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ForexLive US wrap-up: Fed provides catalyst for brief 1.40 break

  • Fed holds rates steady, maintains “extended period” language; ends swaps with foreign central banks; Hoenig dissents, wanted “extended period” excised from statement
  • US Nov factory orders revised lower after error discovered; will have negative GDP ramifications
  • US new home sales fall 7.6% in December
  • December ISM data revised lower after seasonal adjustment shift
  • German preliminary CPI falls 0.6% in December, rises 0.8% y/y
  • Chicago Fed manufacturing index dips to 84.1 in December from 84.4 in Nov
  • Sarkozy in Davos: Agrees with Obama on prop trading, bank hedge funds
  • US sells $42 bln in 5 year notes at 2.37%; bid to cover 2.80
  • S&P 500 up 0.5%; 10-year note yield rises to 3.65 from 3.83
  • Copper falls 4.2%; oil down $1 to $73.70; Gold falls $10 to $1087

Wow.

Ranges were not huge today but there was plenty of action. EUR/USD made a number of probes to the 1.4020s this morning but options-related buying by China ahead of 1.40 exotic triggers helped support the EUR despite growing fears in European credit markets. Greece, Portugal and Spain were all in the spotlight today and it was unforgiving. Spreads over benchmark  German debt widened dramatically today, undermining the EUR.Rallies in EUR/USD were limited to the low 1.4060s intraday.

EUR/USD finally broke hard to the downside after the FOMC statement was released. A modest upgrade in the Fed’s economic assessment combined with a dissenting vote from KC Fed’s Hoenig (which some see as a precursor to the Fed modifying its dovish verbiage down the line) helped spark a push lower which saw 1.4000 barriers successfully triggered late this afternoon. Prices trades as low as 1.3993 on EBS. EUR opened at its 1.4088 high in New York and closes in the low 1.4020s. 1.3980 stops are rumored below the market.

USD/JPY fell early in the day on risk aversion but as the day wore on it took on a life of it own. The fallout from the manufacturing shutdown by Toyota played a role as fewer JPY will need to be repatriated in coming weeks. Firmer US yields after the Fed helped as well. pushing USD/JPY through 90.00. 89.21 was the New York low while 90.09 was the high.

AUD/USD fell with EUR/USD, reaching 89.12 late in the US afternoon. Risk aversion was a drag throughout the session.

Cable gave ground for much of the US session as risk aversion and dollar strength offset earlier inflation fears after hawkish comments from the MPC’s Sentance. It slipped as low as 1.6140 before stabilizing 1.6240 was the New York high.

USD/CHF has a rare day in the sun today, overcoming important resistance just above the 1.0500 level. Highs of 1.0527 were recorded.

Tonight’s focus will be the State of the Union address by President Obama. If he continues his recent populist rhetoric (which he almost certainly will), look for US equity futures to fall and take EUR/USD down with it. That has been the recent pattern.




Disclosure: No positions