US Dollar
Yesterday we talked about how the FOMC meeting would make Wednesday the make it or break it day for the US dollar.  Unfortunately, to the disappointment of dollar bulls, it was certainly not make it day.  Contrary to popular belief, the Fed did not upgrade their concerns about inflation and instead kept the statement virtually unchanged.  Going into the meeting, the recent Fed comments gave FX and bond market traders the confidence to position for a more hawkish statement and even though the Fed injected a more optimistic take on future growth, the lack of changes to the inflation assessment sent the dollar as well as bond yields tumbling.  Once again 1.25 and 120 have been cemented as the bottom in the EUR/USD and the top in USD/JPY.  Going forward, the odds are certainly more in favor of dollar weakness than strength.  Oil prices jumped over $2 today to $61.40 a barrel on the drop in both temperatures and inventories.  It is getting colder here in the Northeast and judging from the briskness of the weather, we could be setting up for a brutal winter.  Existing home sales also dropped for the sixth month in a row to a lower than expected 6.18M units for the month of September.  New home sales due for out tomorrow run the risk of a similar drop, though the bigger risk is actually the durable goods report.  Strong orders for Boeing aircrafts are expected to drive the overall index higher, but we suspect Americansâ�,��"� appetite for big ticket items such as electronics and appliances are not as strong as the market expects.  There are still many people who feel the weight of low savings, high credit card debt, near stagnant wage growth, eroding home values and high summer energy bills on their pocketbooks.  In those cases, the brand new LCD HDTV may be the first big ticket item to suffer.  Should durable goods come in weak, expect to see 1.27 in the EUR/USD. 

Euro and Swiss Franc
Stronger than expected German and French business confidence surveys helped the Euro start the US session on a firmer footing.  It appears that the fall in oil prices have offset any concerns about the VAT tax increase early next year in Germany but we suspect that the weakness of the Euro may have also helped to bolster confidence.  Inflationary pressures are still a problem in Germany as well.  Consumer prices jumped 0.2 percent in the month of October, which compares to the marketâ�,��"�s forecast for a 0.1 percent drop.  The stronger confidence of businesses and the upside inflation surprise taken together continue to validate the need for at least one more interest rate hike by the European Central Bank next year.  Furthermore, both German and French companies are continuing to see decent growth which would be a notable contrast to the US if the US indicators come out weak tomorrow.  In that case, not only would the outlook for both countries diverge even further, but so would their monetary policies.  ECB member Weber has already noted today that the current slowdown in the EMU is only â�,��"passing.â�,� Although no significant Eurozone data are due for release tomorrow, there are a number of scheduled speeches by European officials that are worth watching.  With nothing on the Swiss calendar today, EUR/CHF continues to press higher. The key Swiss release this week is the KoF leading indicator report which is predicted to come in softer.   We may also be seeing some position adjustments after SNB President Roth eradicated the possibility of a half point hike in his comments yesterday. 

British Pound
Broad dollar strength has sent the GBP/USD higher, but the lack any of data has allowed for a more meaningful rise in the Euro than the British pound, which saw their cross rate (EUR/GBP) rise for the third straight day in a row.  A flurry of pound strength was seen shortly before the European open after Bank of England member Charles Bean reiterated his comments from yesterday that it is best to â�,��"err on the side of caution against inflation.â�,�  The BoE appears to be doing their best at prepping the market for a possible rate hike.  We have already mentioned yesterday that Bean is not the first central bank official to express more favor for higher rates.  Both Tim Besley and Andrew Sentance voted for a rate hike earlier this month.  Even Mervyn King noted two weeks ago that the declines in September inflation were most likely temporary.  Therefore another rate hike in November may not be completely off the table.

Japanese Yen
It appears that a lot of traders have a vested interest in keeping the Japanese Yen weak and itâ�,��"�s no surprise with the attractiveness of the short yen carry trade.  USD/JPY dropped after the FOMC report but failed to stay below the 119 level while EUR/JPY actually broke back above the 150 level.  USD/JPY does look vulnerable to further losses, but for the time being it may bounce before it collapses.  The weakness of the Japanese Yen has helped to boost the countryâ�,��"�s trade deficit for the month of September.  We expect other fundamentals to catch up as well.  The low level of oil prices throughout last month as well as the weakness of the Yen should help to boost incoming economic data. 

Commodity Currencies (CAD, AUD, NZD)
In the world of commodities, the main focus today is the New Zealand dollar.  After last nightâ�,��"�s disappointing consumer price data, the Reserve Bank of New Zealand left interest rates unchanged at 7.25 percent today and warned that inflation in the fourth quarter could be â�,��"unusually low.â�,� With the market divided 50/50 on whether the RNBZ would cut rates, it was no surprise to see the New Zealand dollar collapse on the back of the news.  In contrast, Australia actually printed very strong CPI numbers, which suggests that the Reserve Bank of Australia is on track to raise interest rates later this year.  With one on hold and the other likely to raise rates, there is no wonder why AUD/NZD is the dayâ�,��"�s best performing currency pair.  The Canadian dollar on the other hand is also stronger, but the main reason is because oil inventories dropped, which sent crude prices up $2 a barrel. 

Kathy Lien is the Chief Currency Strategist at FXCM.