Chaos in Currencies Continues

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Market Drivers March 19, 2015

Euro puts in another massive volatility night
SNB keeps rates on hold
Nikkei -.35% Europe .17%
Oil $43/bbl
Gold $1165/oz.

Europe and Asia:
NZD GDP 0.8% vs. 0.8%
SNB rates steady

North America:
USD Weekly Jobless 8:30

USD Philly Fed 10:00

Another day of very high volatility in the EUR/USD as the post FOMC reaction continued to wash over the currency markets in Asian and early European trade. The euro saw a 300 pip move rising to a high of 1.0920 before dropping to a low of 1.0630 as massive speculative flows pushed the currency around in some of the most volatile action in its history.

As we have been noting all week the very heavy skew in sentiment in euro was ripe for a correction and yesterday’s dovish FOMC statement that suggested the Fed is likely to keep rates on hold through June and possibly even through September provided a perfect excuse to liquidate dollar longs.

The process was clearly exacerbated by end of day flows when EUR/USD spiked more than 100 points in a matter of seconds ripping through the 1.1000 barrier and setting off more buy stops in turn. The volatility over the past 24 hours has been truly historic in its nature with moves not seen since the credit crisis of 2008. In fact, although the amplitude of the moves in 2008 was greater, on a percentage basis yesterday’s spike was bigger and is a testament to how badly the EUR/USD was oversold.

The volatility may continue, although it will likely begin to temper over the next few days. However, the FOMC has clearly changed the landscape with yesterday’s meeting and rate hike expectations will be much more muted especially if US data continues to disappoint. Today the market gets a looks at the weekly jobless claims and the Philly Fed numbers.

The market is looking for a small bump in Philly Fed to 7.2 from 5.2 the month prior but given the fall in Empire earlier this week, the Philly data could miss as well, especially because of the challenging weather conditions in the Northeast. Overall, the currency market is likely to become much more sensitive to US data releases and will be much less forgiving of any slowdown in US economic activity. All of this argues for further dollar correction with EUR/USD possibly pushing back towards the 1.1000 level albeit in a much more orderly fashion while USD/JPY tests support at 118.50.

On the other hand if economic activity picks up in the next several months the dollar rally will resume in force with parity once again the target of the greenback bulls. For now however, we are clearly on pause with two way volatility the order of the day

Boris Schlossberg
Managing Director

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