Dissecting the Fed's Intriguing Moment

Editor's Note: This is a bonus story from Marc Chandler, whose commentary usually appears only on RealMoney. This column originally was published at 8:38 a.m. EST Monday. We're offering it today to TheStreet.com readers. To read Chandler's commentary regularly, please click here for information about a free trial to RealMoney.

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The greenback was remarkably resilient over the past week, despite the larger-than-expected trade deficit and the larger-than-expected fourth-quarter current account deficit, the main cause of the dollar's decline for so many bears out there. I too had thought the risk on the greenback was on the downside.

Important support for the euro is seen in the $1.3230-50 area. This area was tested ahead of the weekend and it held. However, a convincing break of this could signal another cent decline. On the upside, a move above $1.3360 would help rebuild a more positive technical tone for the euro. Against the yen, the dollar remains confined to narrow trading ranges and my warnings last week of a breakout proved for naught.

Frankly, foreign exchange looks boring compared to the fireworks in the fixed income market. And barring a surprise from the Federal Reserve, this is unlikely to change.

And Now For Something Completely Different

In what is as done of a deal as has ever been done, the Federal Reserve will raise the fed funds rate by another 25 basis points Tuesday, just as it has done each time it has met since June of last year.

The Fed could hardly be more transparent of its intentions to raise the target to 2.75%. Banks and investors use to pay good money to "Fed-watchers" who would pore over tons of data and official comments to divine what the Federal Reserve would do. With the advent of the Fed funds futures market, these latter-day oracles have largely gone the way of buggy-whip makers. Not to mention that the market also provides policymakers with a feedback loop they can use to monitor expectations.

Judging from the recent official commentary, Fed officials seem comfortable with market expectations. The fed funds futures contracts imply that the fed funds target will be lifted by 25 basis points not only at the March 22 meeting, but also at the May 3 meeting and again at the June 30 meeting, so that the rate will stand at 3.25% at midyear.