Wednesday 25/01/2012 8.30 PM GMT

The Fed has pledged to keep rates low until at least 2014 to help the US Economy and this has encouraged some buying of risk assets and risk currencies and the Euro IS back above 1.30 after falling earlier in the day.

The Fed holding rates is no great surprise and its really just an indication of how slow the global economic recovery is and the Fed, will have its eyes fixed firmly on things getting worse in Euro zone and while things will get worse in Euro zone its perky today after falling below 1.30 in the day its bounced back above this level, as the record short position as per the CFTC Net traders positions is unwound. How much further will the rally go? We think its about done and were short into 1.30...

Lets have a quick look at our positions and then round up the news.

Position Summary

We have come in long the dollar on most currencies below and there rallying today but all overbought and we will see tomorrow if they break back.

AD: We moved up to 1.050 and we have gone short again but after coming off this level were now pressing 1.060 and our stop is behind this level. Momentum indicators are at a bullish extreme and we are looking for a snap back from this level AM If we do see weakness AM look for a test of the 1.030 mid Bollinger band support.

BP: The British Pound rallied to 1.56 and we sold it and its bounced back to just above this level . Our stop is behind 1.57 and we are looking for lower prices to unfold – if not short sell a failure to break 1.57 or a move back below 1.56 supported by falling momentum.

CD: Were at just above 99.00 now and this is the level to sell into with stop behind par – were overbought and expect a downside break to target 97.00.

EC: Were up above 1.30 again but momentum is overbought. We are lightly trading the short side and have relatively wide stop back behind the gap at 1.32 and will sell more if we rally to this level or take a break below the 1.29 support level.

JY: After banking a small swing trade profit last week, we have banked another small one yesterday on the move above 77.00 and we have gone up through our target now at 77.50 so were banked and will wait to buy the dollar again on a pull back.

Federal Reserve to Keep Interest Rates Low

Federal Reserve officials said their benchmark interest rate will stay low until at least late 2014 and anticipate that unemployment will remain high and inflation “subdued.” The Fed repeated its previous statement which was to keep rates low at least until the middle of 2013 as inflation remains tame and more than two years of economic growth have failed to bring the unemployment rate below 8.5 percent.

The Fed, repeated its view that the economy faces "significant downside risks" but it offered nothing to suggest it was close to engaging in bond-buying to try and kick start growth.

Investor sentiment has been lifted by the above but how long will this last?

There only keeping rates so low because the state of the US and global economy is precarious. There not doing any QE yet they will wait, to see how to the crisis unfolds in Euro zone

Over in Euro Zone

The ECB is adding more liquidity and is expected to give out 263 billion euros at its second three-year cash tender in February, but this could be up to $300 billion after a recent drop in demand for three-month loans. This compares to 489 billion euros taken at the first tender. This is oiling the banking system but is not doing much to help the wider economy at present, as banks are not lending and looking to protect their balance sheets.

This extra money is QE in all but name though and will mean a weaker Euro longer term.

In the short term we still have the Greek problem but for today investors are casting this aside and cheering the Fed stance. The Greek problem we think will be solved but there are bigger countries that are the problem – not Greece. If it defaults and left Euro zone its no big deal, its 2% of GDP. Those who say it will deplete the funds available to Euro zone to help other indebted nations, don't get the point:

Funds are to small anyway even if Greece doesn't default.

The fiscal crisis will rumble on and while Germany is doing rather well, the rest of the zone is in for a hard few years. Overall were already in recession, austerity will slash growth and interest rates will fall, money will be printed and all these factors will weigh on the single currency. Even without a major crisis in Italy or Spain Euro zone faces a long and deep recession.

The Euro rally is one that is an unwinding of a record net short position and we thought at 1.30 selling would come in and were wrong so far but we think the rally will fail and new lows will be seen and we now need to focus on the gap at 1.32.

Dollar Dip is a Buying Opportunity

The stock brokers and banks have got their sunglasses on and see no real problems in the globla economy which can't be overcome but they can enjoy the stock rally while they can because we have huge problems ahead and this makes the dollar a buy on the dips, as global growth falls and the Euro zone fiscal crisis continues.

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