Dollar bounces ahead of FOMC

USD/JPY and JPY crosses moved to-fro after wild swings last night. USD/JPY traded down from 118.01 in Asia, a level seen in reaction to the CBR’s attempt to stave off more RUB weakness by hiking interest rates significantly, to 115.57 in New York as risk-off sentiment peaked. It then proceeded to rally to 117.76. Off from this retracement high into the New York close, Asia saw it trade 116.25-117.12. Tokyo players were good buyers from the low with importer demand into the Tokyo fix high and some institutional investors joining in. Choppy action ensued post-fix. Large and so-so large option expiries at 116.15-25, 50, 75 and 117.00 helped to steady the market at times. EUR/JPY traded similarly, back and forth on little volume between 145.55-146.39. GBP/JPY traded 183.10-184.20 on jobbing more than directional flows. AUD/JPY rallied from 95.51 to 96.21 into the Tokyo fix before falling hard to 95.28 as AUD/USD broke below option barriers at 0.8200. NZD/JPY traded similarly, up from 90.52 to 91.06 and then to 90.34. Tokyo sees the FOMC more likely to turn hawkish tonight, possibly replacing “a considerable time” for “patience” in its statement.

EUR/USD and the EUR complex did little in Asia with the market tired after the gyrations seen last night on concerns over Russia. EUR/USD traded 1.2435-1.2570 yesterday, having risen slightly in Asia before powering higher into New York. It fell back to 1.2478 ahead of the New York close. Volatility has since come off with the pair between 1.2490-1.2516 in Asia and large 1.2500 option expiries providing gravitational pull. Russia concerns remain but dealer positions have been adjusted. From risk aversion, the market is likely to turn back to central bank expectations with a more hawkish Fed stance tonight likely putting EUR on the back-foot again, especially with more ECB members seen favoring QE. EUR/GBP and EUR/CHF did little, holding between 0.7942-54 and 1.2009-10, respectively. EUR/GBP has been in a 0.7758-0.8065 range since September. EUR/CHF is managing to hold above 1.2000, the line in the sand drawn by the SNB.

GBP/USD saw some weakness in Asia, off from an early high of 1.5753 to 1.5716 on light volume and making tracks away from the 1.5785 high seen overnight.

USD/CHF was slightly better bid, up modestly from 0.9596 to 0.9616.

AUD/USD opened in Asia at 0.8217. Initially content to range in directionless fashion between 0.8206-35, it crept down surreptitiously and managed to extinguish option barriers at 0.8200 in almost no time. Stops below sent it down to 0.8146. The view that the FOMC will drop ‘a considerable time’ from its statement may have hit a chord with AUD players. AUD/USD could now make a bee-line for 0.8066 target, the May 2010 low and a long-held target for many.

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