There is not much to occupy markets ahead of the Fed tonight. This was evident in a return to more normal trading volumes in Asia and early Europe. Equities are offering little steer as the whole traders have little conviction or enthusiasm to trade at the moment, so not sure anyone is going to make any significant moves ahead of the Fed. There is probably more inclination to trim risk ahead of the meeting, especially after a convincing step the DXY has put in of late.
In the US, negotiations continue over the latest stimulus bills with several contentious issues. There was a condemnation of plans for a new FBI building from both sides. At the same time, the Republicans were also adamant there would be no negotiation over provisions for liability protection for businesses, schools, and charities. The House is supposed to depart later this week for the August recess, but they could be called back with 24-hour notice to vote on a potential package. However, Politico notes that multiple Democratic aides said a deal next week seems hopeful at best for the time being.
The US Federal Reserve concludes its two-day meeting. For the economy, there is a limit to what the Fed can do. It can influence the markets and adjust the wealth distribution of savers and ease the burden on borrowers. But they can not directly impact incomes for the majority of folks. The current situation is all about money in consumer pockets, which is precisely why fiscal policy is so much more important.
Currency Markets
The euro has been trading sideways for the past 48 hours, and frankly, I'm a bit surprised we even pushed up to 1.1770 in London today, but the market is thin. One man's order pushed the euro higher despite the pair failing to print fresh highs yesterday but did print higher lows, which might have encouraged some early morning London buyers. But even after the Fed on a failure to make significant headroom above 1.1800, it might be fair to assume that the dollar bears could run out of patience at some point – so far this week's highs 1.1775-80 have been a trigger point for that today.
Why has THB weakened so much despite usually being seen as a gold-centric market? Market positioning is currently short THB (the second most shorts after IDR) driven by domestic protests, changes in parliament, fears over a second wave of COVID-19, and a drop in onshore repatriation this month (balance of payments).
It's been a quiet day with USD/CNH stuck in a 7.0019-7.0100 range, and USD/KRW fails to catch back up to 1198 with exporters' month-end selling interest keeping a lid. The market seems to be on the sidelines for the FOMC decision, and this should continue tonight.
Metals
Metals are a bit more predictable today, and most pairs across G10 and EM are rather well behaved. The XAU/XAG ratio has been hovering around 80.5 since the start, a far cry from the way it jitters bugged on Tuesday. Flows are pretty thematic around position squaring into the FOMC.
Oil Markets
Crude oil has seemingly found itself a trading range around the $43/bbl level and absent any big new news appears to have settled. The CBOE's oil 'Vix' volatility contract is now trading at its lowest level since mid-February as markets settle down. It could be having a calming effect on the usually high volatile oil markets.
Oil has been trading well since the surprise draw in the API as shorts are predicatively squaring ahead of a possible beat on the EIA data and as Oil bulls once again take comfort in the weaker US dollar, which correlates favorably to oil prices.