2012-12-12 22:21 (UTC)
XE Market Analysis
Trade was very quiet through the morning session in N.Y. on Wednesday, as most waited on the FOMC announcement at 12:15 EST. FOMC announced QE4 with $45 bln in purchases in Treasuries per month, in conjunction with the $40 bln in MBS. That was well expected. The surprise of the statement, though, was that threshold targets were announced, the "Evans Rule," with the Fed indicating it will keep rates low as long as the unemployment rate remains above 6.5%, and as long as inflation projections (one to two years out) are no higher than 2.5%, and longer-term inflation expectations continue to be well anchored. The dollar fell broadly after the FOMC announcement, as the Fed extended its bond buying program into 2013. EUR-USD popped over 1.3075 from near 1.3040, while USD-JPY moved briefly under 83.00 before recovering. Equities recovered, posting moderate gains.[EUR, USD]
EUR-USD made steady upside progress over 1.3025 through the morning, with sentiment holding up after yesterday's move over 1.3000. Fund offers layered at 1.3040-50, slowed the uptrend ahead of the FOMC, though buyers returned in force after the Fed announced more QE. The pairing shot up to just shy of 1.3100 in early afternoon dealings, and held its bid into the close. There was no impact from eurozone industrial production, which was well down in October, while the Italian bill auction went relatively well considering the political backdrop. Refinancing costs fell and cover was also high.[USD, JPY]
USD-JPY cracked 83.00 in advance of the FOMC meeting, with some suggesting over a "yard' of dollar buying on the break, which coincided with option barriers at the figure, subsequently tripping buy-stops positioned there. A U.K. name was a noted buyer, though intra day shorts threw in the towel as well. Spillover momentum carried the pair to highs of 83.25 from the start of the move near 82.90. USD-JPY dipped under 83.00 after the Fed, though quickly recovered to new highs near 83.20 into the close. On the chart, USD-JPY moved through 82.94 resistance and then resistance between 83.00 and 83.15. Sources report more hedge fund demand noon for yen puts with barriers from 85.50 to 86.00.[GBP, USD]
Cable benefited from risk appetite, which fueled a move out of 1.6095-00 in early Europe to session highs over 1.6140. GBP-JPY's rally from 133.00 to early April highs around 133.70 was a factor in the upturn. U.K. employment data was encouraging once again, which helped Cable to a five week high. Stops are tipped over 1.6150, which is close to the upper bollinger band and will be a turning point for weak shorts intra-day. Pullbacks are likely to be contained by 1.6100 expiries, which are rolling off tomorrow, though after the FOMC outcome, cable ramped up over 1.6170. U.K. CBI industrials trends on Thursday is likely to be more of a challenge for GBP traders and may reaffirm triple-dip recession risk.[USD, CHF]
CHF maintained softer levels after it fell after Tuesday's European open amid SNB policy speculation. EUR-CHF took off from 1.2080 over 1.2125 after UBS confirmed it would introduce deposit fees on CHF balance from December-21, which was widely tipped last week. However, it triggered talk that SNB could introduce negative rates on Friday or raise the floor of the lower limit in EUR-CHF above 1.2000. However, we expect the SNB to maintain policy status quo on Thursday. USD-CHR headed lower after the FOMC, dropping under 0.9245, after trading sideways near 0.9280 through the morning.[USD, CAD]
USD-CAD was quiet through the morning session, as traders stayed sidelined into the FOMC announcement. Later, the pairing gave the 0.9850 level a quick look before rebounding some, though after the FOMC, was forced through bids at the level, tripping sell stops just underneath. The pairing posted a low of 0.9827, levels last seen on October 18, though from here, bids were seen building from 0.9820, which put a floor under it.