Fed Found a Third Way – Markets Back to Normal

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Ben Bernanke, Time’s Man of the Year, managed to find a creative wording for the FOMC statement that eventually left the markets unchanged, in the last major event for 2009.

Ben Bernanke just won the title “Man of the Year” for 2009. Time Magazine praised him for the way he dealt with the huge financial crisis. Also in his last decision for 2009, he was creative.

The wording about interest rates being low for an extended period of time was not changed. This was a stabilizing message that kept Wall Street strong, and prevented a shock.

On the other hand, he did express a little bit more optimism about the economic situation, so the statement wasn’t too depressing.

In the preview before the FOMC meeting, I wrote that there’s no middle ground – that he’ll either leave the “extended period” unchanged and send the dollar down, or remove these words and send it up.

Looking again at the poll I ran with the Currensee community, I now see that the results have fully stabilized as well: 50% said that the dollar would go up and 50% down. Earlier, the dollar bulls had a small advantage.

Well, Bernanke found a very creative way of balancing the words and keeping everything stable. It took time for traders to understand his complex message. During this time, the dollar strengthened and trading was choppy.

But after the initial moves up and down, the major pairs returned to the levels before the decision. EUR/USD is at 1.4530. GBP/USD is at 1.6340, enjoying higher levels after the ground-breaking employment numbers. Other pairs are also back to normal.

The next event in the same scale is already in 2010 – Will Non-Farm Payrolls show growth in jobs?

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

9 Comments

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  2. wouldn’t leaving out “extended period” be more likely to send the dollar up? If it’s perceived that he will raise interest rates anytime soon…traders would be more likely to jump out of their short dollar positions…as they’ve been doing in Aud/Usd…and others because of recently strong job numbers. Thanks for your analyses though…

  3. bento, thanks for your comment.
    The wording of an “extended period of low rates” is dollar-bearish. It means that the rates will stay low for a long time, making the dollar unattractive. Removing these words would mean that a rate hike will happen sooner, making the dollar more attractive.

  4. You’re quite right sir…I read your article as: leave out…rather than “leave…”.

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