USD Rises Across The Board Following The Release Of The Fed Minutes

• USD rises across the board following the release of the Fed minutes
• Gold falls sharply under support at $1667 as equities slip and USD rises coupled with prospects for higher US yields
• AUD falls under 1.0300 as currency impacted by Fed minutes and release of unexpected trade deficit
• Asian equity markets fall as Nikkei closes down 230 points on the day but most Chinese markets closed
• European equity markets fall on opening as USD rises and Gold falls through last night’s 1640 low
• EURUSD falls back through 1.32 in early trade but moved curtailed so far as markets await ECB rate decision

Good morning. Well the whole dynamic shifted last night following the release of the latest US FOMC minutes from their last meeting.

As I suspected that evidenced a much more hawkish tone and almost certainly quashed any idea that QE3 is on the agenda unless there’s a significant change in pace of the economic recovery.

Only 2 members of the voting panel thought that there was any need for further QE which was a significant reduction on what was previously thought to be the case.

That perhaps wasn’t such a surprise to me as it was to the rest of the market as I did point out that we may see this in yesterday’s update.

The dollar, gold and equity markets all reacted to the news very swiftly and the EURUSD fell swiftly under 1.3300 then it took out stops underneath 1.3280 and later at 1.3250.

That momentum continued into the close as the price ended the US session around 1.3230. Gold fell very quickly on the news as trend line support around $1667 caved in very quickly.

The price found some support around $1640 and lifted back to around $1648 into the Asian opening. The current price around $1644 at 6.30am this morning looks very vulnerable to me with the $1625 previous low in its sights.

Personally I think this one looks like an accident waiting to happen now and I could argue the case for a substantial move lower from here. As to whether that plays out and by just how much in the short term could rest on the strength of the US payroll report due out on Friday.

The US equity markets reacted negatively to the Fed minutes but the falls by the close weren’t actually that bad as it could have been in a more risk averse environment.

The USDJPY shot higher as significant Japanese exporter offers were removed above 82.50 and the price accelerated towards 83.00.

That level has held overnight and it would appear that there is perhaps some more interest from the same around there. A break of the 83.30 level could now open a retest of the highs above 84. So far in Asia the price has slipped back, largely as a result of risk off and EURJPY sales.

The EURJPY looks very vulnerable to me if the 108.75 level breaks and that could set up a move back to the 106 region. The AUD fell back on the Fed news and that was enhanced overnight following the release of another trade deficit where a surplus had been expected.

It seems that the level of the currency and the slowing economic activity in China were the two main reasons for the deficit.

The prospects for a cut from the RBA next month have just increased on the back of that data I think. The AUD looks like a sell on a rally and short term targets near 1.02 and 1.01 look highly achievable.

This morning we have a whole bunch of European services PMIs as well as that for the UK at 9.28am. Following that we have EU retail sales at 10am and German factory orders at 11am.

After that we have the small matter of the ECB interest rate decision at 12.45pm followed by their usual press conference at 1.30pm.

Now I don’t think anyone expects any change in official policy here but the one thing that is concerning the markets is the possibility that the ECB may lower its growth forecasts. If that happens then I think the EURUSD will not react well to that.

The price is lifting after the opening this morning, following lows overnight near 1.3180. I think the proximity of this event today is probably helping to lift the price a little, but I don’t think we will see too much retracement from here.

It looks like a sell to me on any rally from here but it is not an easy call ahead of the US payroll report on Friday and the looming long Easter weekend.

EURGBP has also fallen back following yet another squeeze to the upside yesterday. The prospects for this to fall remain live as far as I am concerned. The recent data has been good from the UK and lower EURUSD should help the direction.

It won’t be easy of course and we will need to see a good service PMI from the UK this morning to endorse the direction ahead of whatever emerges from the ECB later on.

Once again I think the prognosis for the pound to outperform the EUR remains entirely intact and I am still looking for the substantially lower levels I identified to you already. I don’t expect anything from the BOE when they meet tomorrow to also decide on interest rates.

This morning European equity markets have opened lower, which given the overnight news can hardly be a surprise to anyone.

That risk off trade looks live therefore this morning and the real story for me is the return of the US currency. I think that the party for the EURUSD may just be over.