The dust is yet to settle following the FOMC meeting last night. A kickback against the USD strength seems to be short-lived as the USD has recovered ground this morning. Equities seem to be buoyed by the slightly dovish undertones coming out of the Fed meeting. GBP traders will be watching for volatility with the Bank of England in focus. Oil traders will be watching the OPEC meeting.
- Main drivers: Sentiment is positive this morning; the fallout from the Fed; a Bank of England outlook, oil volatility on the OPEC meeting; Eurozone final Services PMIs, the Bank of England announcement, and US Weekly Jobless Claims later.
- Mild positive risk bias: Equity indices continue to pull higher following the mildly dovish lean in the FOMC meeting. With the tapering expected, there was little to change the path higher for indices. In forex, USD is recovering some lost ground. Commodities trying to recover after yesterday’s losses.
- The Fed tapers as expected: The taper of asset purchases came as expected. A reduction of -$15bn in total per month. However, the assessment of inflation was perhaps slightly less hawkish than perhaps expected, meaning no need to raise rates sooner (yet). This does not change a great deal for markets. [USD initially lower, but now recovering]
- Bank of England may disappoint: Markets have been busy pricing for a BoE rate hike (of +15 bps) but the analyst community (consensus) is not so sure. Consensus suggests holding rates and asset purchases, with 3 (of 9) voting for a rate hike. This could put GBP under further pressure, but volatility is assured [GBP volatility]
- OPEC meeting today: Despite pressure from the US, OPEC+ are not expected to change its rate of the monthly increase in production from the current +400,000 barrels per day. However, newsflow out of the meeting is always a volatility event for oil [Oil price volatile]
- Central bank speakers: ECB President Christine Lagarde speaks again today at 1300GMT; this is just after the BoE Governor Bailey has his monetary policy press conference (at 1230GMT). No FOMC speakers today.
- Economic Data:
Eurozone final Services PMI at 0900GMT is expected to be unrevised at 54.7 from the flash (down from the final September reading of 56.4). The final Eurozone Composite PMI is expected to be unrevised at 54.3 (down from 56.2 in September).
Bank of England monetary policy at 1200GMT expected to hold the interest rate at +0.10% and Asset Purchases at a total of £895bn (£875bn govt bonds and £20bn corporate bonds)
US Weekly Jobless Claims at 1230GMT expected to fall slightly to 277,000 (from 281,000 last week)
- Broad outlook: USD volatility in the wake of the Fed, initially weaker but now recovering strength again. Indices remain positive, whilst commodities tentatively rebound
- Forex: USD rebounding this morning across major pairs.
EUR/USD remains choppy but is now forming a negative bias within the four-week trading range between 1.1525/1.1685. We still prefer short positions for a break to the downside below 1.1525. The initial resistance is at 1.1618.
GBP/USD starting to fall away again, in front of the BoE today. Key near term resistance is building around 1.3690/1.3710. We wait for the BoE decision but we prefer short positions for pressure on 1.3570/1.3610, with a downside break opening 1.3410.
AUD/USD old support around 0.7450/0.7475 is growing as new resistance, with a top completing to imply 0.7350/0.7380. We prefer near-term shorts and selling into resistance band now 0.7450/0.7475.
- Commodities: mixed outlook on precious metals, oil threatening correction.
Gold is neutral between $1750/60 support and $1800/$1810 resistance, with a rebound back towards the $1780 pivot today. It is difficult to have a high conviction view whilst these levels remain intact.
Silver falling over under $23.75/$24.00 turned the market corrective. We look to sell intraday strength into $23.75/$24.00 which is now resistance. Below $23.75 has opened $23.00/$23.18.
Brent Crude oil breaking below $82.40 yesterday pointed to further corrective pressure. How the market reacts to the early rebound today and the OPEC meeting will determine whether this correction will continue.
- Indices: further all-time highs on Wall Street since the Fed, but looking increasingly stretched now. Watch out for potential profit-taking.
S&P 500 futures are still very strong but the concern is that there could be some near-term profit-taking with the daily RSI so stretched above 70. Initial support 4550/4590. We look to buy into near-term weakness.
DAX hitting all-time highs above 16,033 but stretched on momentum and the risk is for profit-taking near term. Good support 15,755/15,845.
FTSE 100 bouncing off 7246 support is encouraging. Consolidating early today. We look to use near-term weakness as a chance to buy for the medium-term bullish breakout targeting 7700.