Muddy Waters was a famous American “blues” musician and muddy waters is what the FOMC left behind when the minutes of the March meeting were released.

Yesterday afternoon, traders were unnerved by a discussion about how and when to start reducing the size of the Fed’s balance sheet and the US dollar soared, but only briefly.  The gains were quickly erased.

The European and Asia FX sessions were choppy albeit the majors were confined to well-defined ranges. By the time New York opened, the greenback had only posted small gains.

	Close	Open
	5-Apr	6-Apr	High	Low
USDCAD	1.3424	1.3438	1.3448	1.3431
EURUSD	1.0679	1.0667	1.0683	1.0630
USDJPY	110.63	110.77	110.83	110.30
GBPUSD	1.2495	1.2480	1.2499	1.2460
USDCHF	1.0039	1.0043	1.0066	1.0028
AUDUSD	0.7576	0.7556	0.7576	0.7534
NZDUSD	0.6973	0.6971	0.6983	0.6962
USDMXN	18.7530	18.8064	18.8984	18.8040
WTI	50.87	51.61	51.24	50.80

AUDUSD dropped in Asia, undermined by China Caixin Services PMI missing the forecast.  (Actual 52.2 vs. forecast 53.2) The China data capped NZDUSD gains as well and Kiwi opened in New York, unchanged.

 USDJPY was whippy.  It dropped on fears that the FOMC would start reducing the balance sheet.  recovered in Europe, and opened in New York where it closed on Wednesday.

EURUSD dropped from 1.0680 to 1.0630 but the move was short lived and EURUSD rallied back to 1.0866 when New York opened.

ECB President Mario Draghi and ECB Chief Economist Peter Praet indicated that the ECB would not be changing their policy stance this month.

Mr. Draghi said that “Before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim,”

Mr. Praet said that even introducing the idea of a rate hike would undo some of the economic stimulus from the QE program.

Sterling was relatively tame.  GBPUSD traded within a 1.2475-1.2492 range for most of the Asia and European sessions.  It dropped to 1.2460 when Draghi was speaking but rallied quickly.

Oil prices eked out gains despite the build in US crude inventories reported by the EIA on Wednesday.  That’s because there is evidence that global supplies are starting to decline.  US inventory levels are important but not everything which helps explain why WTI is at mid-March levels ($51.49/b)

USDCAD drifted higher throughout the overnight session due to broad US dollar strength but could not crack resistance in the 1.3450-60 area. It has eased throughout the New York session as oil prices ticked higher.

Today, FX markets will be vulnerable to “tape bombs.”  Headlines from the Trump/Jinping meeting could create a bit of FX volatility.  However, Trump has been more of a barker than a biter so it wouldn’t be much of a stretch to believe he “makes nice” with China’s president.

The other major issue will be discussions about the FOMC’s balance sheet and how and when they could go about shrinking it.

USDCAD Technical outlook:

The intraday USDCAD technicals are modestly bearish due to the failure to extend gains above the double-top in the 1.3450-60 area prices need to break below 1.3400 to make the US dollar bulls nervous and break 1.3360 to cause a stampede.  Meanwhile, the short-term trend is bullish while prices remains above 1.3360 and 1.3400.

Today’s Range 1.3380-1.3460

Chart: USDCAD 30 minute

Source: Saxo Bank