Advance GDP and the FOMC Statement supplied much volatility for the forex market. Most currency pair eventually stayed in the same place. Only the Yen was significantly hurt.
Advance GDP was very bad: According to the early indicator, the American economy squeezed by 6.1% in the first quarter of 2009, much worse than early expectations of a 4.8% fall. This continues the tend of the last quarter of 2008, when Gross Domestic Product dropped by 6.3%.
The bad news didn’t move the market too much. The market was shaky, trading in a high volume, but eventually not moving too much. Traders were awaiting the FOMC Statement.
Towards the FOMC Statement, risk appetite took over and the dollar weakened. For instance, EUR/USD climbed above 1.33, a level not seen for about two weeks.
The FOMC Statement took the hot air out the balloon. Ben Bernanke’s guys didn’t declare any change in policy: buying bonds will continue, no new inflation fears exist,, the interest rate (Federal Funds Rate) will stay unchanged and no new action will be taken.
Yet the FOMC stated that they’re seeing a slight improvement, or stabilization in the economy. This new hope triggered a “normal” response: the dollar gained! The risk factor didn’t act.
Another risk related phenomenon was the break of the Dollar Yen Correlation: The Yen fell against the dollar, exactly like the Euro and Pound fell. USD/JPY broke upwards, and now trades at 97.64.
The break of this correlation is serious news. If this persists, it also takes out the hot air out of the roller coaster Yen crosses.
So, Super Wednesday was indeed an interesting day in the forex market. I’ll post later the daily outlook for Thursday.