The dollar is under pressure as the FOMC meets for the first time in 2019. There are several factors at play which are pressuring the dollar, but the market seems to be anticipating that the Fed will lean dovish tonight and signal a pause (even if only briefly) in its rate hikes. How explicitly this is communicated could be key, but also whether the Fed signals that the balance sheet reduction may be put on manual (this would certainly cheer equity markets). This is coming as the US and Chinese trade delegations meet for the next two days to discuss the prospect of an agreement that can avert continued escalation in the trade dispute that ultimately hampered market sentiment so badly in the second half of 2018. Treasury yields have lost direction in recent days, but need to be watched with both the Fed and potential newsflow out of the trade talks. It is interesting to see the Chinese yuan strengthening to six month highs against the dollar and is an indication that sentiment is turning against the greenback. Back here in Blighty, the Brexit circus continues to rumble on and Parliament has effectively given Mrs May the greenlight to go back to Brussels and renegotiate over the main sticking point in the Withdrawal Agreement, the Irish backstop. She’s got two hopes, the problem is that one of them is “Bob”…
Wall Street closed mixed again, with the S&P 500 a shade lower by -0.1% at 2640 and futures also similarly lower today (seeming Apple’s after hours jump on earnings that were not as bad as expected, have done little to boost sentiment). Asian markets were lower overnight with the Nikkei -0.5% and Shanghai Composite -0.5%. European markets are also mixed, with FTSE futures +0.5% (negative correlation with sterling again?) and DAX futures all but flat. In forex, there is a dollar mild negative vibe going on, with sterling finding a degree of support overnight, the yen a shade stronger, whilst the main outperformer is the Aussie after a tick higher on inflation. In commodities the big news is the continued rise in gold through the $1310 key long term pivot and silver up at six month highs. Oil is flat.
The Fed meeting is clearly the main focus on the economic calendar today, but in front of that there will be a watchful eye on several other announcements. Eurozone Economic Sentiment for January at 1000GMT is expected to drop to 106.8 (from 107.3) which would be a 13th consecutive decline and the worst reading since November 2016. German inflation is often seen as a lead for the Eurozone wide inflation reading, with German CPI at 1300GMT which is expected to show monthly CPI dropped by -0.9% in January which would drag the year on year CPI back to 1.6%. For the US data, the ADP Employment change is at 1315GMT which is expected to show growth of 170,000 (down from 271,000 in December). Pending Home Sales for December are at 1500GMT and are expected to improve by +0.5% (after falling by -0.7% in November). The EIA Oil Inventories are at 1530GMT and are expected to show crude stocks again showing an inventory build