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ForexLive European FX news wrap: Sterling up after UK CPI, markets mixed awaiting Fed
Headlines:
- Cable nudges up to 1.3200 after sticky UK inflation data
- UK inflation data bolsters odds of BOE keeping bank rate unchanged tomorrow
- What are the main events for today?
- There will be disappointment one way or another come the end of today
- ECB’s Villeroy says likely to continue with rate cuts
- UK August CPI +2.2% vs +2.2% y/y expected
- Eurozone August final CPI +2.2% vs +2.2% y/y prelim
- US MBA mortgage applications w.e. 13 September +14.2% vs +1.4% prior
- Japan maintains economic assessment in latest monthly report
Markets:
- NZD leads, USD lags on the day
- European equities lower; S&P 500 futures up 0.1%
- US 10-year yields up 2.8 bps to 3.677%
- Gold up 0.4% to $2,578.75
- WTI crude down 0.9% to $69.22
- Bitcoin down 0.7% to $59,913
It’s all about the countdown to the Fed and we’re seeing some mixed moves in markets ahead of the main event later.
The dollar is weaker across the board and that despite Treasury yields holding up on the session. USD/JPY remains pinned down since Asia trading, keeping around 141.60-80 levels mostly during the session.
UK inflation data was the main highlight and that helped to prop up sterling a little bit. Services inflation remains a problem for the BOE and that increased odds of the central bank standing pat tomorrow. GBP/USD moved up from 1.3160 to just above 1.3200 currently.
Besides that, the greenback held slightly softer across the board with the antipodeans gaining some modest traction. AUD/USD is up 0.5% to 0.6785 while NZD/USD is up 0.7% to 0.6225 on the day.
That comes even as US futures are keeping more pensive, while European indices are looking rather sluggish. On the latter, perhaps investors are taking on a more cautious approach as the Fed decision will come after the European close.
Tick tock, tick tock. The end of the FOMC meeting can’t come soon enough.
This article was written by Justin Low at www.forexlive.com.
US MBA mortgage applications w.e. 13 September +14.2% vs +1.4% prior
- Prior +1.4%
- Market index 266.8 vs 233.7 prior
- Purchase index 146.1 vs 138.6 prior
- Refinance index 941.4 vs 757.8 prior
- 30-year mortgage rate 6.15% vs 6.29% prior
A further drop in the average rate of the most popular US home loan sparked a big jump in refinancing activity in the past week. And that led to the surge in mortgage applications, also helped by a slight bump in purchases activity. Recovery time?
This article was written by Justin Low at www.forexlive.com.
There will be disappointment one way or another come the end of today
Heavy is the head that wears the crown. The Fed has a very, very big decision to make today. A rate cut is all but confirmed but the major question is by how much? They’ve been suggesting a likelihood of moving by 25 bps since Jackson Hole but market players aren’t listening all too intently. Even if that is what is „expected“ according to estimates from economists, traders are still pricing in considerable odds of a 50 bps move.
So, what will the Fed do later today?
Either way, someone, somewhere is bound to get disappointed. And as is the case when such emotion seeps into markets, expect there to be plenty in the reaction and some significant moves in the aftermath.
The case for moving by 25 bps has been one that Fed policymakers have been outlining since Jackson Hole. The disinflation process is starting to take hold but still moving rather gradually. And there is some softening in labour market conditions but it still largely fits with their soft landing narrative.
So, why the need to push for a 50 bps move?
Well, this is very much markets trying to signal to the Fed they are behind the curve and get policymakers to do their bidding. They tried kicking and screaming in early August and that didn’t work. So, there is a tail risk the carry trade unwind episode could reemerge if the Fed does disappoint certain quarters in the market.
Fed watcher Timiraos contributed to the indecisiveness in markets with his piece last week here. And he added more colour to things yesterday here.
The case in point for a 50 bps move is that the Fed might feel more comfortable in starting off with a bit of a bigger move.
For one, it’ll alleviate suggestions that they are behind the curve and need to do more. Secondly, if economic data is to worsen in the weeks ahead, they’ve at least shown that they are trying to address that in a prompter manner. That as opposed to moving by 25 bps and then not providing much hints about the next move in November.
Nonetheless, the Fed has plenty of ammunition still in the tank. So, to say that they’ve missed the boat in not moving by 50 bps today and that it is all doom and gloom would be misplaced.
I mean, let’s be real. Labour market conditions in the US have shown signs of cooling with some noticeable hiccups or two recently. But other economic data are not screaming out for a significant downturn or recession. As such, a soft landing scenario is still very much valid by all accounts.
If the Fed does stick to its guns, I reckon there will be plenty of kicking and screaming before the week is over. But even if they do make a decision to try and pacify markets, there will be discontent but perhaps not as much given the current pricing. If anything, it’ll be dollar bulls that will be cursing their luck in thinking that the Fed has the cojones to step up when it matters.
But we’ll see what they do later on in the day. Either way, there will be disappointment no matter what the outcome is.
This article was written by Justin Low at www.forexlive.com.
Russell 2000 Technical Analysis – The Fed is cutting rates into resilient growth
Fundamental Overview
Yesterday, we got some more
positive US data releases as the US retail sales came out a touch better than
expected and the industrial production data beat forecasts erasing the
hurricane related weakness in July.
Despite that, the market is
still pricing a 63% probability for a 50 bps cut at today’s decision. What’s
more important is that the Fed is cutting into a resilient economy which should
lead to better growth expectations and support the stock market.
Russell 2000
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that the Russell 2000 eventually rallied back above the major trendline and extended the gains into the
previous high around the 2250 level. The next target for the buyers should be
the 2300 level where we can expect the sellers to step in to position for a
drop back into the trendline.
Russell 2000 Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we had a very strong rally from the lows as the market looks forward
to the Fed rate cuts and the pickup in economic activity. From a risk
management perspective, the buyers will have a better risk to reward setup
around the 2185 support
zone. The sellers, on the other hand, will want to see the price breaking lower
to pile in for a drop into the 2120 level.
Russell 2000 Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have upward minor trendline defining the current bullish momentum. The
buyers will likely keep on leaning on it to position for new highs, while the
sellers will want to see the price breaking lower to position for a drop into
the 2185 support. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have the FOMC rate decision, while tomorrow we get the latest US
jobless claims figures.
This article was written by Giuseppe Dellamotta at www.forexlive.com.