News & Data:
FOMC Meeting Highlights:
The US Dollar weakened sharply after the FOMC as the statement was more dovish than market participants anticipated. The Fed dots projections were lowered quite substantially, with the median forecast now projecting two rate hikes this year (0.625 %) vs four previously. The 2016 and 2017 dots for interest rates were also lowered by 0.625 % and 0.50 % respectively. While the FOMC members sounded quite upbeat on the US jobs market, they see inflation running lower for an extended period of time amid a strong US Dollar pushing down import prices and declining energy prices.
Given the crowded positioning in the FX market, it was not surprising to see USD longs running for the exit post-FOMC, but liquidity was indeed unexpectedly poor. EUR/USD rallied to 1.1050, only to drop 200 pips a few minutes later. Similar price action in most of the other major pairs, with GBP/USD reaching a high of 1.5150 (up almost 550 pips from the day’s low) and USD/CAD falling to a low of 1.2450. USD/JPY was quite stable and remained well bid considering everything. 119.30 is the overnight low and the overall uptrend remains intact, as long as the pair is trading above 116.00.
Looking ahead, we have the Swiss National Bank rate decision at 0830 GMT, followed by the Norwegian CB rate decision half an hour later.