Quiet trading before Fed and the Scottish referendum

Market Brief

Nothing much has happened overnight. The risk sentiment remains contained as markets are awaiting the outcome of this week’s key events. The two-day FOMC meeting starts today. The market expectations are decidedly favoring the USD-buy side; investors are positioned for a hawkish shift in Fed’s forward guidance. However we believe that there is room for some disappointment on Wednesday. Released yesterday, the US industrial production and the capacity utilization remained weak in August, thus confirming our doubts that the Fed will likely keep the tone balanced and trigger some short-run deception among the USD-hawks. We stand ready for rectification in USD and US yields.

Elsewhere, the jitters continue in the GBP-complex as Scottish referendum approaches (Sep 18th). In New Zealand, the national elections are due on September 20th and should also keep the political pressures tight on the Kiwi.

USD/JPY and JPY crosses traded in tight ranges as Tokyo came back from holidays. USD/JPY remained tight between 106.93/107.30. Cautious short-term positions due to Fed and Japanese exporter offers keep USD/JPY offered below 107.50. Stops are mixed above. EUR/JPY remains above its daily Ichimoku cloud cover (137.06/91). 200-dma resistance (139.83) is likely limit the upside attempts as uncertainties continue. The tweezer top formation warns of a potential bearish reversal at these levels. Technicals are however at the second plan this week due to heavy eco-political schedule.

On a similar pattern, we see bearish harami formation on USD/CAD daily chart. Resistance is building pre- 1.1100, while option bids will be activated above.

EUR/USD trades in wait-and-see mode. Resistance remains solid at 1.2980/1.3000 pre-Fed. The pair is expected to range-bound between 1.2860/1.2980, a breakout will be defined by how hawkish the Fed will sound on Wednesday.

In UK, the Scots vote occupies the headlines. GBP/USD trades in the sidelines; the event risk keeps traders from taking significant positions on one side or the other. GBP-complex remains too sensitive to news/polls on Scottish referendum; the short-term moves are sharp and unpredictable. We stay in the sidelines. Regarding the option strikes, 1.6300 seems the pivot level of the week. Offers trail below, bids dominate above this level.

The economic calendar of the day consists of Spanish 2Q Labor Costs y/y, UK August CPI, RPI and PPI m/m & y/y, ZEW Survey for German Current Situation and Expectations in September, ZEW Survey for Euro-Zone Expectations in September, Euro-Zone 2Q Labor Costs, US August PPI m/m & y/y, Canadian July Manufacturing Sales m/m, US July Net Long-term TIC Flows and Total Net TIC Flows.