No Love for the Buck Post FOMC

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Market Drivers July 28, 2016

Dollar down across the board post FOMC
GE Employment improves
Nikkei -0.69 Dax 0.05%
Oil $42/bbl
Gold $1349/oz.

Europe and Asia:
AUD Export Prices 1.4% vs. 2.9%
EUR GE Unemployment -7K vs. -2K

North America:
USD Weekly jobless claims 8:30
USD Trade in Goods 8:30

The dollar continued to be sold in Asian and early European trade in post FOMC reaction as markets became more and more convinced that the Fed has no intention of hiking rates in September despite issuing a generally upbeat communique yesterday.

The FOMC statement yesterday noted that “On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months” and “household spending has been growing strongly.” However the Fed tempered expectations by cautioning that, “Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.”

The later sentence provided US monetary officials with plenty of wiggle room to hold rates steady until December at very earliest. And in all fairness to FOMC policymakers there was very little chance that US officials would make any interest rate changes ahead of the US election in November. Although the Fed maintains its apolitical status, the wildly polarizing tone of this year’s election has no doubt made most Fed officials highly fearful of causing further turbulence in what already could prove to be a very volatile environment for the capital markets.

Therefore after a knee jerk reaction higher, the buck started to slip against all the majors in late North American trade yesterday and has continued to drift lower as EUR/USD popped back above the 1.1100 figure and USD/JPY dropped below 105.00. The Euro was also helped by the better German employment data which unemployment rolls decline by -7K versus -2K eyed as the engine of Eurozone growth shows no serious signs of a slowdown.

In today’s North American session the calendar is light with only weekly jobless and US Trade data on the docket sp price action may remain muted for the rest of the day as markets prepare themselves for tonight key decision from BOJ. All week long USD/JPY has been travelling a volatility rollercoaster with traders trying to gauge the true scope and size of the proposed stimulus package. Anything less than 20T yen will likely be seen as massive disappointment and could shave a couple of big figures from USD/JPY. For now however, the markets should remain within range for rest of the day.

Boris Schlossberg
Managing Director

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