Volatility remains elevated as traders scramble to take advantage of it

Price action in the major instruments during the past 24 hours was interesting with the Dollar being in the forefront after Fed hinted their intentions to move ahead with tightening as soon as possible. As a result market participants have scrambled to rebalance their portfolios in a way that will allow them to take advantage of this development should it take place by the end of the year.

On the short-term horizon however there are also opportunities for traders to benefit from as volatility has spiked on the back of the Fed event and the major money instruments are reflecting this pickup in interest in the markets. Yesterday the day pretty much revolved around the US GDP and its implications to Fed’s agenda.

The release of the GDP levels from the US was expected to cool down the sudden demand for US Dollars as analysts expected levels to print lower than last month putting the break the on the Dollar rally. Indeed the report printed in a bearish manner, actually even lower than expected, casting doubts on the robustness of the US domestic economy and allowing the rest of the majors to breathe a bit easier against the Dollar.

The Euro has rallied to the 1.1000 level bouncing off the 1.0900 lows on the back of the lower US GDP reading but the outlook for the currency doesn’t look that good. We know that the ECB is planning to ease further if it’s needed and with the Fed planning to tighten its own rates’ policy the fundamentals’ divergence is too great to live any room for debate.

This morning the release of the Eurozone inflation levels might allow for some extra temporary support to the Euro that is trading near 1.1000 at the moment but we need to be cautious with the Single currency. The bias is negative and all rallies should be treated as opportunities to sell while at the same time a miss in the report could put the Euro under pressure again. First target the 1.0900 lows.

The Cable also pushed higher yesterday taking advantage of the pullback in the Dollar and the currency traded above the 1.5300 level ticking around the 1.5340 area at this time. This creates an interesting situation in the Cable as it is now unclear whether it will be able to rally even higher or this was just a technical correction. The fundamentals for the Pound are different compared to the Euro so the outlook is rather mixed and the currency can go either way really.