The Federal Open Market Committee minutes last night sucker-punched a fresh attempt at a USD rally, as most of the headlines emerging from the minutes had a dovish tone, especially the beginning paragraph: “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalisation had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.”
To be fair, we have to remember that this meeting came before the last, stellar January US jobs report and just as the US dollar was peaking out in the wake of the traumatic revaluation of the Swiss franc.
There was also a silly debate on when to drop the word “patient” on the risk that the market might focus on a specific date. This just goes to show how afraid the Fed remains of its own shadow and the pitfalls of the entire “forward guidance” approach once a central bank approaches an actual inflection point on policy. Everyone at the Fed should be required to read Nassim Taleb’s Antifragile…
Today’s action should tell us whether there is any follow-on potential from yesterday’s developments, which saw the market taking out about 8 basis points of Fed rate hikes through the December Fed Funds future as of this morning. The timing of the FOMC meeting and the fact that the market’s expectations were already dovish leads me to suspect that any further USD selling on this will be limited.
The Aussie rally against the US dollar was short-lived in the wake of the FOMC minutes as the S&P ratings agency was out waving the red flag on Australia’s budget deficits. Although it kept the AAA rating and outlook steady, the ratings agency fretted about the country’s fiscal trajectory if the commodities bust continues, as this would risk a further erosion of Australia’s tax receipts and an acceleration in the growth of Australia’s sovereign debt.
The Czech koruna jumped stronger yesterday on an interesting political development as Czech president Miloš Zeman said that the next central bank governor must support euro adoption. He was also critical of the central bank’s policy to weaken the koruna, in very stark language.
EUR/CZK is now trading within a percent of the floor declared by the Czech central bank back in late 2013. The current Czech National Bank chief Miroslav Singer’s term doesn't expire until July of next year. See Bloomberg article for more information.
Note that today sees the release of the ECB’s first ever meeting minutes – which should provide for interesting reading, especially on the internal debate among the various factions within the ECB, just as the FOMC minutes do the same.
Uncompromising comments from the Czech president have prompted fears the CNB might unexpectedly scrap the euro-koruna floor. Photo: iStock
Chart: USD/JPY
USDJPY remains in limbo as the Ichimoku cloud continues to hang in there as support overnight. The lack of bigger momentum off the FOMC minutes last night suggests the bears still don’t have a case unless we follow through down below 118.10 immediately. The upside trigger is perhaps down at 119.50, near the recent high, but a close above 120.00 is really needed to reinvigorate upside expectations. 
The G-10 rundown
USD: FOMC minutes were dovish, but remember the timing of the meeting and the fact that the market was already looking for dovishness. Lack of follow through today would embolden USD bulls, but seeing is believing.
EUR: EUR/USD has been a miserable chop-fest in the range. Let’s see if the ECB minutes spark any volatility. One supposes there might be an upside risk in some of the euro crosses as these minutes will likely show that dissenting voices are more hawkish.
JPY: A mystery wrapped inside an enigma at the moment. Let’s watch that daily Ichimoku in USD/JPY which we’re still trading above. The upside trigger there has perhaps dropped to 119.50.
GBP: Yesterday’s strong batch of data sees EUR/GBP to new lows, but here we are back in the range this morning – watch the
ECB minutes for further info on whether the attempt to re-establish the EUR/GBP bear market succeeds. GBP/USD: the upside focus is on whether the 1.5500/50 serves as effective resistance.
CHF: Weak across the board on the ongoing recovery in EUR/CHF, perhaps on the assumption that the Greek situation will continue to clear before the weekend.
AUD: Punished overnight on the S&P ratings agency fretting the fiscal trajectory of the economy. This saw AUD/NZD to new all-time lows and keeps AUD/USD in the range. Still, first downside trigger in the latter is not until 0.7750 and we would need to see the USD recovering more broadly to express downside interest right away.
CAD: Could be one of the more interesting pairs to fade USD weakness as oil has weakened again from recent highs and the range has held nicely so far. A challenge above 1.2500 gets USD/CAD back on the rally track.
NZD: Pulling stronger as the flipside of AUD negativity. Still looking for eventual mean reversion from NZD strength, but we need a catalyst.
SEK: Recent lows in EUR/SEK just below 9.50 important support if we’re to maintain upside view. NOKSEK might be a better way to express SEK upside interest if the SEK is looking to confirm here.
NOK: Renewed oil sell-off pressuring NOK slightly again as we watch for whether EURNOK can rally off this base around 8.55. Prefer looking for ways to express bearish NOK view. Economic Data Highlights
- Japan Jan. Adjusted Trade Balance out at -¥406.1B vs. -¥598B expected and vs. -¥620.7B in Dec.
- New Zealand Feb. ANZ Consumer Confidence out at 124.0 vs. 128.9 in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- Eurozone Current Account (0900)
- UK Feb. CBI Trends – Total Orders and Selling Prices (1100)
- ECB to Publish Account of Monetary Policy Meeting (1230)
- Poland National Bank publishes meeting minutes (1300)
- Sweden Riksbank Deputy Governor Janssson to Speak (1330)
- US Weekly Initial Jobless Claims (1330)
- US Feb. Philadelphia Fed Survey (1500)
- Eurozone Feb. Consumer Confidence (1500)
- US Jan. Leading Index ()1500)
- Eurozone ECB’s Weidmann to Speak (1630)
- Canada Bank of Canada Deputy Governor Cote to speak (1715)
- Japan Feb. Preliminary Markit/JMMA Manufacturing PMI (0135)