ForexLive US wrap: Fed to stay lower for longer; QE very much on the table

FOMC says rates will stay near zero through the end of 2014, sets a 2% inflation target based on PCE; ready to take further action if inflation falls further and unemployment remains elevated; Majority of FOMC members see first rate hike in 2014 or beyond German metal workers seek 6.5% raise US pending homes sales fall 3.5% in December; market expected 1% fall IIF to send team to Athens Thursday to continue debt swap talks Merkel rejects call for doubling rescue funds RBNZ holds rates at 2.5%; Strong NZD hurting exporters Geithner says won't serve a second term if Obama reelected S&P 500 rises 0.9% to 1326; Milan falls 0.6% US 10-yr note yield falls 6 bp to 2%, trades as low as 1.915% intraday WTI rises $0.92 to $99.87, Gold soars $46 to $1711 on easy Fed EUR/USD opened the US session on its lows, in the 1.2930s but rebounded to the 1.2990 area before Easy Ben Bernanke said he will not raise rates until well into President Romney's second term. That's all Mr.Market needed to hear. He sold dollars and bought gold with both hands, figuring the Fed has set the stage for a third round of quantitative ease. Stops above 1.3080 but 1.3100 put up a fight for a time. We sold off once to 1.3040 but soon broke 1.3100, tripping more stops before reaching 1.3121. Medium-term, the move through 1.3080 confirms a bottom in place at 1.2625. USD/JPY rallied sharply this morning, rising to 78.29 amid heavy options-related buying. That's what happens after markets remain range-bound for months...Complacency sets in and everyone sells options. Eventually a break-out comes and the world needs to scramble to cover short gamma. The rally stalled about 6 pips shy of the 200-day average at 78.35. Commodities currencies soared on the Fed, just as it has each time the Fed hints another round of asset purchases is at hand. By the time they finally start buying assets, (some see March as the start) the trade is usually overcooked. AUD reached 1.0621, USD/CAD 1.0025, the lowest in nearly three months.