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Intermarket:
• SP Futures 4184 (+0.14%)
• EUSTXX 3968 (+0.20%)
• Crude Oil 62.93 (-0.04%)
• US 10YR 1.62% (+3.31%)
• EurUsd 1.2074 (-0.13%)
• UsdJpy 108.83 (+0.13%)
• DAX 15275 (+0.09%)
Risk assets are mixed and insipid going into today’s European Open, following a mixed Asia session. Strong earnings from Alphabet, Microsoft and AMD failed to inspire US equities yesterday, and the SP500 ended marginally lower while VIX was also down to 17.56. Ahead of FOMC, the 10-year yield is up to 1.62% (highest since 14 April). Meanwhile, US President Biden left the estate-tax hike out of his funding measures for the “American Families Plan”, and lifted the outdoor mask mandate.
Easy monetary and fiscal policy (from Powell & Biden respectively) is factored into the markets already, so markets are now wondering just how much growth and inflation might spur the FOMC to taper. Powell is expected to stand pat today and just cautiously acknowledge the pickup in data.
In the cryptocurrency market, Ether rose to an all-time high above $2,700 after Bloomberg reported that the European Investment Bank plans to sell a two-year digital bond worth 100 million euros ($120.80 million) on the ethereum blockchain network.
Looking ahead: ECB’s Lagarde, Rehn and Schnabel are speaking today ahead of the main focus which is Biden’s speech and the FOMC decision. Cad Retail Sales are also released.
Matters that Matter:
• Markets calm ahead of FOMC and Biden Speech
• Bipartisan lawmakers readying alternative to Biden infrastructure plan
• Biden lifts outdoor mask mandate
• Australian Q1 core inflation weakest on record, A$ eases
• MSCI launches thematic indexes for investors betting on Chinese megatrends
• UK retailers warn of higher prices as costs rise
• Bank of Canada says it is expecting strong growth in second half of 2021
• Ethereum jumps to record high on report of EIB digital bond issuance
• Canada reported 1st death linked to AZN vaccine
• Potential for EU-UK tension on TCA agreement
Majors 1-Day View:
USDJPY
- Prices posted the 2nd higher daily high & low in a row on Tuesday, interrupting the trend of lower weekly highs with gains of ¾ Big Fig. As such, signals remain bullish for Wednesday.
- Importers & investors reportedly on the bid ahead of Golden Week holiday.
- Stops & offers reported above 109.00 to 109.25.
- US yields supportive, but large opex expiries a factor.
EURUSD
• A failed rally on Monday and a quick recovery of intraday losses on Tuesday have left prices rangebound ahead of key risk event today. As such, the call is to play a break of the 1.2055-1.2118 range.
• US yields firmer, weigh on Eur.
• USD short-covering a factor, in case FOMC strikes a less dovish note.
AUDUSD
• Prices stalled ahead of prior week highs on Tuesday, posting an “inside day”. However, sellers returned during Asia trade, interrupting the sequence of higher daily lows. As such, signals have shifted to a cautious short stance for today.
• AUD lower on CPI miss and drop in AU yields.
• Rejection from .7810s may have discouraged bulls temporarily.
• FOMC and USD dynamics key.
GBPUSD
• Prices posted 2 consecutive little changed closes on Monday and Tuesday. A range has thus formed between 1.3857 and 1.3930 ahead of key risk event today. We prefer to play the break of the range.
• USD firmer on Covid issues in India, Japan, Thailand.
• GBP volatility dropping – expansion to be expected.
• Resistance 1.3900, 1.4000; support 1.3810s, 1.3700.
FX Relative ATR Grid
Comment: Volatility has retreated across the board ahead of key event risk today, with decent ranges only in JPY pairs. Pay attention especially to CAD and NZD pairs which have posted a volatility contraction – expect a range expansion.
FX Relative Strength Grid