FOMC Update

Market Subdued Ahead of FOMC Update & Sino-U.S. Trade Talks

FOMC UpdateAs investors await directional cues from US FOMC update and Sino-U.S. trade talks, cautious tone in market has limited upside move but risk appetite seems plenty resulting in major assets taking range bound action with signs of slight positive bias.

Summary: European equity markets are trading in green despite prevalent cautious investor sentiment and mixed performance in Asian equities. Similarly most major forex pairs are seeing mixed outcome as investor sentiment continues to remain divided in broad market. Equities seem relatively well shielded from Brexit chaos in broad market, while in forex market both Euro & GBP suffered some level of loss on same. Major stocks are mixed in European market owing to mixed cues from Asian and US markets. Tensions remain high owing to U.S. Justice Departments legal proceedings against Chinese telecom giant Huawei ahead of two-day meeting between high level representatives from China & U.S.A in Washington which is set to begin today. Also investors have held back from placing major bets ahead of US FOMC update scheduled to release later today. Investors are looking for forward guidance data to confirm fed’s stance on rate hike plans for 2019 and hope to get official comments on WSJ report of Fed’s plan to end balance sheet shrinking activities released earlier this week.

Precious Metals: Cautious investor sentiment in broad market continued to underpin demand for safe haven assets. Further, yellow metal received a bullish breakout trigger following spike in demand for safe haven assets in European markets as UK parliament meeting outcome resulted in uncertainties surrounding Brexit return to fore front. Gold hit 8-month high and continues to trade positive as investors have held back from placing major bets in risk assets ahead of US FOMC update later today. Silver also hit six month high in spot market earlier today and is now on path to breach $16 handle supported by steady demand for precious metals in broad market.

USD/JPY: The pair trades range bound despite cautious investor sentiment as there is significant level of risk-on trading activity in broad market. Better than expected retail sales data also failed to put a bid under Yen resulting in pair holding steady near mid $109 handle. As FOMC MPC update today will have great impact on long term outlook of US Dollar investors have held back from placing major bets. The outcome of Sino-U.S. trade talks combined with comments from Fed members during today’s press conference on MPC update will help decide medium to long term outlook of pair and a facilitate a breakout from ongoing range bound price action.

AUD/USD: Australian Dollar gained solid bullish boost following better than expected CPI data which helped push the pair to new 1½ week highs. The pair has managed to attain steady foot hold above 0.72 handle and hit an intra-day high of 0.7205 earlier in the day. The positive price action is further supported by US Dollar’s weakness in broad market. Investors now await US FOMC update to confirm Fed’s stance on rate hike plans for 2019 and official comments about retaining portfolio size as it will help gain directional bias before placing major bets.

On The Lookout: Investors are now focusing on two-day talks between China & U.S. high level representatives set to begin later today. The meeting is special as both parties involved in negotiation has the power to make decisions on key issues left unresolved so far and could lay foundation for actual trade deal between two nations which is actual solid progress as opposed to small level talks held previously. The tension surrounding talks is very high in current market as Chinese telecom giant Huawei is being sued by U.S. justice department for intellectual property theft. Investors are also on lookout for US FOMC update. While interest rate is expected to remain unchanged, Fed Chair Powell’s comments in post MPC conference is much awaited for his stance of rate hike plans for 2019 and official comments relating to balance sheet shrinking activities. While European markets are relatively silent for the day aside from German CPI data, US markets will see the release of ADP NFP data, Q4 Preliminary GDP data and pending home sales data which are expected to keep equity and forex markets highly volatile during American market hours.

Trading Perspective: The trading session ahead if expected to be highly active both in forex and equity fronts. News driven momentum is expected to keep market volatile while headlines pertaining to major events provide directional bias to for medium to long term outlook.

EUR/USD: The pair continues to trade above 1.14 handle in steady range bound action. Macro data from Euro area such as German GFK Consumer Climate and French Preliminary GDP failed to have any impact on price action as investors focus on US FOMC update for short term profit opportunities. EURO bulls continue to trade positive despite caution in broad market as US Dollar price dynamics continues to have greater control over price momentum in short term.

GBP/USD: British Pound continues to trade range bound above mid-1.30 handle as UK parliament meeting outcome resulted in Brexit uncertainties returning to forefront.  However weak USD in broad market continues to limit declines and help maintain positive price action. If Powell speech signals that Fed has decided to hold back from hiking interest rate for 2019, GBP bulls will break out above 1.31 handle and sustain positive rally for rest of the week.

USD/CAD: The pair is trading in red as US Dollar is weak in broad market ahead of tonight’s FOMC update. Further positive price action of crude oil in broad market also supports commodity linked currency Loonie maintain its grip near intra-day lows. Investors await update on Sino-U.S. trade talks as outcome will have great impact on CAD owing to China’s status as major importer of global crude oil. Meanwhile macro data updates from American calendar will keep the pair highly active.