Overall: The story during Wednesday’s N.Y. session continued to be the dollar's inverse correlation to oil prices, but a new factor was added after the FOMC signaled on Tuesday that rates would be staying on hold. With growth decelerations now expected in a number of economies, speculation is rising that central banks from the U.K., Canada, Australia and possibly Europe will enter an easing cycle as the Fed stands pat. Decreases in yields are likely to be seen in Government debt outside the U.S. as treasury yields rise, thereby reducing spreads in favor of the dollar.  Sentiment on the dollar is likely to be further improved as the Federal Reserve remains the only central bank whose borrowing costs are negative relative to inflation, and as it continues lending to Wall Street’s biggest investment banks and brokerages via its special lending facilities at least through January 2009.

The euro  declined as oil entered bear market territory during N.Y. trading. There was further bad economic news yesterday from Europe's largest economy ahead of Thursday's ECB rate decision and press conference. Preliminary data from the Ministry of Economics and Technology said that German manufacturing orders fell 2.9% in June, while revising its May figure down to a decline of 1.4% from a 0.9% decline. Manufacturing orders fell by 6.1% in the year to June. From here, further direction for the euro may be set when ECB President Trichet speaks during the press conference after Thursday's decision on interest rates.

The pound continued its decline from the break of channel support on July 29. There was more bad economic news from the U.K. after the Nationwide Building Society, Britain’s second-largest mortgage lender, reported that its July index of  consumer confidence fell 11 points to 51, the most since the survey began in 2004. The fall in confidence was blamed on falling house prices, increased unemployment and accelerating inflation. In a separate report, the National Institute of Economic and Social Research revised its estimate of U.K. GDP to 0.1% for the second quarter, after previously estimating GDP would be 0.2%. The Bank of England is expected to hold rates steady at its Thursday meeting.

The aussie added to its 2.5% decline this week after the Bureau of Statistics reported that rising borrowing costs and tougher lending conditions caused home loans in Australia to slide for the fifth straight month in June. Mortgage commitments are now at their lowest level since June 2004 and have declined by 23% so far this year. The result will probably put more pressure on RBA Governor Glenn Stevens, who said Tuesday that "with demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing."  AUD/USD hit a four month low after the spread between Australian government 2 year debt and similarly-dated treasuries shrank to the least this year.

The cad continued to rise Wednesday from its break of trend line resistance on July 25 after oil and other commodity prices continued to decline and as speculation increased on a rate reduction from the Bank of Canada. On Tuesday, USD/CAD closed above the high made on January 22. A report on building permits will be released on Thursday morning at 08:30 EDT.

The swissy rose as equity markets rebounded from the day’s lows, reaching its highest level since the May 2 and May 8 highs. Valuations on the pair are really driven by the S&P, which found resistance on July 2 and July 23 at the .382 fib extension of the May to July market sell-off on 1294. During its latest run, the S&P has also made a series of higher lows; That trend may have been continued on Tuesday as the S&P bounced well off the daily low.

The yen traded lower after the Japanese government acknowledged that the economy is “deteriorating,” and that “there is a high possibility the economy has entered a recession," according to Shigeru Sugihara, head of business statistics at the Cabinet Office. Overall exports fell in June for the first time in 55 months, factory output has fallen for two straight quarters and Japan’s jobless rate rose. Toyota recently fired 800 workers because of falling U.S. demand for SUV’s. The government based its assessment of the economy on the coincident index.

Disclosure: No stock positions

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