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Currencies Caught in Choppy Consolidation Ahead of FOMC

We are not surprised to see markets so quiet on Wednesday following an extremely volatile session of trade in which the US Dollar appreciated significantly across the board. The resurgence in the buck comes from a renewed uncertainty and faded optimism in the markets, with participants less confident in the Eurozone bailout after bond spreads continued to widen in the region and Greece announced a referendum on the bailout plan. Moving forward, we continue to expect to see more USD upside over the medium-term and would therefore be looking for opportunities to buy the buck on any form of an intraday dip. Look for some more consolidation into North American trade, with volatility not seen picking up again until the US afternoon event risk in the form of the FOMC rate decision.

The focus will be on whether the Fed determines that additional stimulus is warranted, but we contend that they will not make such a determination with economic data starting to show signs of improvement and monetary policy already dangerously accommodative. Economic data released in European trade included on the whole softer European manufacturing PMIs, weaker Germany employment, and slightly better UK construction PMIs. Earlier today, Australian data was much softer than expected following a very weak building approvals print. On the official circuit, Bank of England Jenkins, Germany’s Merkel, and Bank of Canada’s Carney are all slated to speak. US equity futures are trading flat while commodities are moderately higher.