Asian FX Outlook: Fed on track for Dec hike, let the BoE 'show' begin

Main market focus 

Reports keep pilling in that US President Trump is said to have picked Powell as Fed Chair. The Wall Street Journal was the last news outlet to report that the White House has officially communicated Federal Reserve Governor Jerome Powell of Trump's intentions, with the decision due to be announced on Thursday.

The Federal Reserve kept rates unchanged. As part of the policy decision, Yellen outlined "solid" growth, which keeps a December rate hike a likely outcome unless a major unexpected setback. The market is currently pricing in chances of a rate hike in Dec just above 92%.

The next key focus will be the Bank of England monetary policy meeting, expected to raise rates for the first time since July 2007. The Sterling, which rose towards 1.33 this week, has been pricing in the event in anticipation of the actual tightening announcement. 

Another key event to keep an eye on this Thursday will be the announcement of the US tax plan, set to be released at 9 am ET. There have been recent rumours of Republicans mulling phasing in a corporate tax-rate reduction as part of the tax reform plan until it becomes fully applicable by 2022. How market-friendly the tax plan will be remains critical for the performance of US stocks and the USD. 

Upcoming key events 

In Asia, the events standing out are the Australian trade balance data, expected to come at a large surplus, along with Aus building approvals, expected to slide; the latest housing numbers will serve to assess the 'status' of a cooling market mainly due to a restriction of Chinese flows. 

The Bank of England will garner most if not all the attention during European hours. A rate hike appears to be a done deal unless Governor Carney loses whatever credibility he has left after backtracking several times on his attempts to communicate a tightening campaign. 

Major forex market movers

EUR/USD: Sellers continue to hold the upper hand amid continuous divergence in Central Bank directions. The latest bearish daily candle suggests a possible re-test of the trend lows. The breakout of 1.17 has opened the gates for a new wave of committed sellers to step in, with corrections so far limited. US-DE 10-yr yield spread 

GBP/USD: The Pound failed to hold above the 1.33 round number in its attempt to break higher on Wed. The overall technical picture remains constructive for buyers ahead of a much-anticipated rate hike by the BOE on Thursday. While pullbacks should find decent buying interest, is all about the reaction to the Central Bank's policy outcome. Worth noting that UK-US 10-yr yield spread keeps underpinning the upside, with Wed's correction in GBP not reflected in spreads. 

USD/JPY: A very strong close for the interest of buyers, which saw the 114.00 cleared as the pair keeps pushing towards a critical break of a macro area in the 114.00/50 vicinity. The price action reinforces the notion of buying dips, and while risk appetite remains supportive, the US-JP 10-yr yield spread nor the curve is suggesting that a further rise is justified at this point. 

AUD/USD: While Aussie buyers managed to absorb selling flows on Wed, the rise means little (so far), to ease deteriorating technical conditions, which remains bearish as the price stays capped below the 200-day MA, broken through the 0.77 area last week. Any sequence of rebounds in coming days are susceptible of meeting grateful sellers, with 0.77/7735 a key resistance ahead. 

What happened?

Fed left rates unchanged

US Oct Markit Manufacturing PMI final reading came at 54.6 vs 54.5 prev

US Oct ISM Manufacturing PMI came at 58.7 vs 59.5 exp and 60.8 prev 

US Oct ADP National Employment came at 235k vs 200k exp and 135k prev (revised from 110k)

US Sept Construction spending came at 0.3% vs 0.0% exp and 0.5% prev (revised from 0.1%)

Canadian Oct Markit Manufacturing PMI s.a. came at 54.3 vs 55.0 prev

Japan PM Abe said he trusts BOJ Kuroda but no decision on next governor

BOC's Poloz reiterates 'cautious' stance on next rate hike

Economic calendar