- PBOC’s Zhou: Comments on “fine tuning” monetary policy nothing new. Comment came after Shanghai composite index fell 4.7%
- Norway holds rates steady but says may hike rates sooner than earlier expected
- US trade deficit rises slightly to $27 bln in June from $26 bln in July
- ECB’s Stark: Growth to recover earlier than expected but as a result of stimulus, not final demand
- US wins WTO decision versus China on music, films, books
- US sells $23 bln in 10-year notes at 3.734%; bid-to-cover 2.49%, in-line with average
- US posts $181 bln fiscal deficit for July
- FOMC leaves Fed funds target unchanged; stretches out purchase of balance of $300 bln in Treasuries until end of October from Mid-September; Economic activity “leveling out”
- US bond yields edge up 4 bp to 3.72%
- S&P 500 rises 1.1% to 1005
Stupid. That’s pretty much the only way to describe today’s insanely volatile price action.
The morning wasn’t very volatile; in fact, it was one-way traffic. GBP,AUD, CAD and the like all recovered recent losses and set off massive short-squeezes after overcoming important areas of resistance. All look to have bottomed on the short-term charts. Same for EUR/USD, though it was a tad more muted than the others.
USD/JPY took off like a shot this morning as US equities began a strong rally. It reached 96.30 ahead of the Fed.
Ah, the Fed. Even though they acted largely as expected, the forex market got very sketchy. The risk trade saw rapid profit-taking on the assumption that US long-yields will rise but it soon took back those loses, led by equities. Traders largely saw the Fed statement as a vote of confidence in the economy’s ability to thrive with dwindling amounts of support from the Fed.
USD/JPY, like all the majors, saw major volatility in the minutes after the Fed. It jumped to 96.75 on hopes for higher yields but fell to 95.75 when it became clear those yield rises would not come today. USD/JPY ended up at 96.10, right where it was ahead of the data.
The central banks had a field day today. China bought EUR/USD below 1.41, the Middle East bought GBP/USD near its London lows, offloading it into strength at 1.6555/60. China bought AUD near 0.8180 and sold it this afternoon at 0.8368. Not a bad days work.
What have we learned? We’re in a really choppy summer range and algos are at the helm. When they are short, they buy until they are square. No matter the consequences. When long, just the opposite. If you get caught in the middle, you just provide liquidity for them. I don’t expect it to get any easier until well after Labor Day.
New York ranges
EUR/USD: 1.4122/1.4146
USD/JPY: 95.70/96.80
GBP/USD: 1.6425/1.6560
AUD/USD: 0.8217/0.8373
USD/CAD: 1.1050/1.0850
