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We’re set for a potentially choppy day in FX markets as the Fed meeting coincides with the month end, which typically brings greater volatility owing to institutional rebalancing and fixing flows.   Recall that after the last Fed meeting, the dollar rose 1% initially and a by a further 1.4% in the following two trading sessions. This was on the back of a fairly subtle shift in tone on the labour market within the statement and also on the subsequent remarks by the Fed chairman.

There is no press conference this time around, so we are left with pulling apart the statement. The Fed has done its best to prepare markets for the fact that it cannot continue to buy USD 85bln of securities a month forever, whilst at the same time not de-stabilising financial markets as a result. For choice, through a choppy day,  the dollar is likely to firm  as the Fed is unlikely to want to push back expectations of tapering, which currently lie towards the end of the year (surveys suggesting fairly even split for the September meeting).

USD:  The Fed meeting result dominates. Last month the dollar was up 1%, the Fed sounding that little bit more confident on the economy and labour market. They seem unlikely to want to change the momentum towards expecting a modest lowering of the amount of monthly bond purchases later this year. So if anything risks to the dollar appear to the upside. ADP numbers also in focus as a lead towards Friday’s jobs data.

See how to trade the US GDP with EUR/USD.

EUR: Labour market data in Germany is seen steady, no change in unemployment or the rate at 6.8%. Weaker numbers would undermine the single currency, although only modestly so.

FX: Today is month end, so this can often result in choppy trading across all currencies.

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AUD: The Aussie becoming more convinced that rates are set to be cut at the August RBA meeting, especially in the wake of comments from RBA Governor Stevens earlier in the week. AUDUSD was weaker overnight, but holding above the 0.8999 low for the month so far.

EUR: Maybe it’s a good thing, but with European politicians having gone to the beaches, there is at least an underlying sense of calm beneath the single currency.   EURUSD has been kept within a relatively tight range as a result, with only a brief nudge above the 1.33 level yesterday.

JPY:  It’s clear from the trading pattern over the past month that the Abenomics and weak yen story is becoming rather tired and a lot more difficult to trade. Even with the LDP’s Upper House election gains earlier this month, the yen is still one of the stronger performers over the month of July. The yen needs some new mood music, but for now the market is not quite sure what this is. Yen still well supported overnight, USDJPY holding below 98.00 for the most part.

Further reading:  5 Reasons for Forex. Now.