Following a healthy dose of the risk aversion trade across global markets yesterday (Carry Trade selling in FX), traders have been quick to take a short-term profit and reverse a significant portion of Wednesday’s selling. Trading conditions were less than ideal in terms of liquidity ahead of the rate decisions out of the Bank of England (BoE) and European Central Bank (ECB). Volume came in spurts and thin markets elevated volatility. The bottom line is that the flight to safety that crushed the Carry and provided a firm bid to the US dollar has halted.
Ranges have been normal relative to a typical London Session. Recent nervous behavior that has spurred wide trading spans cooled as many waited on the sidelines. The currency pair in focus has been EURJPY. The cross shook off early sellers and rocketed an estimated 150 pips from a low near 164.65 to notch a high around 166.15. The price action has been manageable when viewed on an hourly basis, but consisted of multiple “false breaks”, potentially frustrating momentum players that prefer very short-term charts. Though other currencies saw their shares of dips and bumps, the charts reveal that today’s session has been spent awaiting the key rate decisions at 0700 and 0745 EDT.
Speaking of which… both events quickly became “non-events’. Though there was a small percentage chance that the BoE Monetary Policy Committee would cuts rates by a quarter-point, the members failed to shock the market and held interest rates steady at 5.75%. The ECB did the same, leaving the 4.00% benchmark as is.
