FTSE -4 points at 7249

FTSE -4 points at 7249

DAX flat at 12559

CAC -2 points at 5227

Euro Stoxx -2 points at 3524

The Federal Reserve (Fed) begins its two-day meeting today. The FOMC will announce its policy verdict on Wednesday. The US markets are risk-on before the Fed decision. The US stocks traded to new record highs. The S&P500 and the Dow Jones hit fresh all-time highs of $2’508 and $22’355 respectively.

The US dollar swings between the bulls and the bears. Analysts expect the Fed to keep the possibility of a December interest rate hike on the table. There could be discussions on the balance sheet normalisation as well. The probability of a December rate hike rose to 50%, too low to trigger a panic across the stock markets yet too high to be ruled out by the currency and money markets. The US 10-year yield advanced to 2.22%, the 3-month average.

The USDJPY surpassed its 200-day moving average (111.50) and is presently consolidating above the daily Ichimoku cloud top (111.55). The next resistance is eyed at 111.74 (major 61.8% retrace on July – September decline) and 112.00 level. Call options trail from 110 to 112 at today’s expiry and should give support to the positive trend. The Bank of Japan (BoJ) also meets this week and is expected to maintain its dovish policy stance. The divergence between the Fed and the BoJ outlook is in favour of a stronger US dollar against the yen. The short-term support is eyed at 110.05 (daily cloud base).

Nikkei (+1.74%) and Topix (+1.56%) rallied on softer yen. Insurers and banks soared by 2.75% in Tokyo.

The downside correction in gold deepened to $1’305. The key support to July – August rise stands at $1’300 (major 38.2% retrace). This level distinguishes between the continuation of the two-month positive trend and a bearish reversal. A hawkish Fed reaction could send the ounce below the $1’300 mark.

The AUDUSD demand is fading due to the broad-based USD appreciation and dovish minutes from the Reserve Bank of Australia (RBA). The RBA predicts a solid employment growth and a gradual pick-up in the Australian economy. Yet, the high household debt is still a major risk. The bank sees no rate hike in the foreseeable future, even less given that the strong Aussie weighs on inflation and low inflation is suitable for a prolonged period of status quo on rates. The AUDUSD could take out the 0.7936 support (minor 23.6% retrace on April – September rise) and extend weakness toward 0.7820 (major 38.2% retrace), if the USD demand strengthens.

Cable consolidates the post-Bank of England (BoE) gains. The key support to the post-BoE rally stands at 1.3438 (major 38.2% retrace). In the aftermath of the latest BoE meeting, the market brainstorming has resulted in a ‘one and done’ consensus if the BoE would eventually raise the interest rate. Hedge funds believe that Mark Carney may simply be bluffing. Despite the fading hawkish BoE bets, an important medium-term support is eyed at 1.3420 (Fibonacci 50% retracement on post-Brexit sell-off) and should lend a basis to the recent hawkish development on the UK’s monetary policy.

The FTSE 100 will likely remain under pressure at the London open. Solid resistance is eyed approaching the 200-day moving average (7310p).

The DAX consolidates above its 100-day moving average (12’461). German general election will take place on September 24. According to the latest polls, Chancellor Angela Merkel’s Christian Democratic Union (CDU) and its ally Christian Social Union (CSU) are expected to obtain 36% of the vote, yet uncertainties persist on the final coalition with Merkel’s CDU. Euro traders could refrain from entering fresh directional positions before the election weekend. The ZEW survey on September expectations and the Eurozone's July current account data are due today and can trigger a short-term minor price volatility. The EURUSD will likely fluctuate around its 200-hour moving average (1.1960). The 50-day moving average (1.1840) could lend a stronger support if needed.