FOMC In Focus – Traders Brace For Fireworks

FOMC day is finally upon us, and traders are bracing themselves for fireworks. While the Fed is not likely to deviate from the anticipated 75bps worth of tightening expected, the bank’s outlook and guidance will be closely scrutinised. Recently, there has been growing speculation that the Fed might signal a slowing of rate increases from December, in line with what we’ve seen from other central banks such as the RBA and BOC. This perspective has
been the main cause of the USD correction we’ve seen from YTD highs.

If the Fed is seen cooling its outlook further rate increases, likely out of concern for the economy and housing market, this would lean heavily on USD near-term. However, given that the Fed has been resolute in its commitment to defeating inflation and with the vast majority of Fed members remaining hawkish in their commentary ahead of the meeting, further hawkish guidance still looks to be the base case scenario here which should see
fresh buying in USD.

Key Factors for Today

- USD continues to fluctuate ahead of FOMC – traders brace for December outlook
- Mixed action in equities with US stocks losing ground
- JPY leads in FX – EUR & GBP weaken
- Metals and oil higher ahead of FOMC

Coming Up

- USD US ADP Employment change
- USD November FOMC
- NZD RBNZ’s Orr speaks

US Stocks Weaken Ahead of FOMC

Equities prices have seen mixed action so far this week. US stock markets came under pressure yesterday as USD reversed initial weakness and traded higher on the back of better-than-expected ISM manufacturing data, paving the way for a more hawkish Fed outcome today. However, stocks in Europe and Asia have remained well-bid as bond yields continue to soften. The FTSE in particular has had a great week, rallying almost 3% on the back of a softer GBP.

UBER Shares Spike & Drop on Mixed Earnings

US earnings season rolls on and the big story yesterday was the almost 20% spike in UBER shares as the company posted larger-than-forecast revenues of $8.34 billion vs $810 billion expected. However, the gains were short-lived as traders reacted to weaker-than-forecast EPS of -$0.61 vs -$0.17. UBER noted that active users had jumped to fresh highs of 124 million though noted that, while there had been a huge recovery in ride-hailing, bookings were still a little below pre-pandemic levels.

JPY Leads in FX – EUR & GBP Soften

In FX, a softer tone to equities markets has seen JPY finding favour for the first time in a while. JPY has been particularly strong against EUR and GBP so far today which have both come under fresh selling pressure ahead of the FOMC. The prospect of a further 75bps hike from the Fed looks likely to keep USD well seated. Ahead of the main event we’ll also get the latest US ADP employment data which will be taken as a rough gauge ahead of Friday’s jobs data.

Metals & Oil Higher Ahead of FOMC

In the metals and commodities space, both gold and silver are trading higher again today. While we saw some volatility yesterday amidst the bullish reversal in USD, both metals are retaining demand today ahead of the FOMC. Crude prices have been firmer again today also with futures now testing last week’s highs. The latest EIA report is due today and should help support crude prices further if the expected -0.2 million barrel drawdown is confirmed.