httpvh://www.youtube.com/watch?v=nnt6X7IUp0g

Traders kept their cards close to their chest yesterday before the onslaught of data due over the next 24hrs. The major crosses were relatively quiet however the dollar did have only its 2nd positive day in 10 trading sessions after poor data from China and as speculators got their houses in order before tonight’s decision from the Fed.

Overnight, the Bank of Japan have kept rates as they were and have avoided intervening to weaken the JPY, specifically against the USD. Rates are predicted to stay low in Japan for a good while given the deflationary problems they experienced in the 1990s and their desire not to suffer similar in the 2010s.

Staying in Asia we saw Chinese trade balance hurt risky assets as imports fell by a third in the past month. Given China’s position as the ‘factory of the world’ fewer imports signifies that fewer raw materials are reaching these factories and that in turn leads to slowing growth. Something that we do not need given the largest consumer in the world, the US, is also experiencing problems.

A trade balance closer to home will also sway the markets before the Fed are allowed to make themselves heard. The consensus estimate is that the balance will have narrowed (exports will have risen or imports will have fallen) to around -£3.65bn in the month of June against the 22 month high of -£3.8bn we saw in May.

So on to tonight’s Fed meeting. It looks increasingly likely that the Fed will announce an extension to credit easing by reinvesting the proceeds from the expiry of mortgage backed securities.  This comes after the Chaiman’s comments over the past weeks that the recovery in the US was looking increasingly uncertain. That announcement is due at 19.15 and will, if they decide to extend QE, move GBPUSD back towards the 1.60 level.