TODAY FOREX IN REVIEW

Following the German Constitutional Court's decision to back the ESM with a cap on funds allocated, risk assets continued to rise as Draghi's "bazooka" move calmed markets. The responsibility for solving the debt crisis now lies squarely with governments. The expectation is that this buys time to implement budget reforms while rebuilding economies with pro-growth measures as the ECB keeps borrowing costs down. Meanwhile, Spain is being pushed towards a bailout by neighbors as the country's financial situation continues to spiral. Equity indices closed mostly higher led by the1.19% jump in the Italian MIB. The Swedish OMX rose 0.85%. The Swiss SMI and FTSE 100 were weaker, falling -0.21% and -0.17% respectively. EURUSD is back above the 1.29 handle at 1.2916.

As the next major market event looms with the FOMC rate decision and statement, followed by Bernanke commentary, risk assets globally are rallying in anticipation of another round of easing. Meanwhile, investors expecting massive Chinese stimulus measures were disappointed following a news report from the official Xinhua news agency. High inflation and low growth are likely to be stoked by further stimulus measures in excess of the announced infrastructure projects. New Zealand chose to keep the benchmark rate on hold at a record low 2.50% as RBNZ Governor Bollard's tenure comes to a close. Equity indices are mixed, with the Nikkei strengthening 0.46% while Hang Seng trades unchanged. The Australian ASX is weaker, ticking down -0.33%. NZDUSD has risen 0.15% to 0.8213 while AUDUSD has gained 0.10%.

Expectations are high that the Federal Reserve led by Chairman Bernanke will move to announce quantitative easing 3 later today at the closure of the two-day FOMC meeting. Predictions include $700 billion of asset purchases centered on treasuries and mortgage-backed securities. No change is expected in rates, however, raising rates may be postponed until 2015 if the situation is not seen as improving. Commodities and equities are rallying ahead of the announcement with major indices trading modestly higher. The Nasdaq closed up 0.32% followed by a 0.21% gain in the S&P 500. The Dow Jones Industrial Average ticked up a slight 0.07%. There was a slight pullback in risk-assets yesterday following the German Court decision but the dollar continues to weaken, with the dollar index declining -0.14% to 79.628.

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