FOMC sparks FX volatility

The FX markets have seen a lift in volatility since the FOMC meeting last Wednesday and intra-day price action is certainly not for the faint-hearted. This scenario is to be expected following the FOMC’s forward guidance that makes any monetary policy adjustments completely data dependant. The US inflation data released yesterday gave the dollar a temporary reprieve with what could be summed up as a ‘not as bad as expected’ outcome. Market participants are even suggesting the data was robust and that the recent pessimism around the US data is nothing more than weather-related that has temporarily disrupted the West Coast ports. The US interest curve is seen as being too negative and the market has overreacted to the FOMC’s ‘dot plot’ interpretation last week, at least according to the US global investments banks. The price action indicates to me that this dollar correction still has some mileage in it as rallies remain anaemic.

The Asian session focused around the NZD and disappointing trade data for February that revealed a surplus of  50 million NZD versus the expectation of  350 million. The detail revealed that exports in dairy products were 25% lower as shipments to China have declined 36% on the year.

Sterling has traded off the benign inflation data lows released yesterday following comments from BoE deputy governor Minouche Shafik, who commented that despite the fall in inflation to zero the next move in rates is still likely to be up.

The market will focus on the volatile Durable Goods release from the US this afternoon, which is likely to remain subdued on the back of adverse weather in February. The market will look for any comments on the situation in Greece as Athens celebrated independence day.

EUR/USD
Supports 1.0780-1.0615-1.0580 | Resistance 1.1030-1.1045-1.1470

USD/JPY
Supports  119.30-118.65-116.70 | Resistance 120.00-121.55-122.45

GBP/USD
Supports 1.4830-1.4635-1.4550 | Resistance 1.4990-1.5030-1.5170