The Federal Reserve hiked rates by 75 basis points yesterday. This was the first 75 bp hike since 1994 and the Fed announced this while warning that more hikes were on the horizon, with another hike on the way in July that could be 50 or 75 basis points.

The US dollar quickly flickered up to a fresh 20-year-high on the back of the statement release at 2 PM ET, but that move soon started to dissipate and less than 24 hours later, the USD is now trading at a fresh near-term-low.

US dollar two-hour price chart

This may sound vexing for traders, the fact that the Fed not only hiked but did so aggressively and the currency is still pulling back. The reason for this disconnect is one of expectations: The US Dollar has been well-bid as the Fed has been very open about their rate hike plans. And last week, at the ECB rate decision, the European Central Bank came off as extremely dovish by hinting at a 25 bp move in July with, possibly, another hike in September.

That disconnect slammed the Euro lower while also lifting the USD as the deviation between US policy and the rest of the world remained fairly wide. But, the ECB called an emergency meeting yesterday morning which indicates that they weren’t happy with the result from the week prior and this may compelled them to send the message that their already looking at diverging bond yields in the bloc. So, we may end up seeing a more-hawkish ECB after the market reaction to last week’s rate decision.

That helped EUR/USD to hold support at a key zone on the chart, just above the current 19-year-low which shows at 1.0340.

EUR/USD weekly chart

On a shorter-term basis, the big question is whether EUR/USD can substantiate much more of a bounce. The ECB isn’t exactly sounding hawkish here and the Fed, from what we heard yesterday, is still heading towards some significant changes with monetary policy that could continue to push the US Dollar higher.

So, in EUR/USD, the item of interest is how long this short-term bounce might run in order to catch lower-high resistance for the longer-term bearish move. The 1.0500 psychological level is of interest although that gave an inflection early yesterday morning, well ahead of the FOMC, and this may not offer much selling pressure if/when it comes into play. This opens to the possibility of resistance at 1.0531 or perhaps even 1.0607.

US dollar four-hour price chart

USD/CHF

One central bank that has come out swinging is the Swiss National Bank with a 50 bp rate hike. This is the SNB’s first rate hike in 15 years and already the Swiss Franc is seeing some hearty gains. Given the history of the pair, there may be more continuation left yet in this move with the next significant support level at around .9565 on the chart.

USD/CHF daily chart

GBP/USD

We also had a rate hike out of the UK earlier this morning, although it was for 25 basis points. More pressing, however, was the BoE forecasts that suggests the bank is looking for inflation to run as high as 11% later this year.

In GBP/USD it was a messy morning, with an initial bearish move that quickly reversed and now the pair is trading at a fresh high, testing above the 1.2250 psychological level. This can be an attractive theme to investigate for fades, particularly for those that want to try to catch a low on the USD. But – there may be a more interesting venue in GBP/JPY given tonight’s Bank of Japan rate decision.

GBP/USD two-hour price chart

USD/JPY: turn potential

The Bank of Japan meets tonight and the big question is whether BoJ Governor Kuroda will sound as passive about inflation as he did a couple weeks ago. I had written about this a couple of weeks ago, just as Yen-weakness was starting to reappear, and that led to an aggressive move with USD/JPY breaking out and setting a fresh 20-year-high at the 135.00 level.

And, even earlier this week, there was bullish breakout potential in here that saw yet another fresh high print. But, over the past 24 hours we’ve seen a turn in that theme as central banks are taking a more-hawkish turn towards policy, and with the SNB’s 50 bp move this morning, there’s even more potential here for a flip at the Bank of Japan tonight.

Also consider the fact that Kuroda’s comments a couple of weeks ago suggested that the BoJ was in no rush to normalize policy as there was just one inflation print above 2.5%. Kuroda said the BoJ wanted to see ‘stable’ inflation above 2%, alluding to the fact that the bank was in no hurry. But, after public uproar on the heels of those comments, he was forced to apologize to the Japanese public for downplaying the effects of inflation, facing similar ire as global leaders that are dealing with a more developed albeit similar saga. So, perhaps the BoJ doesn’t hike rates tonight but I would be surprised to hear the bank as lax about inflation as they have been, and this is something that could possibly compel some additional Yen-strength.

In USD/JPY, price is already down to the 132.50 level for support, and there’s another spot a bit lower, around 131.25 and that is followed by the 130.00 level.

USD/JPY four-hour chart

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