The opening London Session of the week has been extremely tepid by all measurements. The central theme revolves around the US Federal Open Market Committee (FOMC) meeting to come tomorrow. The price action seen thus far today is typical ahead of an event of such significance. Traders are reluctant to assume positions in case of an unforeseen outcome. Instead, market players tend to stay on the sidelines until certainty is assured. As for this individual economic release, the FOMC rate decision will cap off a full week (Tuesday December 4th-11th) of high-profile occurrences in the global markets.

Both ranges and volume have been below-average versus a normal London Session for the reason mentioned above. The lone flurry of volatile activity came at 0100 EDT (0600 GMT), prior to the London open. A global investment bank based in Europe shocked the market with the news of a sizable write-down ($10B) due to sub-prime loan exposure. Instinctively, traders targeted EURJPY - the proxy for the Carry trade (“risky” asset) – and sold the cross down 40 pips from 163.65. The pair eventually recovered as traders interpreted additional headlines of sovereign funds and Middle Eastern investments in the aforementioned financial institution as a bullish sign for equities (also a “risky” asset). Thus, we ultimately saw US equity futures flip to the positive and high-yielding currencies trade with a firm tone. The US dollar has taken a modest fall in most pairs.  EURUSD and GBPUSD advanced to fresh highs for the day, while USDCAD and USDCHF slipped to short-term technical levels of interest. In the big picture, the FX market is little changed in either direction with the exception of noteworthy gains in the beaten British Pound.

As mentioned, the highlight of the week ahead in the US will be the Tuesday FOMC rate decision. The consensus forecast a 25bp rate cut to 4.25%. The markets had been pricing in a good chance of a 50bp cut earlier last week, but those expectations have been completely scaled back in the aftermath of the benign jobs data last week.

Upcoming Economic Data Releases (New York Session)

  • 0815 EDT Nov Canada Housing Starts, consensus: 221.0k (relevance: low)
  • 1000 EDT Oct US Pending Home Sales MoM, consensus: -1.0% (relevance: low)