Unfortunately, it's been a while since the last update. I was on vacation in a family hotel last week. The hotel owners were kind enough to place a bar in every children's area. So it was easy to get through the noise of the children.
After a period of consolidation until the middle of the last week, the dollar finally started to rise again. The dollar is now back above the 104.00 mark for tonight's FOMC meeting. The FX market is obviously taking a rather hawkish approach to the interest rate meeting.
With regard to the EURUSD options market, however, expectations are low that the Fed could provide a major surprise this evening:
The implied EURUSD volatilities have fallen further compared to the last observation date. At the moment, it even looks like my worries are coming true: “One could argue that the 9m and 1y maturities still have room to fall. After all, they are still trading above 6%.” (Market update #22)
Of course, the FX options market can be wrong and we will see a reassessment of risk in the coming days. However, the stock market is currently showing very well that complacency can last for months. In this respect, I would like to see more movement again, but the implied vols, which are negatively correlated with EURUSD Spot, do not suggest that the dollar rally will continue tonight. The individual dollar crosses also show that the dollar is trading at important levels.
EURUSD -- 1.0842
The currency pair is trading around the support zone given by the 50 ema (1.0847) and 200 dma (1.0838). However, I would refrain from directional trades at this point without much conviction. Especially on FOMC days, this is more like tossing a coin at a spot level quite in the middle of the 1.0724/1.0981 range. A hedged FX option is more suitable here, the 1m maturity is currently quoted at 5.38% impl vol. The prem and beyond could certainly be earned with active delta hedging.1
USDJPY -- 151.68
The recent rally in this currency pair was once again huge. The 200-day line finally held and initiated the big time reversal. The Bank of Japan's interest rate decision yesterday (0.00% now vs. -0.10% before) also failed to halt the yen's weakness. In view of the fact that the printing press is red hot at the US Treasury and investors are still expecting three interest rate cuts this year, I think the dollar rally is exaggerated. However, it is questionable whether the important 152.00 mark can hold for a third time after the two tops in 2022 (21oct 151.95) and 2023 (151.91).
USDCHF -- 0.8906
Above the 0.8886 mark, the scenario is bullish for the time being. In this respect, the daily closing price this evening could be interesting.2 However, after the already decent annual rally, I would watch out for signs of a possible trend reversal on the next and thus third leg up towards 0.9000/9100.
AUDUSD -- 0.6520
Once again, the currency pair is trading at the important 0.6522 pivot point. The last rally to 0.6668 (08mar24) looked promising, but was corrected quickly. Obviously, the currency pair still lacks the impetus to leave the 0.6442/0.6625 range on a sustained basis. At this point, fresh trades again have the risk of a coin toss and it might also make sense to look at the options market here.
Good luck,
Sebbo
reminder: my content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances.
The relevance of daily closing prices on FED days is another matter. It is not uncommon for the movement to be corrected the following day.