It is a crucial FOMC meeting today. Markets have spent weeks pricing in ever tighter monetary policy. Sharply higher bond yields, with elevated volatility, have sent shockwaves through equity markets. Furthermore, the increased geopolitical risk of conflict between Russia and Ukraine/NATO has added a safe haven bias to market moves. There is a sense of consolidation and perhaps even support coming in this morning though. With markets rattled, does the Fed flinch and take a step back in its hawkish path?
There is also a Bank of Canada monetary policy meeting which could contain a rate hike of its own. We expect this morning’s calm to be replaced by further volatility later.
Main drivers: Recovery in risk appetite; FOMC meeting is crucial; geopolitical tensions remain high; OPEC+ hint at no change to supplies; Economic calendar: Bank of Canada and the FOMC later.
Sentiment stable, potentially recovering: Wall Street sold off into the close but recovery is threatening today. Markets appear to be more settled this morning but it could be a sense of consolidation ahead of the crucial Fed meeting later.
Geopolitical tensions remain elevated: There is no sign of improvement on the Russia/Ukraine tensions. The US is talking about sanctions on Russia [Geopolitical risk remains elevated]
OPEC+ on supplies: Representatives have suggested that oil price gains have come on geopolitical tensions and not on-demand improvements. This would suggest that OPEC+ feels there is no need to change supply levels. [Oil supportive]
Central Banks in focus: Both the Fed and the Bank of Canada announce monetary policy today. There is potential that the BoC could increase rates today although the consensus is not expecting it. The Fed is not quite ready to hike (in March it is likely). Both decisions will have volatility for respective currencies CAD and USD. [Expect elevated volatility]
Central Bank speaks: With the Fed meeting today, Fed Chair Powell’s press conference is at 1930GMT.
- US Goods Trade Balance (at 1330GMT). The goods trade deficit is expected to improve slightly to -$96.1bn (from 98.0bn)
- Bank of Canada monetary policy (at 1500GMT). Consensus expects no change to the rate of +0.25%
- Federal Reserve monetary policy (at 1900GMT). Consensus expects no change to the rate of <0.25%. There could be a surprise ending of asset purchases but it is not expected.
- New Zealand CPI (at 2145GMT). Analyst forecasts suggest inflation increasing to +5.7% YoY in Q4 (up from +4.9% in Q3).
Broad outlook: Sentiment has improved marginally this morning ahead of the Fed.
Forex: Safe havens of JPY and CHF are underperforming, along with EUR. AUD is the main outperformer.
- EUR/USD continues to drift lower, breaching consistently the support of the shallow uptrend channel as support around 1.1300. A close below 1.1270/1.1280 (higher low support) turns the outlook corrective for a test of 1.1185/1.1220. Resistance at 1.1360/1.1385 is increasing.
- GBP/USD has picked up from 1.3435 and is pausing the correction. This may just be consolidation in front of the Fed. Resistance at 1.3570/1.3600 is key and needs to be overcome for sustainable improvement. Closing below 1.3435 re-opens downside.
- AUD/USD has picked up from above 0.7080 support and is starting to look a little more positive. Reaction around the 0.7170/0.7185 pivot band will be key as this is now resistance.
Commodities: gold is consolidating, silver sliding back. Oil is increasingly struggling to find consistent buyers now.
- Gold moved above $1848 to the open upside towards $1877 but has slipped back in recent hours on an improvement in market sentiment. The first key support of note is $1835 which is above the band $1828/$1832.
- The silver correction has started to find support and stabilize above the $23.25/$23.45 breakout. Above initial resistance at $24.00/$24.10 would improve the outlook for upside.
- Brent Crude oil outlook has been more uncertain in recent sessions with big intraday swings higher and lower. However, the improvement in broad sentiment today is helping oil higher again. A move above resistance at $88.90 re-opens the $89.55 high. Support at $86.10 and then $85.05.
Indices: Signs of support starting to build on Wall Street, similarly with European markets beginning to find willing buyers.
- S&P 500 futures are ticking back higher again today, but the reaction to 4402/4411 resistance will be important. A close above 4411 would complete a base pattern and imply recovery to test the key resistance around 4490/4515.
- DAX outlook is improving this morning with a near-term higher low and higher high forming (leaving support at 14,975). Next resistance at 15,445/15,585.
- FTSE 100 is recovering, with the corrective momentum now turning positive once more. A decisive move above the 7500 resistance area would be the next step forward. Above 7542 re-opens the high again. Support is growing at 7350/7400.