Market Bleeds on Geo-Political Woes, FOMC Update to Provide Directional Bias

Geo-Political WoesEscalating concerns on geo-political issues weighs down investor sentiment resulting in sharp declines. Investors now wait for FOMC update for directional bias which will influence price action for rest of the week.

Summary: Asian and European markets today saw equities bleed red in all major stock exchanges. This downside moves was initiated by dovish cues from US Wall Street as news hit market last night which renewed tensions surrounding Sino-U.S. trade talks. Recent headlines suggest that both Brexit & Sino-U.S. trade talks are currently nowhere near to positive resolution which caused a sharp increase in risk averse trading activity today. According to headlines from last night’s American market hours, several US officials have stated that China is already backing away from some of their pledges for trade deal despite comments from US President Donald Trump hinting at positive progress between two nations on trade talks. Further, comments from EU officials yesterday suggested that while a delay in Brexit deadline is highly likely, the finalized update on same from EU may not hit market following upcoming meeting between all 27 member nations. These factors caused investors to take on cautious stance while awaiting further headlines for clarification before placing new major bets resulting in dovish price action.

Precious Metals: Profit booking ahead of today’s FOMC update caused gold and silver to see slight downside price action. However, steady inflow of funds from emerging markets owing to risk averse trading activity in equity and forex markets helped prevent sharp decline and keep price stable above critical price levels.

USD/JPY: Despite opening on positive note the pair saw steady downside action across majority of Asian and European market hours as renewed tension surrounding Sino-U.S. trade talks led to risk averse trading activity in global market. Further, the US Dollar’s weakness ahead of FOMC updates added strength to JPY bulls resulting in dovish price action.

AUD/USD:  The pair saw sharp dovish price action during American and Asian market hours as news regarding Sino-U.S. trade talks inspired risk averse trading activity. Further owing to its position in market as Chinese proxy, news of Sino-U.S. trade deal uncertainties weighed down AUD. However USD’s weakness ahead of FOMC update owing to expectations for dovish forward guidance helped pair erase early loss and trade range bound in broad market.

fedOn The Lookout: The main focus of investors is now on US Federal Reserve’s upcoming interest rate decisions and press conference. Owing to recent disappointing macro data from US and dovish Fed comments from recent past, analysts and traders expect the forward guidance from Fed to be highly dovish in nature. There are a few who even expect that FOMC members will comment on possibility of rate cuts if US macro data continues to disappoint in near future. Meanwhile investor focus also lies on headlines relating to Sino-U.S. trade deal and Brexit as tensions surrounding both issues continue to escalate owing to speculative headlines which suggest that both issues may continue to drag instead of seeing resolution in near future. Meanwhile conflicting headlines on Brexit front has left investors on cautious stance as they await further updates before coming to conclusions and placing major bets.  On the release front, aside from FOMC update, investors are also on lookout for weekly EIA crude oil data and Australian employment update later in Pacific-Asian market hours.

Trading Perspective: Investors have taken cautious stance ahead of today’s US FOMC update while tensions surrounding Sino-U.S. trade talks continue to weigh down investor sentiment. These factors suggest that major assets are likely to see range bound price action with little trading volume as investors await Fed forward guidance and headlines of geo-political issues for directional cues before placing major bets.

EUR/USD: The price action in intra-day chart suggests that the pair is seeing sharp upside move, while a look at 4 hour and daily chart suggests that price action is range bound with bias favouring EURO. The pair is now stable above mid-1.13 handle but major change is unlikely ahead of US FOMC update. A dovish outcome will push EURO  above 1.14 in short term while a neutral or hawkish outcome would lead to EURO declining to 1.1300 handle owing to influence from recent dovish macro data and concerns surrounding Geo-Political issues.

GBP/USD: The pair is seeing steady downside price today despite US Greenback’s weakness as headlines hinted that EU may not finalise decision on Brexit deadline extension during upcoming meet this Friday. Further, news that UK Prime Minister Theresa May had only requested for short deadline extension also weighed down GBP bulls resulting in sharp decline during European market hours with price falling well below 1.3200 handle. However, caution ahead of US FOMC update resulting in US Greenback’s weakness has helped prevent decline below mid 1.31 handle. Investors now await US FOMC update for short term directional bias ahead of Friday’s EU member nation leaders meeting.

USD/CAD: The USDCAD pair is trading with positive bias since Pacific-Asian market hours despite US Greenback’s weakness in broad market. This upside price move is result of Canadian Dollar declining in broad market. Overnight news which boosted tensions surrounding Sino-U.S. trade talks impacted crude oil price resulting in dovish crude oil price action. A weak Crude oil price is highly dovish for Canadian Dollar but USD’s weakness ahead of upcoming FOMC update prevents US Greenback from making a bullish breakout. Today’s Fed Forward guidance will help USDCAD pair gain directional bias which will dictate momentum for rest of the week.