FOMC minutes broadly neutral with some hawkish undertones

Fundamental Analysis

A fast-paced morning session today as we had Eurozone Manufacturing PMI data come in. French and German data missed on their headlines with the German figure sparking mass weakness in the DAX and Estoxx. Although the DAX found support just below S2, it has not pushed past the double resistance formed yesterday. In a correlated move we saw the Bund push higher to extremities of today’s range, aiding T-Notes to move higher. We also had UK Retail Sales this morning coming in at 0.80% against an expected 0.30%. This allowed Cable to make new highs for the session and this move has been sustained for the duration of the morning. We had the Fed’s Minutes overnight, coming in with a mix of commentary. This included discussion of removing “considerable time” from their Monetary Policy, a phrase which has elevated the Fed’s dovish position since rates were cut to historic lows. It should be noted that only one voting member voted against keeping this dovish language and the majority line meant there was little effect in the markets. However the discussion of this should be noted as it becomes more important with each US data point that exceeds analysts’ expectations. The decision to remove Quantitative Easing from the Fed’s policy was unanimous as data had improved considerably over the past year. The most interesting part of an otherwise boring set of minutes comes from a section which implied that the Fed would soon provide a better picture of how they intend to raise rates, the pace of the hikes and their inception, which analysts believe to be around the middle of next year. China’s Manufacturing numbers also entered the market lower than expected at 50.8. This is another decline from the highs in July at 51.7; the reaction in the market was relatively subdued with no large moves worthy of mention. Both S&P 500 and EURUSD strategies were filled, the S&P during yesterday’s afternoon session and the EURUSD achieved second target during the US afternoon trading session.

Today’s View

For the afternoon ahead we have US inflation for October due at 1330. This is expected at 1.60% on the annual figure with a previous number of 1.70%. Any numbers outside the range are likely to drive prices so please remain aware of the risks of trading around this time. This move will also be affected by the Fed’s monetary policy stance and also last night’s commentary on lower than target inflation just as bad as inflation above 2.0%. As usual we also have the weekly jobs report, expected at 284k. A further reading below the 300k handle on Initial Jobless claims will aid the dollar to strengthen as rate hike speculations are priced in. We also have Manufacturing PMI due at 1445 with 56.3 as the expected month on month headline figure. Existing Home sales and Philadelphia Fed are also due at 3pm, with 18.5 expected on the index and 5.15m on the housing numbers. The Existing Home Sales are arguably more important as housing are one of the Fed’s indicators for gauging rate hikes so this will hold more weight. Do take into account all numbers however and trade accordingly. Please also be aware that as we move into the winter months there is usually a rush to complete on mortgage exchanges so this could also come into play. It is therefore likely that the home sales numbers are likely to be higher in both December and January as these numbers look back, however we are bullish on this number today. As equities have sold off nicely during the European session we are happy to maintain our bullish outlook at stronger levels. We are looking for dollar strength on the back of positive US data sets, especially housing. We are expecting Tnotes to move inversely with equities and will be looking for a conservative entry short. Crude is likely to follow the trend lower and again we are following the best technical entry with the direction here.

Alternative View

Misses on US data, especially housing and CPI this afternoon, are likely to invalidate the EURUSD strategy. Continued developments from Fed Speakers should be carefully analysed in the wake of yesterday’s FOMC minutes.