Greenback rallies against the majors

The dominant theme in the FX space was US dollar strength on the back of the Fed’s decision to start winding back on asset purchases. 

Price action was choppy to say the least in the major FX pairs, as traders tried to decipher the Fed’s statement and press conference. Ultimately the consensus was that the decision was positive for the USD and the majors were sold against the greenback. USD/JPY has been bid significantly higher and traded at its highest level since October 2008 today. The pair has been on a tear for the past few weeks with traders taking advantage of any dips and using them as an opportunity to buy.

The BoJ will be cheering the result and it’ll be interesting to see how this influences tomorrow’s central bank statement and press conference. USD/JPY printed a high of 104.37 this morning and traders just seem a bit sceptical about pushing the pair higher at these levels. It’s all about the pullbacks now and as long as US data can continue to show signs of strength, it is hard to falter the huge uptrend the pair is in.

Later today we have unemployment claims, existing home sales and the Philly fed manufacturing index out of the US. Any further signs of strength in the US economy will be positive for USD/JPY. At the same time, the BoJ will be looking to out-dove the Fed and ensure the rally remains intact.

Pound remains resilient against the greenback

Risk currencies gave up ground to the greenback, resulting in some falls for key currency pairs like EUR/USD and AUD/USD.  EUR/USD had traded at a high of 1.3812, but this was short lived as it gave back all these gains and some more on the back of the Fed. The pair dropped to as low as 1.3668, but has since started to slowly make its way back towards 1.37. The eurozone is facing significant headwinds as strong economic data continues to underpin the single currency while several nations in the region struggle. A weaker euro will be welcomed by the ECB and just like the BoJ and RBA, out-doving the Fed will be the goal in the near term.

There is no data out of the eurozone today, but it’ll be interesting to see how the ECB manages the currency going forward. One currency that held its ground fairly well against the greenback was the pound which remains just shy of 1.64. BoE MPC minutes continued to show optimism on the economy. Retail sales data due out of the UK later today is expected to show a 0.3% rise which is a marked improvement from the previous reading of -0.7%. This could see cable trade back above 1.64.

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