The Federal Open Market Committee statement has been picked over for significant hints, and the most significant of these was the insertion of the word “symmetric” to describe the Fed’s inflation target. The interpretation here is slightly dovish – it's basically an indication that the Fed isn’t about to lose its cool if inflation rises further in coming months now that the 2% target has effectively been reached.
Many leading indicators and basing effects suggest inflation could rise further over the summer.
Otherwise, there wasn’t much else in the statement in the form of takeaways, and the USD settled largely “unchanged” after rallying to new highs ahead of the statement and then weakening sharply – about 60-70 pips in EURUSD terms – before giving up much of the reaction. US yields pulled back slightly, with the 10-year benchmark off the day’s highs but remaining within the trading range of the last few sessions.
In short, the USD rally appears very much intact and ready to have a look at the next round of incoming data, including today’s April ISM non-manufacturing survey and the April jobs and, more importantly, earnings data on Friday. The useless (as an NFP change predictor) ADP payrolls data showed jobs growth in April of +204k , about par for the course. It’s hard to believe the ISM non-manufacturing can sustain the high 50s for much longer, but expectations are running to 58.0 for today’s number.
Today sees the latest Norges Bank announcement. The market is caught in a nervous area technically around the 9.70+ level in EURNOK and with a number of conflicting developments. The government cut the central bank’s inflation target to 2.0% from 2.5% to align Norway with other countries – a hawkish development if inflation nears the 2.0% level again, but that decision has recently come under fire politically.
As well, the most recent inflation report was a distinct disappointment and oil prices have suffered a couple of weak sessions. Given the technically pivotal levels, we could see considerable volatility on the back of the decision today if the Norges Bank wants to make a point.
Taking our eyes off the USD a bit, we note some interesting developments in EURJPY, which has posted a smart reversal around the 200-day moving average and the top of the Ichimoku daily cloud. There could be considerable room to run to the downside here, given the relative economic developments in the Eurozone in recent months relative to Japan and given the lack of a revaluation in the pair after the Bank of Japan long ago launched an undeclared, de facto taper. The cycle lows below 128.00 look pivotal for whether something quite large scale to the downside could develop.