Italy is on the spot today, as the European Commission vice president, Valdis Dombrovskis, addressing the press conference on Italy budget talks, confirmed that the Commission has reached a deal with Italian government on budget. The positive headlines could bring relief to Italian bonds and the country’s banking sector, which had already benefited from reports that Italy’s government was making concessions after previous standoff. European equities cheered the news gaining over half percent to indices.
Asian indices ended mixed with Hong Kong’s Hang Seng adding 0.1% percent, and Nikkei in Tokyo gave up 0.60% as SoftBank Corp, fell over 10% in first trading day after a huge $18 billion IPO offering. Sellers remained active in Australia with the ASX 200 adding to 0.20% to yesterday’s losses. Oil prices fell trading to their lowest level in more than a year on the back of continued economic uncertainty and growing global supply.
On the Lookout: Investors turn their focus today to the FED’s press conference later in the session, as it is almost certain to raise interest rates by 25 basis points for a fourth time in 2018 at the conclusion of today’s policy meeting at 2:00PM ET. FED will also release new forecasts for GDP growth and interest rates, known as the “dot-plot”. Traders will be watching closely for signs of further hikes into 2019, as global risks and dovish tones from Fed leaders, including Fed Chair Jerome Powell, have pointed to a slowing rate of increases.
Analysts at TD Securities suggest that changes to the FOMC statement language should remove the last vestiges of forward guidance, making policy even more data dependent and hinting that policy may be approaching the end of the cycle. Here are the key quotes:
“In his press conference we expect Chair Powell to continue to sound cautiously optimistic on the outlook and to try to calm market concerns about over-tightening. We think a decline in the 2019 median dot to two hikes from three is slightly more likely than staying put. Conversely, we expect the median longer-run dot to remain at 3%. The overall tone of the meeting should be modestly dovish.
With the FED expected to confirm some of the dovish pricing in rates, we think as confirmation in the dot-plot would be a catalyst to trigger a USD realignment, particularly if this is also met with a US-led equity drawdown.”
Trading Perspective: EURUSD is the leader in forex markets today as the pair regained the 1.14 level making new weekly high, amid positive news from the Italian crisis. In my opinion news will boost European risky assets in the short term but in the long term it adds on more brick to many problems the Eurozone is facing. Traders must be very cautious at that level and even the pair has improved the technical picture in the short term, the 1.14 level has proved strong resistance and EURUSD rejected twice the last two weeks. 1.1425 previous high, is the next hurdle the pair will face, and a clear break can drive the price to 1.1475 area. On the flipside double bottom in 1.1305 level will provide strong support. I expect high volatility for the pair during Jerome Powel press conference.