Greek, Fed and SNB Speculation Dominates, Aussie Data Due

Markets tingled with anticipation on Tuesday about the FOMC meeting and a resolution to the latest round of Greek aid talks. JPY and GBP were top performers while CHF and CAD lagged. Japanese trade data and Australian inflation expectations are up next. Ashraf's Premium trades ahead of tomrrow's FOMC decision are activated. " new trades on EURUSD, EURGBP, EURJPY, S&P500 E-mini, gold and silver.

Rumours of a hike in the EUR/CHF peg jumpstarted trading on Tuesday and sent the pair to 1.2240 in a heartbeat. The chatter turned out to be false but the pair was able to stabilize around 1.2150.

Outside of CHF, market moves were relatively small as the traders anticipate the FOMC decision on Wednesday and the release of the next 8 billion aid tranche for Greece.

Speculation the aid could be approved imminently drove EUR higher in early trade despite the Italian downgrade. Near the end of the session stocks and risk appetite slipped on a Greek news agency report that the decision would be delayed until early October. This report later proved false and the result of Tuesdays Troika teleconference was a dud leaders said there was progress and that they will continue to meet on the weekend.

FOMC speculation is centered on a roughly 70% chance that an Operation Twist will be announced that includes $200-$400 billion in short-dated sales that will be reinvested at maturities around 10 years. There is also a roughly 40% chance of cut to the 0.25% rate of interest on excess reserves. We estimate the chance of a QE3 announcement at around 10% but the market may sell USD and buy gold ahead of the decision on the outside chance that this occurs.

Overall, we expect choppy trading through the FOMC decision as this will be new territory for the Fed and the market.

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Economic news was light but US housing starts fell to 571K in August from 601K in July and missed the 590K consensus. The IMF downgraded its global growth forecast to 4.0% from 4.3%.

Asia-Pacific Preview

Japanese trade balance data will be released at 2350 GMT with a 300B deficit expected following the 72B surplus reported in July.

At 0100 GMT, the focus turns to Australia and the Melbourne Institutes consumer inflation expectations report. Last month, the survey stood at 2.8% for the coming year but that may decline due to revisions lower in the CPI.