The release of the Fed Minutes from the last meeting was not anticipated to be a market mover overnight but the fact that members thought the bond buying program may end this year spooked some investors pushing stocks lower which also drove the US dollar and US yields sharply higher.
"Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said.
Wall Street picked up on the report's hawkish tone, with stock prices drifting lower after the announcement, while the dollar extended gains against the euro.
Other reports we've seen are focussed more on the fact that traders and investors recognise that there is still more work to be done politically in the US over both the cliff and the US Debt Ceiling. This is possible of course but when we look at the price action overnight this seems more an ex-poste rationalisation than anything else.
Datawise overnight it was pretty encouraging with Spanish unemployment falling 59,000 against an expected 50,000 gain. Spain still has a very dire employment, particularly youth unemployment, outlook with 4.85 million Spaniards out of work. But it would be nice to hope that this one off might become a trend over the course of 2013 - unless or until European unemployment starts to come down and people get back to work the Sovereign crisis will continue to simmer in the background. German unemployment rose slightly less than expected up 3000 versus the 10000 expected - but there are still 2.94 million Germans out of work.
In the US the ADP Private employment change was a much stronger than expected 215000 versus the 133000 the pundits thought they'd see in December. Jobless claims and continuing jobless claims both rose but the New York ISM for December was 54.3 versus 52.5 last.
So all in all a night where the Fed minutes combined with stronger data to give investors and traders reason to pause and think about just how long QE4 would last.
Indeed US 10 years rose around 10 basis points which on a base of 1.80% is a huge capital loss for the holders of these bonds. Now of course it is important to remember the Fed has a specific target of 6.5% that unemployment has to fall to before it will cease the buying of bonds but it is clear in the minutes that even with that explicit target tension within the FOMC is going to be a difficult thing for Ben Bernanke to manage and the minutes are now something we all need to watch a bit closer from now on.
Watch out for non-farm payrolls tonight - a strong number could feed on the fears unearthed by the minutes and we might see a perverse reaction of equity weakness and dollar strength.
In Europe the Swiss market was the big mover playing catch up to the moves in other markets so far this week with a rally of 2.9% however the rest of Europe was more subdued and mixed. The FTSE rose 0.33%, the DAX dropped 0.29% while the CAC was off 0.34%. Madrid fell 0.40% and Milan was 0.10% higher.
In the US at the close markets have been sliding since the Fed minutes were released. The S&P 500 is down 3 points or .23% to 1459. The Dow is off 0.16% and the Nasdaq has fallen 0.36%.
It was a big night of action on global FX markets overnight with the strength of the US dollar against the Euro in particular catching our eye. For a few days we have highlighted the fact the Euro was dancing on the spot and that a break of either side of the range would see the next big move. After the poor price action the night before the risk was always to the downside yesterday and the break of 1.3150 (bottom of the turquoise box in the chart below) was the signal to go short.
The Euro traded from a high of 1.3190 to a low of 1.3056 and sits at 1.3063 presently and it worth noting that the daily range on the Euro is starting to climb off the recent multi year lows which is a signal - at least the way we view it - that something is up with the markets and that a big trend could be coming soon.
Looking specifically at the chart above you can see that the break of the support level we highlighted saw a quick run to support at the old trend line that Euro broke up through in December. This line stretches back to the beginning of 2012 but is the lesser of the two trendlines on the chart as the lower line stretches back to the highs in May 2011. A break of 1.3050 (trendline and 38.2% retracement of the recent upmove) would see a deeper pullback toward 1.2980 and then 1.2875/1.2905.
The Dollar was slighthly weaker against the Yen recovering from the days low at 86.74 to sit at 87.20 now for a lose over the past 24 hours of just 0.14%. As you can see in the chart below USDJPY continues to look as overcooked as my indicators get and we continue to see a pullback within the overall multi quarter uptrend.
Please note we are not having two bob each way here - our trend following systems remain long but perhaps we are hopeful of a pullback so that subjective buyers and buying can be done by those who have missed the boat on this big move over the past couple of months.
For the Aussie the failed move above 1.05 again in the past few days and the strength, on a closing basis, of the trendline you can see in the chart below. Yesterday we said "The inability of the Aussie to hold back above the old down trend line and the look of the 1 and 4 hour charts suggests a consolidation/pullback today toward 1.0450/60 and if that gives way then 1.0430" So far the low overnight has been 1.0465 and even though much of this move has been in the past 4 hours ( we retain the view that the Aussie should pull back a little further yet.
Elsewhere the daily chart for Stirling looks truly shocking and a break of 1.6060 if it occurs will see a large fall.
Most of the commodities that we follow were lower overnight as the US Dollar recovered some further ground. Crude fell 0.39% to $92.76 Bbl and it looks like we might see a further pullback on this one. Gold was 1.33% lower at $1665 and Silver fell 1.61% to $30.45 oz. Copper was also lower by more than 1%.
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