The widely flagged taper could be signaled from tonight. The risk is that the Fed doesn’t do anything and keeps the markets waiting for another month. The press conference is likely to be a time that any move that happens on the initial announcement is faded. A lot of central banks will be waiting to move after the Fed do, to keep their currency deprecation under the US dollar, which is good for their exports. So tonight could be the day the world pivots more to a rate hike cycle market.
The forex heatmap is very mixed today as the relative strength is confined to some tight ranges as we await the FOMC monetary policy decision today. The GBP and CHF have caught a bid and go into the London close stronger than the likes of AUD and CAD. The yen is very oversold and remains weaker and is likely to allow the USDJPY to rise further should the Fed come out as Hawkish as everyone expects. Recently the USDJPY has been tracking the rising US benchmark yields. Meaning the bigger risk is that the market takes the news today as Dovish, and we get a sell-off in the US dollar and the USDJPY goes lower instead.
US ISM non-manufacturing PMI for October 2021 came in higher than market analysts had predicted, printing a 66.7 versus the expected 62.0 and above the 61.9 from the prior month. US factory orders MoM for September were lower than the revised August numbers which had moved lower from 1.2% down to 1.0%.
US ADP numbers came out better than expected today with October printing 571K new jobs compared to the expected 400K. Today’s reading beats the downwardly revised previous reading of 523K too. This marks the 3rd consecutive month that the ADP jobs report has risen. Even though the data has been good so far for the US the FOMC meeting is stopping the S&P500 from traveling too far away from its opening print.
Similarly, the US dollar index is caught in a tight range, though the price action above an Ichimoku cloud suggests that momentum is still to the upside and that momentum can lead to price. Higher rates which currently have a 0% probability of being announced would be an automatic rise in the US dollar today as traders would react in that way. So, if there is any Hawkish slant, or mention of a rate hike cycle happening sooner, we may get the repricing higher of the US dollar then.
Expectations are for a rise in the Bank of England’s rate policy tomorrow, so the GBPUSD has found a bid from a previous balance area. The daily moving averages will offer some dynamic resistance, though the probabilities of a higher swing are high or still the way I see this panning out.
The USDCAD popped higher into the first resistance level I mentioned in the morning brief, and that came on the back of news that the EIA report was showing a build in crude inventories. Weekly crude stocks were up 3.291M versus the expected build of 2.225M. Though today’s figure is less than last week's 4.267M. There were also reports of an altercation between the USA and Iran in the Straits of Hormuz, but the US denies any involvement. Tomorrow’s OPEC+ meeting is likely to keep the status quo with no additional production increases, regardless of what the Biden administration calls for.
A wider move in commodity prices downward may be signaled by the weekly builds in crude inventories. As China's energy crunch hit manufacturing, the dry ship index, which rose on the back of bottlenecks and container ships being in the wrong place at the wrong time, has fallen off its highs. If the Coronavirus persists in causing disruptions, there could be a lack of demand spreading out of China, which opens the door to the possibility of an oversupply in otherwise tight markets.
Tomorrow and Friday both have Tier-1 data events, so whatever happens tonight, there is a large probability that some breakouts or trend changes reverse in the next 48 hours. Buy a dip or retest of a level if you can.