30.

Previous Wall Street trade: Stocks rose on Tuesday even after minutes from the Federal Reserve's Dec. 16 meeting showed that policy makers remained deeply concerned economic conditions, expressing the view that output would contract in 2009, unemployment would rise "significantly" into 2010 and that inflation could flirt with "uncomfortably low levels."

The minutes alluded to concerns regarding the overall effectiveness in using an expansion of the balance sheet as a way to mitigate the downturn. While some members expressed the view "that quantitative targets for an increasing reserve base could be effective in preventing deflationary dynamics," other members were concerned that "increases in excess reserves or the monetary base, by themselves, might not have a significant stimulative effect on the economy or prices because the normal bank intermediation mechanism appeared to be impaired..."

Previous European trade: In Europe, the U.K. Ftse rose 59.28 points (1.29%) to 4,632.58, while the German Dax gained 42.32 points (0.85%) to 5,026.31.

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