Global FX: Fed Remarks Ripple Through Trading

Following dovish comments from Fed's Kocherlakota and Fed's Fisher who cautioned on over-interpreting the latest FOMC decision, a dovish stance was also echoed by ECB and BoE this morning, which in turn resulted in an aggressive flattening of short-term rates in Europe and the US. In particular, ECB's Coeure said that our exit is distant and our monetary policy will remain accommodative. Non-standard measures will remain in place as long as necessary and there are other measures, standard and non-standard, we can deploy if warranted. In addition to that, ECB's Draghi said that economic outlook still warrants an accommodative monetary policy stance. In turn, having traded above 0.50 level late last week and on Monday, the 1y/1y EONIA fwd is trading back below 0.50 on Tuesday. However, even though the risk on sentiment was evident in equity markets, the pair failed to benefit and instead settled lower, largely due to dovish comments mentioned above. Technically, support levels are seen at 1.3059/43 and then at 1.3000. On the other hand, resistance levels are seen at 1.3161/77 and then at 1.3200.

GBP/USD
Unlike EUR/USD, the pair managed to benefit from rather dovish sounding Fed members, as well as ECB members and settled in minor positive territory. There was little in terms of UK related macroeconomic commentary, but BoE's Bean said that there are no technical obstacles preventing negative rates. He added that bank rate cut, including to below zero, still an option; MPC will keep it under review. In terms of technical levels, support levels are seen at the 50% retracement of the 1.5879 to 1.4832 move at 1.5356 and then at 1.5300. On the other hand, resistance levels are seen at 1.5500 and then at the 10-DMA line at 1.5574.

USD/JPY
The pair settled in negative territory, after rather dovish sounding Fed members prompted market participants to reassess the speed of QE tapering which in turn undermined long USD/JPY positions which benefited from a firmer USD. There was little in terms of fresh Japan specific commentary but over in China, market participants had to contend with another volatile session after the PBOC yet again refrained from providing more liquidity.