Federal Reserve Raise rates to 5.25% from 5%. A Pause? Now It's Possible.

The day finally came, 25 bps hike with a slightly dovish state from Ben Bernanke. It's good news~! The Federal Reserve raised its overnight lending rate between banks by a quarter-point to 5.25 percent and said prospects for a further move depend on data. Some says the Fed is done raising rates, some says they'll go for 5.5% in early August. Where would you place your money in?

My analysis has proven to be right and you know it if you're my loyal reader of my posts. It's finally come to their attention for the inflation-fighting-warrior Chairman Ben S. Bernanke to realise that his job is TOO to control the economy balance and not trying to kill it. Ben Bernanke is trying to contain a jump in prices and inflation expectations without choking economic growth. The housing market has been reported softening with applications for mortgages dropping to the lowest in more than two years and economists predict economic growth will slow from the first quarter's annual pace of 5.6 percent.

``The Fed will leave its door open for further actions, but I think they are probably done,'' former Fed governor Robert Heller said in an interview after the decision.

The committee said ``recent indicator suggest that economic growth is moderating from its quite strong pace earlier this year,'' the statement said. ``Readings on core inflation have been elevated in recent months.''

I'm not ruling out the possibility of another quater-point hike in early August but as the Fed would like to leave options open for them but the chances has definately dropped lower in my view, so would I to leave some room for myself in upcoming more supportive data for the Fed to pause rates. For stock traders across the world, Friday opening for the market would be a wonderful day for them as I'm expecting stock markets to soar on Friday Morning. The fully priced in greenback with a minor expectations of 50 hike has caused the dollar to jump from a cliff without any ropes. It'll be in a matter of time before the dollar hit the ground hard on.

Also, before the the FOMC rate decision, the U.S. economic growth leapt ahead at an upwardly revised 5.6 percent annual rate in the first quarter, helped by lower imports than first thought and generating strong corporate profits, the Commerce Department. However, personally I would consider this a laggish indicator and I'll be expecting mdoerating growth in the next coming quater partly because of some softening in the housing sector that analysts say will potentially have an impact on consumer spending, the key driver of U.S. economic performance. Also out today is the US Jobless Claim which rises again to 311k last week. This is not going to be beneficial to the dollar. Coming along side with the data, Personal consumption rose at a 5.1 percent clip in the year's first three months, slower than the 5.2 percent previously estimated. The report's price index was revised to 3.1 percent from 3.3 percent previously. So what remains on hope for greenback bulls is the FOMC rate decision and their superhero Chairman Ben Bernanke, the 'BIG B'.

On the other hand however, Eurozone data was reported positive for the 12-nation currency as Europe Money-Supple Growht Quickens and German Unemployment Rate Fell. Germany's seasonally-adjusted jobless rate fell to 10.9 percent in June, the lowest since 2004, from 11 percent in May. For the M3, the ECB's preferred measure of money supply, rose 8.9 percent in May from a year earlier, after gaining 8.7 percent in April. The Frankfurt- based bank says more than 4.5 percent risks stoking inflation.
These quicken growth and employment rate in the Eurozone will leave companies with more room to pass on higher energy costs and labor unions to seek wage increases. Another opportunity and reason for the ECB to raise interest rates to curb inflation.
I'm expecting the ECB to raise interest to at least 3.25% before 2006 ends.

``M3 remains very high and now we have an increasing number of good economic data, which really justifies further rate hikes,'' said Stephane Deo, chief European economist at UBS AG in London.

For Friday tomorrow, we'll have German Retail Sales, French Consumer Confidence and Producer Prices, Italian CPI, Eurozone Business Confidence and Eurozone CPI estimate across the board for the Eurozone. USD data we'll see Personal Income, Personal Spending, PCE, core PCE these are all for the month of May and leaving only Chicago PMI and Michigan Sentiment for the month of June. Across the Eurozone, I'll be expecting higher German Retail Sales BUT a slightly lower French Consumer Confidence. Eurozone Business Confidence and CPI should soar with the current 'hot' economic in the zone. For USD, I'm expecting Personal Income to increase a little and personal spending will increase more than expected due to the higher energy prices for the month of May. PCE and core PCE is still expected to be higher for the month as previous reports has given me a full reason to believe it's coming so. For Chicago PMI and Michigan sentiment, I'm putting my money on lower than expected, partially with lower gold prices and interest rates affecting the daily life of the consumers.

After the rate announcement, I decide to took profit on 1 of my USD/CHF with only a minor profit, probably a few pips. Leaving 3 USD/CHF trades on my trading platform. Well, they do provide me daily interest rates to reduce my daily EUR/USD charges on interest. I've taken another EUR/USD trade at 1.2620 after seeing the huge EUR/USD rally as the market reaction. This really reminds of the situation when the market has fully priced in the hike of 25 bps for the ECB and high expectations of 50 bps then. It didn't happen for 50 bps and 25 bps is still announced. But traders still short the Euro. I'm judging from my own experience to make trades this time.

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Closed/Completed Trades
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Long USD/CHF @ 1.2415, Closed @ 1.2430

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Existing Trades
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Long EUR/USD @ 1.2590

Long EUR/USD @ 1.2620

Long EUR/USD @ 1.2820

Long EUR/USD @ 1.2960

Long USD/CHF @ 1.2480

Long USD/CHF @ 1.2501

Long USD/CHF @ 1.2520

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Trades I'm Expecting
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I'm expecting to continually take EUR/USD trades if the sentiments remains the way it is right now. But IF somehow something came out (I hope Bernanke don't talk silly again this time to the public saying another misunderstood in his statement), I'll be taking profit on every positive EUR/USD trade and take on USD/CHF trade at a lower level. Hedging in anyway possible way for my negative trades.

Conclusion for the day is Euro bulls win and Dollar bulls gets shattered. I'm really glad that my analysis didn't go wrong as I'm seeing the Fed will consider the economic growth issue this time as traders and economists from the whole world are questioning his credibility. I hope to provide myself and whoever's reading my posts with my accurate analysis and hopefully I'm right. GO EURO!