FTSE +34 points at 7545
DAX +48 points at 12738
CAC +6 points at 5255
Euro Stoxx +11 points at 3555
The Federal Reserve (Fed) starts its two-day meeting today. The Fed is widely expected to raise the interest rates by 25 basis points for the third time since December. The US dollar and the US yields are steady, as the 25bp hike is almost fully priced in. The accompanying statement will be the major highlight: traders will focus on any details regarding the Fed’s balance sheet normalisation plans and the timing of the next rate hike. The Fed could pause its rate hike marathon until the end of the year, given that the Trump-reflation trend is waning and the new government’s massive spending plans and fiscal reforms appear to be delayed
The G10 currencies traded mixed against the US dollar; the antipodeans (AUD +0.21%, NZD +0.38%, CAD +0.21%) recorded light gains as the US yields remained subdued before the Fed meeting.
Gold traded below the critical $1,265-support (major 38.2% retrace on May-June rise). The stagnant US yields could limit the downside potential in gold. Dip-buyers are seen at $1,260 (50-day moving average), $1,255 (50% retrace) and $1,245 (61.8% retrace).
The US futures traded in the green. Dow Jones futures strengthened by 22 points, as the Nasdaq 100 and S&P 500 futures gained 14 and 3 points respectively.
The USD/JPY hovered around the 110.00 mark. Nikkei (-0.06%) and Topix (+0.15%) were mixed for a second session.
The WTI crude recovered to $46.85 amid forecasts showed that the US stockpiles may have decline by 2.25 million barrels last week, versus +3.3mio printed a week earlier. The EIA data is due tomorrow. Improved sentiment in oil markets could encourage a further recovery to $46.90 (minor 23.6% retrace on May-June decline) and $47.88 (major 38.2% retrace)
In Europe, the day begins with news that the EU and the UK failed to agree on a start day for the Brexit negotiations.
The GBP/USD trades near its 100-day moving average (1.2645) before the May inflation data. The UK’s headline inflation is seen unchanged at 2.7% year-on-year and the core inflation steady at 2.4%y/y. The British inflation figures are very strong, essentially due to the post-Brexit depreciation in the pound.
The rising inflationary pressures in the UK have become a serious headache for the Bank of England (BoE) over the past year. Although the political turmoil in the UK may meaningfully hurt the UK’s economy under the Brexit circumstances, the BoE’s hands are tied due to the rising inflation. Governor Mark Carney will be obliged to write an open letter to the government if the inflation in the UK rises above the 3% level. A situation he would preferably avoid, even though he has a good explanation to defend his position.
Therefore, a positive surprise in the inflation data should revive the BoE-hawks before Thursday’s monetary policy meeting and could halt the pound’s decline temporarily. Still, the upside potential is seen limited due to political uncertainties following the unexpected outcome on Thursday’s general election. Decent GBP/USD-put options trail below 1.2870 at today’s expiry.
The FTSE futures (+37 points) hint at a positive open in London on the back of a softer pound and improved energy prices. The DAX (-0.98%) and the CAC (-1.12%) failed to pare losses on Monday, despite Macron’s victory in the first round of the French parliamentary election and the softening euro. German and French stocks are set for a firmer open on Tuesday. The EUR/USD traded under pressure in Asia. The single currency ease to 1.1189 against the greenback.
The AUD/USD had a double top formation at 0.7565. The lack of positive momentum in the USD and the US yields is supportive of a further rise to the critical resistance at 0.7588 (major 61.8% retrace on March – May decline). Softer Fed expectations could help the AUD/USD breaking the 61.8% Fibonacci resistance and encourage a renewed strength toward the 0.7750/0.7800 mid-term resistance. Failure to surpass the 0.7588/0.7600 area could suggest a short-term correction to 0.7515 (200-day moving average).
Quick glance at technicals on LCG Trader:
EUR/GBP intraday: upside prevails. Long positions above 0.8805 (pivot) with targets at 0.8870 & 0.8900 in extension. Below 0.8805, downside potential to 0.8775 & 0.8745.
NZD/USD intraday: upside prevails. Long positions above 0.7190 pivot) with targets at 0.7240 & 0.7260 in extension. Below 0.7190, downside potential to 0.7170 & 0.7150.
Copper (CME) (N7) intraday: under pressure. Short positions below 2.6380 (pivot) with targets at 2.5980 & 2.5740 in extension. Above 2.6380, upside potential to 2.6520 & 2.6650.