Spreadex Market Update
USD In Holding Pattern Ahead of FOMC Tomorrow
The US Dollar is clearly marking time ahead of the FOMC tomorrow. The Dollar index is roughly unchanged on the week and further light action is expected as traders await the headline event tomorrow. We do have some US data later today with the CB consumer confidence reading, Richmond manufacturing and new home sales. However, given the near certainty of at least 75bps worth of hiking tomorrow, these data points are likely to have limited impact on the Dollar.
Key Factors for Today
- USD muted ahead of FOMC – today’s data expected to have limited impact
- Mixed action across risk markets, FTSE leading the way, Nasdaq lower
- CAD leading in FX, boosted by higher oil prices, CHF & JPY lower – GBP down on political uncertainty
- Gold and silver bid again on Tuesday
- Oil rallying on Gazprom news and EU meeting regarding Russian gas use
Coming Up
- USD CB consumer confidence
- USD Richmond manufacturing index
- USD New home sales
Mixed Action in Equities
Risk assets have seen muted action over the week so far given the proximity of tomorrow’s all-important FOMC. Individual performance in equities indices has been mixed, however, with the FTSE around 1.5% higher on the week, benefiting from a weaker GBP. The Nasdaq, on the other hand, is sitting more than 3% off the week’s highs, reflecting hawkish expectation ahead of the Fed tomorrow. DAX slipped back from highs yesterday as the German ifo data hit two-year lows, with the head of the institute warning that the country is on the brink of recession.
CAD Leads In FX
The Canadian Dollar has seen a sharp shift in sentiment this week, reversing initial weakness to take the lead on Tuesday. The rally is being driven by higher oil prices as markets await news on today’s EU meeting regarding further reduction of Russian gas use. With Russia having recorded further reduced Nord stream supply by 20% this week, traders are anticipating a knock-on effect on oil prices due to a shift in demand.
Political Uncertainty Hits GBP
CHF and JPY have been among the weaker performers again today as the ongoing lull in USD allows risk-linked currencies better room to run, cutting safe-haven demand. GBP has also continued lower today as political uncertainty in the UK and the growing cost-of-living crisis continue to dampen investor sentiment.
Gold & Silver Hold Near Lows
The metals market is seeing some signs of life again on Tuesday. Both gold and silver are trading higher across the European open, however, action remains fairly muted. Gold prices are doing a little better than their silver counterpart with the metal still sitting up off last week’s lows while silver is struggling to make any headway and looks vulnerable to further downside.
Oil Price Rally as EU Leaders Meet Over Russian Gas
Oil prices are rising firmly over the early European session on Tuesday. For now, traders are shrugging off hawkish FOMC expectations as the focus once again shifts back to tight supply. With EU leaders set to potentially further downgrade their use of Russian gas, on the back of Gazprom announcing a fresh 20% drop in Nord stream supply, due to technical reasons, traders are anticipating better demand for oil products. As such, the outcome of today’s meeting is likely to be key for oil direction in the near-term. We’ll also have the latest API data due today which should give some insight into US demand ahead of the EIA release tomorrow.
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