DAX -8 points at 12553

FTSE +3 points at 7278

DAX -8 points at 12553

CAC -6 points at 5231

Euro Stoxx -7 points at 3524

The geopolitical tensions rise as the US President Trump threatens to ‘totally destroy’ North Korea in case of an attack against the US or its allies. News that Saudi Arabia and the UAE had to back off from an eventual military action against Qatar due to US request at the beginning of their dispute added some more spice to the globally tense headlines.

Gold rebounded from $1’304 and recovered to $1’313 in Asia, as investors preferred to play on the safe side. The $1’300 is the level to watch today. If the Federal Reserve (Fed) decision triggers a USD-rally, the $1’300-support, which is the major 38.2% retrace on July-August rise, could be cleared. A negative breakout should suggest a bearish reversal on the two-month positive trend and encourage a further slide toward the 50-day moving average ($1’286).

The yen is not the ideal safe-haven currency due to its proximity to the N. Korean threat and talks of a snap election. The USDJPY consolidates around the daily Ichimoku cloud top (111.55). Trend and momentum indicators are positive. Decent call options trail above the 111.00 mark at today’s expiry. Traders are hedged against a further yen depreciation despite the global flight-to-safety and the Fed risks.

The Fed decision is the main highlight of the day. The Fed is expected to maintain the interest rates unchanged at this month’s meeting. There could be an announcement concerning the balance sheet normalisation. The FOMC could start unwinding its $4.47 trillion worth balance sheet by $10 billion and increase the shrinkage to $50 billion in the coming months. To us, the Fed could prevent from shrinking the balance sheet immediately after the announcement. November or December could be plausible candidates for a start date. December rate hike will likely be kept on the table. The probability of a December rate hike has improved to 53.2% before the decision. The US-10-year yield advanced to 2.2410%.

The Dow Jones extended gains to a fresh all-time high (22386.01) on Tuesday, as the S&P500 consolidated at the historical high levels.

In Asia, the US dollar depreciated against its G10 counterparts.

The AUDUSD traded in the tight range of 0.8000/0.8026, yet the gains are at risk due to the slide in iron ore prices (-4.2% in iron ore delivered to Qingdao China). The Fed decision should give a clearer swing to the pair. A hawkish Fed could send the pair toward its 50-day moving average (0.7950), while a softer US dollar could encourage a sustainable recovery toward 0.8124 (September peak) before 0.8163 (May 2015 high).

The EURUSD extended gains above the 1.20 level on the back of a broad-based USD weakness before the Fed decision. Depending on the post-Fed USD-appetite, the EURUSD could return to its 200-hour moving average (1.1962), or pursue its short-term positive trend following the golden cross-formation on the hourly chart (50-hour moving average crossing above the 200-hour moving average). Resistance is eyed at 1.2080/1.2100 (post-ECB top). Decent call options at 1.1950/1.2000 are due today.

The GBPUSD finds buyers below the 1.35 mark. The UK’s retail sales data is due today. Analysts expect a slower expansion in the retail activity in August compared to a month earlier. This is mostly priced in. Hence, a soft data should not deteriorate the pound appetite significantly, unless there is a bigger disappointment. Buyers are touted at 1.3472/1.3500 (100-hour moving average). Support to the post-Bank of England (BoE) rally stands at 1.3438 (major 38.2% retracement).

The EURGBP saw support at 0.8772 and bounced to 0.8898 (minor 23.6% retracement on August 28 to September 14 decline). The positive correction could meet resistance at the 100-day moving average (0.8930) before the critical 0.8976 (major 38.2% retrace). Trend and momentum indicators remain negative on daily basis; the 200-day moving average (0.8740) is still on the radar.

The FTSE 100 remains under the pressure of a stronger pound. Offers are presumed into the 200-day moving average (7313p). Energy stocks (+1.03%) lead gains on Tuesday. However, the fading positive appetite in oil prices could weigh on the energy stocks on Wednesday. Australian energy stocks erased 0.69% in Sydney.

The WTI crude remained capped at $50.80 for the second consecutive session. The formation of a double top could indicate a short-term bearish reversal and encourage a downside correction toward the 200-day moving average ($49.75). The EIA will release the weekly oil inventories data today. The US oil inventories may have increased by 2.8 million barrels last week, versus 5.9 million barrel a week earlier. A slower rise in inventories could limit the downside potential in the oil markets. A minor support to August 30 to September 17 rise stands at $49.60 (minor 23.6% retracement).