Risk currencies struggle as the USD rallies

It has been all about the USD over the past 24-hours or so, as investors reacted to the outcome from the FOMC meeting. 

Source: Bloomberg

While the initial comments were mostly construed as dovish, from the price action it is clear there has been a hawkish shift in sentiment. Initially, focus was on the fact the Fed maintained the line that it likely will be appropriate to maintain the current target range for the Federal funds rate for a considerable time after the asset purchase program ends. Many analysts were expecting this to be revised to a more data-dependant outcome rather than a timeline-dependant one. The key was the dot plot analysis, which showed a 0.25% upward revision to the median Fed funds rate expectation for the end of 2015 and a 0.375% upward revision for the end of 2017.  

Traders looking to sell AUD/USD on strength

Overall, the greenback gained ground across the board, with significant gains against the yen and the risk currency complex. After having recovered on the back of China stimulus news, AUD/USD was smashed lower upon retesting the $0.9100 handle. The pair dropped to a low of 0.8939 early in Asia, but has since recovered a touch. However, the price action is in a sharp short term downtrend and it’s likely traders will continue to look selling the pair into strength.

There is still significant event risk heading into the end of the week and attempting to buy the pair at current levels would be a risky move. With the Scottish referendum, Europe’s TLTRO allotment and Janet Yellen speaking again tonight, caution is warranted, but certainly shorts on risk currency pairs seem to carry higher probability.

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