A Highly Volatile Day Triggered by the FOMC

It all began slowly yesterday as the markets were in a consolidation mode and so there was not much movement in the market either during the Asia session or the London session yesterday. But the cat was set among the pigeons after the release of the FOMC minutes which came in towards the middle of the NY session. There was not much hawkish in the minutes while the markets had been expecting a very hawkish one, based on the FOMC statement that was released in December.

This disappointed the markets and though the dollar initially recovered, the tone over the last few hours has been one of dollar weakness across the board. This has helped the EURUSD pair above 1.0500 while the USDJPY has corrected and crashed through 117 and looks good for more correction in the near future. Gold has also been having a good time over the past few days as it has risen from the lows of its ranges and it trades above 1170 as of this writing. The dollar weakness seems to be the theme that has been set in the markets for now and this is set to continue for the rest of the day.

Looking ahead to today, we have the UK Services PMI during the London session and we also have the ADP Employment data, the Unemployment claims and the Non-Manufacturing PMI from the US later on in the day. The markets are still trying to sort out the short term trend and we believe that it will take a day or 2 more for the markets to settle down and show their hand on what it thinks will be the short term trend. Traders are advised to wait and ride out this volatility, as the larger fund managers and bankers return to their desks, and then initiate positions once the dust settles down.
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