After a higher New York opening the Euro reversed its course after the S&P Corp. downgraded Spain to AA status. Although the Euro reached a new low for the year, the selling pressure was not as intense as Tuesday’s. This could be because traders had expected it.

Today’s action seems to be indicating that traders have faith that a resolution between Greece and the EU/IMF will be reached soon. This could be the reason for less aggressive trading on the short-side. In fact, the way the market is trading going into the mid-session, it looks as if bottom-pickers are stepping in and may send the Euro higher before the end of the day.

Bearish traders should be cautious at current levels so they don’t get caught in a closing price reversal bottom formation. There are plenty of shorts still in the game, but it isn’t going to take much to encourage the weaker shorts to cover fresh losing positions.

It looks as if traders are going to back away from aggressively shorting the Euro as long as the EU/IMF is still working out the details of the bailout. If anything should happen during the negotiations and talks were called off, then look for the Euro to plunge. As long as the bailout dialogue is open, it appears as if traders have priced in the worse case scenario for the time being.

Look for the Fed to leave interest rates unchanged at current historically low levels. Traders should pay attention to the language of the policy statement. Although the Fed is expected to say that rates will remain low for “an extended period” some believe they may soften the tone a bit. This slight shift in language could help strengthen the Dollar into the close.

The Fed is also expected to say that unemployment and housing remain a concern as well as the lack of bank lending. Also look for the FOMC policy statement to say that the economy is expanding and that inflation is subdued.