MPC minutes are the only distraction as we await the FOMC rate announcement

The market seems fairly certain that operation twist will be the outcome from the FOMC decision tonight and probably a further downgrade assessment of the economy, then a test of the BoJ resolve as this could send USD/JPY tumbling further. We have seen a very close test of the all-time lows in USD/JPY (75.93) overnight but with rumours from the SNB regarding a higher SNB EUR/CHF peg it didn’t take much to get the BoJ invention rumour into the market with a quick spike to 76.65. Traders are starting to expect the BoJ to come to market but if this is to come, it is unlikely to be before this week-ends G20 and IMF meeting as they will want the support of other finance ministers to complete a successful intervention.

With the European crisis now spreading like wild fire and the only official solution seemingly being to   ‘kick the can down the street‘, traders seem firmly in a sell euro rallies mode as a Greece default is potentially imminent despite the official lines that all will be ok, albeit without much evidence. Even if we see a shock via the FOMC tonight or there is a continuation of the rumours of a higher EUR/CHF peg to 1.25 from the SNB, it will be interesting to see if traders use any rally to sell EUR/USD.

With the global growth situation looking precarious to say the least and the UK economy showing  signs of catching a cold from Europe, it will be interesting to see the voting pattern from the MPC with regards to further stimulus measures. The outcome seems finely balanced if any other members are to join Adam Posen in voting for an increase in QE. Should this be the case, then sterling could be under pressure and a test of 1.5650 might be imminent.