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eFXdata reports that analysts at TD Research offer their expectations for today's FOMC policy decision. 

"Risks to today's event are biased to the hawkish end, but we wonder how much follow-through the USD might get. For one thing, the recent plunge in risk sentiment has elevated USD positioning and short-term valuations towards extremes."

"For another, while the dots and taper signal might be hawkish, any follow-through will hinge on Powell's tone in the presser. He's likely to sound more patient on the rate hike sequence and may also try to discuss the transitory nature of inflation." 

The U.S. Energy Information Administration (EIA) reported on Wednesday that crude inventories declined by 3.481 million barrels in the week ended September 17, following a tumble of 6.422 million barrels in the previous week. Economists had forecast a decrease of 2.440 million barrels.

At the same time, gasoline stocks rose by 3.475 million barrels, while analysts had expected a draw of 1.067 million barrels. Distillate stocks dropped 2.555 million barrels, while analysts had forecast a fall of 1.190 million barrels.

Meanwhile, oil production in the U.S. increased 500,000 barrels a day to 10.600 million barrels a day.

U.S. crude oil imports averaged 6.5 million barrels per day last week, increased by 0.7 million barrels per day from the previous week.

The National Association of Realtors (NAR) announced on Wednesday that the U.S. existing home sales fell 2.0 percent m-o-m to a seasonally adjusted rate of 5.88 million in August from a revised 6.00 million in July (originally 5.99 million).

Economists had forecast home resales dropping to a 5.89 million-unit pace last month.

In y-o-y terms, existing-home sales declined 1.5 percent in August.

According to the report, all four major regions recorded drops on both a m-o-m and a y-o-y basis. The median existing-home price for all housing types in August was $356,700, up 14.9 percent y-o-y. This marked 114 straight months of y-o-y gains.

Single-family home sales came in at a seasonally-adjusted annual rate of 5.19 million in August, being down 1.9 percent m-o-m and down 2.8 percent from one year ago. The median existing single-family home price was $363,800 in August, up 15.6 percent from August 2020. Meanwhile, existing condominium and co-op sales were recorded at a seasonally-adjusted annual rate of 690,000 units in August, down 2.8 percent from July but up 9.5 percent from one year ago. The median existing condo price was $302,800 in August, an annual advance of 10.8 percent.

"Sales slipped a bit in August as prices rose nationwide," noted Lawrence Yun, NAR's chief economist. "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."

The European Commission (EC) reported on Wednesday its flash estimate showed the consumer confidence indicator for the Eurozone rose by 1.3 points to -4.0 in September from an unrevised -5.3 in the previous month. This was the highest reading since June.

Economists had expected the index to decrease to -5.8.

Considering the European Union (EU) as a whole, consumer sentiment improved by 1.1 points to -5.2.

Given this month’s gains, both indicators remained above their pre-pandemic levels

FXStreet reports Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank notes that platinum has met the initial downside target offered by the 200-week ma at $929. However, this coupled with a triple divergence of the daily RSI suggests that the down move has been exhausted for now.

“Platinum has met its initial downside target of the 200-week ma at $929. The market has traded through here but the new low of $901.68 has not been confirmed by the daily RSI again and this is now triple divergence. 

“Rallies will find the 55-day ma at $1029 now offers decent resistance and the market will need to regain $1046 (January 2020 high) to reassert upside dominance."

“A close above $1046 is needed to negate the current push lower and allow for a deeper recovery to the 200-day ma at $1127.”

U.S. stock-index futures rose on Wednesday ahead of a crucial Federal Reserve policy update later today, as the equity market found support from reports that China's Evergrande struck a deal with creditors over one of its debt payments due Thursday, and the U.S. House lawmakers passed a bill to fund the government through December 3, 2021, and to suspend the debt ceiling through December 16, 2022.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

FXStreet notes that although the medium-term outlook is positive for the kiwi, economists at Rabobank expect NZD/USD to dip below 0.70 in the short term.

“In a speech this week Assistant RBNZ Governor Hawkesby pushed against speculation that the central bank was preparing to announce an aggressive 50 bps rate hike. That said, his remarks can be interpreted as validation that the central bank could be preparing to announce a 25 bps rate hike in October.”

“The fact that the New Zealand economy went into lockdown last month on a very strong footing combined with its rapid recovery from the 2020 restrictions will likely boost policy makers confidence about the economic prospects for 2022. That said the restrictions will clearly have a detrimental impact on growth in the current quarter.”

“We are constructive on the medium-term outlook for the NZD, but see scope for NZD/USD to dip below the 0.70 level on a one-to-three month view.”

FedEx (FDX) downgraded to Mkt Perform from Outperform at Raymond James

• China's economy faces challenges from sporadic COVID-19 cases, high commodity prices
• We will roll out policies to further boost consumption
• We will ensure economic operations stay within reasonable range
• We will maintain stability, continuity and strengthen effectiveness of macro policies
• We will strengthen coordination between fiscal, financial, employment policies

USD traded mixed and little changed against other major currencies in the European session on Wednesday, as markets awaited the announcement of the outcomes of the  Federal Reserve's policy meeting later today.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.02% to 93.23.

The two-day policy meeting of the U.S. central bank will end later today and its outcomes will be released at 18:00 GMT. It is widely expected that at their September gathering the Fed officials will leave key interest rates unchanged at record low levels and will confirm their plans to start QE tapering by the end of the year but will hold off providing details or a timeline for a month or two. 

The latest U.S. economic data painted a mixed picture, providing no certainty on the Fed's stimulus tapering timeline. The last official employment report showed that the pace of jobs growth slowed sharply in August amid a surge in Delta infections, while CPI data revealed a smaller-than-expected increase in consumer prices last month, suggesting that inflation might be starting to cool, and retail sales posted a surprise surge. 

FXStreet reports that Gold (XAU/USD) has recovered from support at $1750/43 and Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggests the yellow metal looks set to range further.

“Gold has sold off to $1750, the 29th June low, it traded below there but most importantly did not close below here and the market is attempting to recover.”

“We have extensive resistance from $1795 to $1834 (55, 200-day moving averages and highs since July) and we look for rallies to struggle on moves into this band – but we actually view the market as pretty sidelined.”

“A close above $1834 is needed to retest the $1856/57 4th June low and the $1860 2020-2021 downtrend.”

“Below $1743 (this week's low), support is found at $1679.80/$1677.83 and is reinforced by the $1670 June 2020 low."

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. surged 4.9 percent in the week ended September 17, following a 0.3 percent gain in the previous week.

According to the report, applications to purchase a home rose 2.2 percent, while refinance applications climbed 6.5 percent.

Meanwhile, the average fixed 30-year mortgage rate remained unchanged at 3.03.

“There was a resurgence in mortgage applications the week after Labor Day, with activity overall at its highest level in over a month, and purchase applications jumping to a high last seen in April 2021,” noted Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Housing demand is strong heading into the fall, despite fast-rising home prices and low inventory. The inventory situation is improving, with more new homes under construction and more homeowners listing their home for sale. Despite this week’s increase, purchase applications were still 13 percent lower than the same week a year ago.”

FXStreet reports that FX Strategists at UOB Group suggest that Cable risks a deeper pullback to the 1.3600-region in the next weeks.

24-hour view: “GBP traded in a relatively quiet manner within a 1.3641/1.3692 range yesterday before closing largely unchanged at 1.3661 (+0.03%). Despite the quiet price actions, the underlying tone appears to have weakened and break of the 1.3640 support appears likely. Barring a surge in downward momentum, the August’s low near 1.3600 is unlikely to come into the picture. Resistance is at 1.3685 followed 1.3715.”

Next 1-3 weeks: “GBP cracked 1.3730 and plummeted to 1.3640 on Monday (20 Sep). Downward momentum has improved and GBP is likely to weaken further. However, any weakness is expected to encounter solid support at 1.3600 (near August’s low). The current downward pressure is deemed intact as long as GBP does not move above 1.3745 (‘strong resistance’ level).”

FXStreet reports that analysts at Credit Suisse note that EUR/USD is holding above 1.17 and only a sustained move below 1.1695 would finally establish a large “head and shoulders” top.

“Key support remains seen at the 38.2% retracement of the 2020/2021 uptrend at 1.1695, a clear and closing break below which (ideally on a weekly basis) should confirm a major top. Assuming we then also see the 1.1663 August low removed, we would look for a more meaningful turn lower with support seen next at 1.1612/04 and eventually back at 1.1495/93.” 

“Resistance stays seen at 1.1750/51 initially, with the immediate risk seen staying lower whilst below the 13-day and 55-day averages and high from last Friday at 1.1789/99.”

FedEx (FDX) reported Q1 FY 2022 earnings of $4.72 per share (versus $4.87 per share in Q1 FY 2021), missing analysts’ consensus estimate of $4.92 per share.

The company’s quarterly revenues amounted to $22.003 bln (+13.9% y/y), roughly in line with analysts’ consensus estimate of $21.860 bln.

The company also issued downside guidance for FY 2022, projecting EPS of $19.75-21.00 versus analysts’ consensus estimate of $21.13 and prior guidance of $20.50-21.50.

FDX fell to $237.70 (-5.70%) in pre-market trading.

FXStreet reports that UOB Group’s FX Strategists see USD/CNH advancing to 6.5000 once 6.4880 is cleared.

24-hour view: “USD traded between 6.4722 and 6.4875 yesterday before closing little changed at 6.4817 (-0.04%). Despite the quiet price actions, the underlying tone has weakened somewhat. From here, USD could edge lower but any weakness is unlikely to break the support at 6.4630 (minor support at 6.4690). Resistance is at 6.4830 followed by 6.4880.” 

Next 1-3 weeks: “While USD easily surged past 6.4680, it struggled to move beyond the resistance at 6.4880. Further USD strength is not ruled but USD has close above 6.4880 before a sustained advance can be expected (next resistance is at 6.5000). On the downside, a break of 6.4500 would indicate that USD is not ready to move to 6.5000 just yet.”

FXStreet reports that the Credit Suisse analyst team discuss GBP/USD prospects.

“Whilst we would look for a fresh hold at 1.3571/67 again for now, an eventual move below would resolve the range lower for the completion of a bearish “triangle” continuation pattern. We would then look for a more meaningful decline with support seen initially at 1.3520/15, the December 2019 high, then the ‘neckline’ to the 2019/2020 base at 1.3451/36.” 

“Big picture, we would see scope for an eventual fall to a cluster of supports including the 38.2% retracement of the entire 2020/2021 bull trend at 1.3189/35.” 

FXStreet reports that economists at Credit Suisse do not see a compelling risk-reward to buying USD/TRY ahead of tomorrow’ CBRT meeting.

“We think that a policy rate cut of 50bps would lead initially to a spike in USD/TRY above its all-time high of 8.80. Still, given the recent rally in USD/TRY we also see a possibility of a drop in USD/TRY to the 8.50-8.55 area in case the central bank remains on hold. Overall, we do not see a compelling risk-reward trade-off in favour of buying USD/TRY ahead of tomorrow’s central bank meeting.”

CNBC reports that JPMorgan Chase CEO Jamie Dimon has warned investors that the Fed could still be forced into a sharp policy move next year.

Fed Chairman Jerome Powell has already suggested that the central bank could start to dial back on its pandemic-era monetary stimulus before the end of this year. He is due to outline more details later on Wednesday at the end of the Fed’s two-day policy meeting.

Dimon said that if the U.S. continues to see inflation running hot over the next few months then the central bank could be forced to act quickly.

“If inflation is so high that the Fed has to do more traditional madmen economy, like jam on the brakes, pull out liquidity, then you’re going to see a huge reaction. And I’m not predicting that, but it’s possible they have to do that sometime next year,” Dimon said.

“The Fed can’t always be proactive — I mean, sometimes they’re going to have to be reactive.”

The top uncertainty for the Fed has been the path of inflation. The latest data showed U.S. consumer prices were up by 5.3% in the year to August, slightly down from the 13-year high of 5.4% in July.

Powell has argued that this spike in prices is transitory. But Dimon said that if those hot inflation figures continue into December then U.S. policymakers may have to admit that at least part of the price increases are here to stay.

RTTNews reports that the Asian Development Bank raised its economic growth projections for the next year but signaled divergence in the recovery paths among regional economies.

ADB said developing Asia will expand 5.4 percent next year, instead of 5.3 percent estimated previously. Meanwhile, the outlook for 2021 was downgraded to 7.1 percent from 7.3 percent.

While growth forecasts are raised for East Asia and Central Asia, downward revisions for the rest of the region weighed on the outlook.

"The COVID-19 continues to besiege developing Asia, but vaccines are changing the nature of the pandemic," ADB said. Uneven vaccination coverage is furthering regional divergence.

ADB said growth forecasts have been revised up for those economies that have managed to contain COVID-19. The rapid economic recovery will continue across East Asia. The sub-region was forecast to grow 7.6 percent in 2021 and 5.1 percent in 2022.

Growth in China will remain strong, despite a protracted recovery in household consumption, the lender said. The GDP growth projection remained unchanged at 8.1 percent in 2021 and 5.5 percent in 2022.

Reuters reports that the Ifo economic institute cut its growth forecast for Germany for this year as supply chain disruptions and scarcity of intermediate goods are slowing down the recovery from the COVID-19 pandemic.

The Ifo institute now sees Germany's GDP to grow 2.5% this year, down 0.8% percentage points from its previous forecast, and 5.1% next year, up 0.8% points.

"The strong recovery from the coronavirus crisis, originally expected for the summer, is further postponed," Ifo chief economist Timo Wollmershaeuser said.

"Industrial production is currently shrinking as a result of supply bottlenecks for important intermediate goods. At the same time, service providers are recovering strongly from the coronavirus crisis," Wollmershaeuser added.

In a separate forecast, Germany's association of private sector banks (BdB) gave a more optimistic outlook for growth in 2021. It expects GDP growth of 3.3% this year and 4.6% next year.

FXStreet reports that economists at MUFG bank have flipped their bias back to bearish after last month running a bullish bias. 

Risk aversion escalates fuelled by a worsening of the situation in China

“We do not expect the China property uncertainty to morph into something more severe, but risk aversion will remain elevated and risks are skewed to the situation worsening over the near-term.”

Notable shift in the DOTs plot not expected

“Given the global outlook is that bit more uncertain with growth expectations being lowered and given the flow of economic data has been somewhat disappointing in the US, the FOMC is unlikely to spring another DOT shock. That could prove disappointing for those with long USD/JPY positions.”

Conditions domestically slowly begin to turn less favourable for a weaker yen

“We believe the prospect of additional fiscal stimulus is unlikely to have any great impact in weakening the yen.”

Bloomberg reports that Governing Council member Madis Muller said that the European Central Bank will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is uncertain.

While the euro area’s recovery should allow the ECB to end its 1.85 trillion-euro pandemic bond-buying program in March, officials will discuss how to avoid derailing the rebound when support is pulled back. One option would be to expand the pre-crisis plan above the current 20 billion euros per month, Muller said.

“I realize that it would be a problem if there is a very sharp cliff effect at the end of the pandemic emergency purchase program,” the Estonian central bank chief said. 

A potential increase in the older quantitative easing program is “part of the discussion we will have on how to phase out PEPP and what it would mean for asset purchases going forward,” he said. “And of course the decision will depend on market conditions next spring and the economic outlook at that point.”

FXStreet reports that economists at ANZ Bank said that expectations around Fed tapering later this year are set to weigh on XAU/USD.

“Strong economic data through September will be important for the Fed to announce tapering from November. Winding-down of asset purchases later this year and the prospect of rate hikes would be supportive for the US dollar and a headwind for gold prices.”

“Disappointment in jobs data or softer inflation could provide some upside room for the yellow metal.”

“Gold prices have decoupled with US 10y yield and TIPS. However, we don’t see this trend lasting much longer. Our gold valuation model suggests it is still significantly undervalued.”

During today's Asian trading, the US dollar was trading steadily against major currencies, while the yen declined after the announcement of the results of the two-day meeting of the Bank of Japan.

The Bank of Japan has kept the key parameters of monetary policy unchanged. The short-term interest rate on deposits of commercial banks remained at -0.1% per annum, the target yield of ten-year government bonds is about zero, the bank said in a statement.

Traders are also waiting for the results of the Fed meeting. According to forecasts of a number of experts, the Federal Reserve System may announce the beginning of the curtailment of the asset purchase program, which now amounts to $120 billion per month.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.03%

Reuters reports that the Bank of Japan kept monetary policy steady on Wednesday but offered a bleaker view on exports and output, reinforcing expectations the bank will maintain its massive stimulus.

Following are excerpts from BOJ Governor Haruhiko Kuroda's comments at his post-meeting news conference:

"We don't need to project a clear slowdown in U.S., Chinese growth… We expect external demand to remain solid.

"While the corporate sector remains solid, consumption isn't picking up.

"It's not because households lack income. It is more due to the pandemic keeping them from boosting spending… As the pandemic subsided, consumption is expected to strengthen."

CNBC reports that according to a former advisor to China’s central bank, Evergrande’s debt crisis will slow down China’s economic growth, but will likely have minimal spillover on the country’s financial system.

“The impact is on the real economy because with the default of Evergrande, there’ll be [a] slowdown in developments of many projects,” Li Daokui, formerly an advisor to the People’s Bank of China, said.

“So the real property market will have an impact on the GDP growth rate for the coming year because of slower finance for the whole sector,” said Li, now a professor at Tsinghua University’s School of Economics and Management.  

He added that a default by Evergrande will have minimal effect on the Chinese financial system because there aren’t derivative instruments built on the company’s debt.

“I think it’s a bit too early to predict what’s the net impact [of the crisis]. I would say right now, by my rough calculation, 1 basis point on GDP growth ... if the thing is under control from now,” said Li.  

The Asian Development Bank said Wednesday that it has maintained its growth forecasts for China at 8.1% for 2021 and 5.5% for 2022. That would be an improvement from the 2.3% expansion last year, when China became the only major economy to grow while most global economies were hit hard by the Covid-19 pandemic.  

EUR/USD

Resistance levels (open interest**, contracts)

$1.1867 (2695)

$1.1831 (841)

$1.1801 (416)

Price at time of writing this review: $1.1722

Support levels (open interest**, contracts):

$1.1694 (3315)

$1.1665 (3271)

$1.1630 (1130)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 68955 contracts (according to data from September, 21) with the maximum number of contracts with strike price $1,2200 (8608);

GBP/USD

$1.3912 (1088)

$1.3828 (480)

$1.3793 (162)

Price at time of writing this review: $1.3650

Support levels (open interest**, contracts):

$1.3637 (1778)

$1.3603 (1167)

$1.3548 (919)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11719 contracts, with the maximum number of contracts with strike price $1,4150 (2071);

- Overall open interest on the PUT options with the expiration date October, 8 is 14821 contracts, with the maximum number of contracts with strike price $1,3800 (1778);

- The ratio of PUT/CALL was 1.26 versus 1.23 from the previous trading day according to data from September, 21

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

eFXdata reports that Barclays Research discusses its expectations for the FOMC decision.

"Our economists expect  the FOMC to signal a taper, that is conditional on outcomes for employment and the path of the pandemic, beginning in December along a hastier timeline. They anticipate that tapering will begin in December with a formal announcement unlikely until November. Our baseline anticipates that the committee will reduce its current pace of monthly purchases ($80bn for Treasuries, $40bn for agencies) along a hastier timeline; specifically, Treasury securities by $20bn per meeting and agency purchases by $10bn," Barclays notes. 

"Our economists expect the committee to create space between the tapering timeline and the lift-off decision," Barclays adds.

RTTNews reports that China maintained its benchmark loan prime rates for the 17 consecutive month, as widely expected.

The one-year loan prime rate was kept unchanged at 3.85 percent and the five-year LPR at 4.65 percent.

Markets expected LPR rates to remain on hold as the People's Bank of China had kept the rate on its medium-term lending facility unchanged early this month.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank's traditional benchmark lending rate in August 2019.

The economist is expecting cuts to the PBoC's policy rates, including the LPR starting next quarter.