Last night the Federal Reserve gave the market what it wanted, by removing “patience” from its guidance language, but it did it in a manner equivalent to a sucker punch, following it up with the equivalent of a knockout blow to all those US dollar bulls who expected them to be much more hawkish. The hawks will argue that yesterday’s move frees their hand to raise rates when it suits, which is true, but it doesn’t bring the prospect of a rate rise any closer, and it also obscures the fact that the central bank revised down its growth outlook, and slashed its inflation forecasts for this year, to 0.6% to 0.8%, from 1% to 1.6%. With the Fed also guiding down its expectations for potential rate rises in the coming months as well, the fact that the FOMC was so guarded caught a lot in the market unawares, particularly the line about wanting to see further improvement in the labour market, suggesting that they felt that there was probably more slack in the labour market than originally thought. With the recent surge of the US dollar weighing on exports, a fact that the Fed acknowledged, as well as inflation, the prospect of a rate rise in June, despite being remote has been blown into the weeds, with a lot of market watchers now expecting a move in September, but even this seems extraordinarily optimistic. The fact is the Federal Reserve was always going to struggle to tack against the breeze at a time when central banks around the world are cutting rates, with the Swedish Riksbank once again easing policy yesterday afternoon. As a result US bond markets and stocks surged as the prospect of easier policy for longer came back onto the table, with the S&P500 returning to the 2,100 level it left behind two weeks ago. Crude oil also rebounded sharply as the dollar weakened, despite data showing that stockpiles increased again, while gold prices also rallied sharply. The spill over effect of yesterday’s US dollar sell-off and sharp euro rebound will be felt in European markets this morning with the German DAX expected to open lower, while the FTSE100 should open higher after receiving a significant boost from yesterday’s actions by the UK Chancellor of the Exchequer to alleviate the tax burden on the oil and gas sector, and the moves to help savers which helped boost asset managers and life assurance companies. Given yesterday’s caution on the labour market today’s weekly jobless claims will once again take on a new resonance in the wake of the recent slowdown and reduction on rig counts, with expectations that we could see them come in at 293k, up slightly from last week’s 289k. EURUSD – the mother of all short squeezes yesterday as we breezed through 1.0800 hitting 1.1044, the trend line from the December highs. This move shifts the dial and timeframe on a move to parity. A break above 1.1050 could well target the 1.1250 area which was the initial breakdown area. Support comes in down at the 1.0730 level. GBPUSD – despite putting in a new low at 1.4630 the pound did a sharp about turn surging back through the 1.4830 level to nail the 1.5000 level and hitting 1.5170 before slipping back. This move suggests we could now see support come in down near at the 1.4830 level. EURGBP – we got our move higher, with the euro falling just short of the 0.7300 area. We should now find support at the 0.7230 break out level, but while we sit below 0.7300 the risk remains for a turn back lower towards the 0.7100. USDJPY – yesterday’s sell off brought us back to the 119.30 area which also happens to be trend line support from the lows this year. While above this trend line the prospect of a move towards the 2007 highs at 124.20 remains. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.