Fed Hardly Blinks, AUD Jobs Next

Fed day was a wild ride that started with soft data and sudden worries about a dovish Fed and ended with Yellen sticking to the Fed plan. The dollar did a 200 pip round trip but at the end of the day the Australian dollar led the way and the Swiss franc lagged. Aussie jobs are due next. Our Dax was stopped out at 12880.

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Soft CPI and retail sales reports caused a quick rethink on the Fed among analysts and in markets. Core inflation rose 1.7% y/y compared to 1.9% expected and retail sales were down 0.3% compared to a flat reading expected.

In the aftermath, USD/JPY crumbled to 108.95 from 110.30 as Treasury yields dropped to post-election lows. But the euro chart was telling. Resistance at the election-night high of 1.1299 held and the 100-pip rally stalled.

As a small panic set in among dollar bulls, Goldman Sachs and JPMorgan warned that a Fed communication shift was going to happen. It didn't.

The Fed statement was virtually unchanged. There was a nod to lower inflation but no wavering in the forecast for a return to 2% inflation in the medium term. In addition, the forecasts didn't change except for lower unemployment.

The dollar bears hung on for every word from Yellen's press conference but finally threw in the towel when she blamed low inflation on one-off effects. The euro completely retraced the rally and hit a session low at 1.1193. USD/JPY rebounded as high as 109.89.

It's important to note that while Yellen was confident in her assessment, she said inflation would be watched closely and highlighted data dependency. Given low expectations of a hike in September, there are some upside risks but there won't be any answer with a light eco calendar until the end of the month.

One spot where the calendar (and the currency) is hot is Australia. At 0130 GMT the May employment report is expected to show 10K new jobs with unemployment at 5.7%. Technically, AUD/USD is looking more constructive after a break of the April highs and the 200-dma on Wednesday.