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20 Mar 2014
Fed rates re-pricing hints USD a buy on dips
FXStreet (Bali) - Market participants were caught by complete surprise, as the FOMC delivered the exact opposite of what had been priced in ahead of the event.
The USD had been trading at very depressed, levels, with the USD index approaching very danger waters near the 79.00 support, and well commanded lower by a descending trendline coming from Feb 27 high; however, it took the blink of an eye to change the picture, with an explosion higher taking the index value towards 80.00 territory, recording the largest 1-day rise in 2014.
As widely reported, the element that opened the can of worms was a minuscule yet extremely relevant hint by Fed's Yellen, suggesting a period of roughly 6 months between the end of tapering and the start of policy rates normalization.
The market, which works based on forward-looking dynamics, started to re-adjust portfolio position and buying huge amounts of US Dollars as pricing of a rate hike in the US moved into Q2 2015 territory instead of Q3 2015 earlier.
While the trading environment in the first two months of 2014 was not ideal, with low volumes and volatility leading to undefined market ranges, the tide may be turning...; if the market proves to stick with its first convincing reaction, traders willing to jump on the USD band-wagon will only increase from here, as the re-adjustment in Fed rate pricing represents a major blow for the market, something not expected, which suggests traders should anticipate strong interest on buying USD weakness to continue near term.
The USD had been trading at very depressed, levels, with the USD index approaching very danger waters near the 79.00 support, and well commanded lower by a descending trendline coming from Feb 27 high; however, it took the blink of an eye to change the picture, with an explosion higher taking the index value towards 80.00 territory, recording the largest 1-day rise in 2014.
As widely reported, the element that opened the can of worms was a minuscule yet extremely relevant hint by Fed's Yellen, suggesting a period of roughly 6 months between the end of tapering and the start of policy rates normalization.
The market, which works based on forward-looking dynamics, started to re-adjust portfolio position and buying huge amounts of US Dollars as pricing of a rate hike in the US moved into Q2 2015 territory instead of Q3 2015 earlier.
While the trading environment in the first two months of 2014 was not ideal, with low volumes and volatility leading to undefined market ranges, the tide may be turning...; if the market proves to stick with its first convincing reaction, traders willing to jump on the USD band-wagon will only increase from here, as the re-adjustment in Fed rate pricing represents a major blow for the market, something not expected, which suggests traders should anticipate strong interest on buying USD weakness to continue near term.