FOMC Unchanged as Expected – BoE Expected on Same Path. GBP Rise on UK Court Ruling

Global equities fell for the seventh day in a row and USD-pairs took another leg lower on Wednesday ahead of the FOMC on continuous US election jitters and disappointing ADP data, suggesting that US employment is softening. Gold broke back above 1,300 as investors fled to safe haven and due to a massive build in oil inventories, the black gold fell almost 3%. USDMXN gained and the weakening of the Mexican Peso is highly correlated to how the market assesses Trump’s chance of winning.

In the US, the S&P500 fell 0.7%, closing below 2,100 for the first time since early July with Utilities and Energy being the weakest sub-indices. The FOMC decided to keep rates as expected and probably also kept the tone relatively calm in order not to cause any unnecessary concerns ahead of the US Presidential election next week. The tone from the FOMC was, however, relatively firm for towards a December hike, which there is a 70% chance for according to the implied probabilities on the Fed Fund futures. The FOMC mentioned that inflation had picked up job growth had been acceptable. Trading was rather choppy immediately post the release of the statement, but the markets went back to normal trading conditions rather quickly.

SP500 Daily

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In FX markets, the safe haven theme translated into additional buying of JPY (and CHF to some extent), sending USDJPY below 103 after testing 105.50-area last week. Technically the pair has closed back in the Ichimoku Cloud formation, which indicates a more blurred outlook.

USDJPY Daily

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With the US Dollar selling off, EURUSD also took a leg higher closing above the 50% Fibo retracement in the wave from Dec 2015 to 2016 highs, finding resistance at the 50-day SMA. Decent figures from German Employment data and positive Euro Zone Manufacturing PMI provided extra bids in EUR-pairs.

EURUSD Daily

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Today, we have a pretty busy schedule ahead of us. The Sterling came into focus as a UK court ruled against the UK government on Brexit – a parliamentary approval is required to trigger article 50 of the Lisbon treaty. Sterling pairs have advanced on back of this despite the government have appealed and a hearing is set during December 5-8. Prior to the ruling, UK PMI Services data came out better than expected, showing solid expansion in the sector. At 13CET, the BoE will announce rates, but we do not expect any surprises from that front. Benchmark rates are expected unchanged at 0.25% and the QE program unchanged at £435bn.  The FTSE100 is hurt by the stronger Pound and extending losses below the 50-day SMA with support at the 100-DMA, currently at 6,765-area.

Cable is back above 1.24 on the news and close to testing trend resistance at 1.2465-area.

 GBPUSD 5m – choppy trading on court ruling

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GBPUSD Daily

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In the US session, we have ISM non-manufacturing PMI data for October as well as Factory Orders for September. Factory Orders are expected unchanged at 0.2%, but there is a risk that these will undershoot expectations given disappointing Durables and shipments. For the ISM, the market is expecting a figure of 56.0, down from 57.1 in September, still showing a decent expansion (indicated by a figure above 50).

Besides from the data from developed markets, we also have a rate announcement from the Czech Central Bank, expected to set the CNB Repo Rate at 0.05%.

We expect volatility to fade post the data releases as investors are eyeing the US October Job Report tomorrow, where the focus will be on the Nonfarm Payroll (NFP)s as usual. On Wednesday, we saw a disappointing ADP report, which acts as a proxy for the NFP figure. Current market consensus is at 175k, up from 156k in September. The NFP figure is important as it accounts for around 80% of the workers producing the whole US GDP.

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