Dollar pairs give back their gains

Fundamental View

Yesterday saw the FOMC announce the ‘monumental’ removal of the “patience” language from their forward guidance. Comments from the Chairwoman stated that “although we have removed the patience language from our forward guidance that should not be taken as we will be impatient.” No help there then. What did however provide explanation for the large bid-tone in dollar denominated currency pairs was the FOMC’s projections in the medium-long term were the Fed’s projections and the dot plots. The outlook was cut to levels far lower than the market expected; the majority have cut their year-end forecast to 0.625% and 2016 to 1.875%, implying that 2% rates are expected will into 2017. This served to allow T-note to make new highs as the rate rises, which would force yields higher, was pushed back. 5 year yields have shown a dramatic fall with 10 year yields close on their heels. The Chairwoman also reiterated data-dependency and a continued improvement in the labour market, Yellen paid particular attention to the slack in the labour market; with consistent high Non-Farm Payroll reports and a return below 300k in Initial Jobless Claims and unemployment at 5.5% it appears that wage growth and hours are the main readings under close scrutiny, demonstrating a shift to qualitative readings which we haven’t seen since the 6.5% unemployment “threshold”.

Today’s View

This morning we have seen dollar pairs give back a lot of their gains with both the Euro and Sterling on the back foot in overnight trade. T-notes and equities have managed to maintain a majority hold of their gains. Ahead we have the US Current Account Balance, expected -104.1bn for the last quarter of 2014. We also have Initial Jobless Claims and Continuing Claims with Philadelphia Fed Business Outlook due slightly later. A reading below 300k for the Initial Jobless Claims is what the majority of market participants are looking for this afternoon. Any readings outside of the range are likely to weigh on the dollar and also T-notes as the importance of “data-dependency” in labour reports has been officially highlighted. After such moves yesterday it is important for traders to reassess their outlook of markets today and that moves are likely to be more limited in scope, although large continuation moves are still possible.