By far the most important fundamental release scheduled for this forex trading week is the U.S. Federal Reserve’s FOMC interest rate decision, slated for Wednesday, 24 June 2009, 6:15 PM GMT (Thursday, 25 June, 4:15 AM Canberra time). There’s little suspense regarding the rate decision itself; markets widely anticipate steady rates at 0–0.25%; however, traders are widely debating the tone of the announcement itself with its discussion of the general economic situation—whether the FOMC sees the U.S. economy as still cooling down, finally heating up, or lukewarm at best.

The bulls seized control of global risk appetite in February, pushing commodities and equities prices higher and causing rapid appreciation of growth currencies such as the Canadian, Australian, and New Zealand dollars, generally at the expense of safe-haven currencies such as the U.S. dollar, Japanese yen, and Swiss franc. However, the bulls’ outlook on the global economy has waned in the past few weeks, with expectations for rising inflation and therefore higher interest rates unwinding amidst continued releases of mixed economic data that indicate no such result, at least not in the short term.

Since late May but most particularly since early June, many currency pairs have traded within narrow ranges as the bulls’ control waned and the bears pushed back. This has created some pent-up tension within the forex trading market, positioning several major currency pairs near key support and resistance levels, and many traders are therefore watching the FOMC announcement as a potential event trigger.

Should the announcement strike a more bullish tone than the one of 28 April, the bulls should breathe a sigh of relief and re-enter the markets with gusto, pushing commodities, equities, and growth currencies higher and weakening USD and JPY. This could also initiate the conversion of a number of bears into bulls, strengthening their position and reinstating their domination of the markets.

However, if the announcement is dovish or if additional quantitative easing measures are initiated, the potential scenarios are rather more mixed. Although a sharp and serious correction remains possible, with investors shifting their capital from equities, commodities, and growth currencies to bonds and safe-haven currencies, this scenario seems less likely than it did earlier in the year. More likely scenarios include a more modest correction or even further rangetrading, with investors awaiting better news down the road.

Forex traders are advised to watch their technical indicators and their chosen currency pair’s price action closely in the first minutes following the announcement. Volatility can be expected, particularly in a dovish scenario, and therefore traders will wish to keep their stops trailing and tight enough to lock in profits without being so tight they’re triggered accidentally, costing pips and profits.

The second important release is the New Zealand 1Q2009 GDP print scheduled for Thursday, 25 June 2009, 10:45 PM GMT (Friday, 26 June, 8:45 AM Canberra time), and this release may be traded at face value. Markets are expecting a decline of −2.3% y/y. A worse reading could see the currency depreciating, particularly against AUD, while a better reading could see continued range trading or further appreciation against the RBNZ’s wishes.