The Real FOMC Action is in the Dollar

Want evidence of a more hawkish Fed? Look no further than the currency market, where the dollar is rallying and the euro and yen are falling.

Sure the SPDR S&P 500 ETF (SPY) ha fallen 0.5% but the the move ion the euro versus the dollar was fast and furious. Here’s a chart:

The euro has dropped about 0.8% against the dollar, while the CurrencyShares Euro Trust ETF (FXE) has dropped 0.7% to $136.71 and the Currency Shares Japanese Yen Trust ETF (FXY) has fallen 1%. The ProShares UltrasShort Euro ETF (EUO) has gained 1.3% to $16.77, while the ProShares UltraShort Yen (YCS) has gained 1.9% to $66.58.

Wall Street has been expecting a strong dollar for a while now. Is the FOMC the trigger that finally makes it a reality?

Nomura’s Jens Nordvig isn’t so sure. He writes:

We had gone long USDJPY spot into the FOMC and this position has worked so far (our entry was at 101.75 on Monday, and we are at 102.55 currently) and the broader USD move has been similar in magnitude, playing out versus both G10 and EM.

We are not convinced that this is the time to again get involved in broad long USD exposure, given that the data picture remains fairly mixed. But we think the USDJPY trade has further to run, in part due to the downward drift in the Yen TWI, which remains in place, in our view, and because financial market volatility may drop somewhat from the elevated levels we have seen since mid-January.