FOMC adds to dollar strength

The dollar is trading towards recent highs this morning versus the euro and pound at 1.3700 and 1.6000 respectively following what has been deemed a slightly hawkish statement from the FOMC. The removal from the September language that noted ‘tightening financial conditions’ has left the market with a possibility that tapering in December may be a possibility despite the government shutdown and a below consensus NFP reading. The Federal Reserve did acknowledge that recent data had shown a slowing in the pace of the US housing recovery. I don’t expect tapering to begin until March 2013 unless we see some very strong US data in November which will be in contrast to what we have seen since the US government re opened.

In other news the BoJ meeting passed without volatility which the market had expected, with no change to the policy outlook as GDP was revised slightly higher for 2014. A comment from ECB’s Ewald Nowotny kept the euro under pressure as he hinted at further LTROs on CNBC with ‘there will be further liquidity provisions’. Finally the NZD rallied half a cent following the release of the RBNZ statement, which suggested the strength of the exchange rate would lower inflationary pressures possibly preventing the New Zealand Central Bank from raising interest rates.

Today’s economic calendar is second tier with the HICP reading from the EU this morning with initial jobless claims from the US and Canadian GDP the highlights for the US session. The FX markets are likely to be dominated today by month end rebalancing which is likely to show dollar supply following the larger moves in US markets this month.

EUR/USD

Supports 1.3680-1.3650-1.3600 | Resistance 1.3780-1.3850-1.3910

USD/JPY

Supports 97.80-97.30-96.50 | Resistance 98.80-99.30-100.00

GBP/USD

Supports 1.5980-1.5930-1.5900 | Resistance 1.6080-1.6150-1.6210