With waves of short covering the order of business today in Asia, the US dollar and the yen both saw convincing moves higher against the backdrop of tomorrow’s much anticipated FOMC rate decision and statement. With all eyes focused on whether the US Federal Reserve will insert further quantitative easing plans into tomorrow’s post rate decision statement, traders cautiously peeled off riskier positions in preparation of potential volatility. This combined with less than anticipated Chinese import results and lower equities put risk aversion in the center stage. Comments from the San Francisco Federal Reserve Bank that the US faces a “significant risk” for a recession within the next two years pretty much set the tone for the day.

EUR/USD saw its slide lower accelerate as it dropped from early levels at 1.3230 to eventual lows at 1.3140 with stops easing the ride lower. The moves were familiar with the GBP/USD as the pair dropped from 1.5900 to lows near 1.5780, and the AUD/USD fell from 0.9165 to 0.9110 lows with NAB Business Confidence falling to a 2010 low of 2 not helping the Australian currency at all.

While the yen firmed and equities sank, USD/JPY remained buoyant near 85.85 after an early morning fall from highs just over the 86.00 big figure. The Bank of Japan surprised nobody by leaving its interest rate unchanged at 0.10% once again. The crosses saw significant selling pressure, as traders pulled off risk in reaction to dropping equities. While Chinese exports impressed at 38.1%, imports fell short of expectations, coming in at 22.7% as opposed to a projection of 30%, hinting that demand from the nation may be faltering. EUR/JPY dumped almost 100 pips on its fall to 112.65, GBP/JPY was good for a drop of 130 pips to 135.30, and the AUD/JPY shed about 60 pips on its decline to 78.15 lows.

As mentioned, the main event is the upcoming FOMC rate decision and subsequent policy statement due at 18:15 GMT. The markets will be searching for any hints or statements that will show the US will revisit quantitative easing procedures in confirmation that the US recovery is running out of gas…