Stock markets fell and the US dollar soared on Wednesday after the latest FOMC meeting signalled a more hawkish stance being adopted by policymakers.
New Head of the Fed Janet Yellen said that monthly tapering would continue and could be completely wound up by the fall. She went on to suggest that the first rate rise could come just 6 months after and that the bank expects interest rates to be at 1% by the end of 2015 and 2.25% a year later.
On top of that, officials agreed that central bank policies should no longer be tied to the target 6.5% unemployment rate, stating that a broader range of data measures will be used instead.
As a result, stock markets dropped sharply, with the Dow Jones Industrial Average giving up 200 points in a short space of time, and the US dollar advancing against all of it’s major trading partners. AUD/USD was hardest hit, falling as much as 1.06% by the close, while USD/JPY and USD/CHF both moved higher by over 1%. Gold, too, tumbled in the face of the stronger dollar.
FXeeda moves
Our signals reacted to developments with profitable positions in USD/JPY (+71.9 pips) and USD/CAD (+109 pips). At the time of writing, our signals continued to indicate strong sell positions for AUD/USD and GBP/USD while we had moved to flat in the Dax.
EUR/USD
The change in sentiment from the Federal Reserve saw EUR/USD drop sharply, move through its pivot and through the third support where it is currently trying to gather some momentum. The currency was overbought anyway, so the Fed announcements were a nice catalyst for euro bears.
A quick bounce may be on the cards on here, however, it is likely to be short lived. The hawkish statement from the Fed has taken traders by surprise and could lead to more volatility in financial markets over the next couple of sessions. Traders should look to hold their EURUSD shorts until the dust settles and wait for traders to return to risk-on markets.
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