OVERNIGHT NEWS

• Markets were range-bound ahead of the run of central bank meetings, starting with the FOMC tomorrow morning. US data releases underscored the improved tone to the economy.
• In the equity space an exception to the generally small movements seen across most markets was Japan, where the Nikkei shed 1.4% driven by yen strength

FOREIGN EXCHANGE (INDICATIVE RATES)

Currency	Last	% Change	Overnight Range
DXY	97.16	0.00%	96.853 - 97.251
EURUSD	1.0988	0.04%	1.0978 - 1.103
USDJPY	104.82	0.03%	103.99 - 104.98
AUDUSD	0.7515	-0.31%	0.7483 - 0.754
GBPUSD	1.315	-0.22%	1.3058 - 1.3176

(Source: FabTrader)

Commodities (INDICATIVE RATES)

Currency	Price USD	% Change	Overnight Range
Gold	1319.50	0.27%	1313.8 - 1324.56
Silver	19.64	0.57%	19.505 - 19.7452
Oil (BRENT)	44.87	0.04%	44.14 - 49.22
Oil (WTI)	42.70	1.27%	42.36 - 43.27

(Source: Bloomberg and Saxo)

COMMODITIES

Precious Metals: Gold price seems to have stabilised around $1320 ahead of Fed meeting and potential BOE stimulus. Gold ETFs tracked by Bloomberg recorded outflows of 4.5 tons – their highest in two weeks. Chinese gold demand declined by 7.7% to 528.5 tons in the first half year.

Oil: Oil price continued to slump to 3-month low on oversupply concerns as figures from Genscape suggested that crude oil stocks at Cushing climbed by a good 1 million barrels last week. API said to report U.S. crude inventories fell 827k bbl last week against a forecast of 2.6 million barrels decline. Downside risks remain as eyes are on EIA report today.

FOREX NEWS

• The near term setup for USDJPY suggests additional retracement is due after failing to extend above the 106.85/107.05 area (late-June peak/Jan down trend line). Near term support enters at the 104.00/103.75 area, while the more immediate downside bias should remain intact against the 105.42/73 resistance zone
• AUDUSD managed a recovery in Asian trading, but it did end up failing just above its minor swing 15 day moving average (0.7533 – no close above since 18-July).  It was able to reverse what had been a run of two closes underneath both its major swing 33 (0.7484) & 100 (0.7486) day moving averages, but that bullish signal can easily be overwhelmed by today’s June quarter CPI release, where the market is looking for CPI trimmed mean of 0.4%.
• For NZDUSD, the failure against the .7305/.7400 resistance zone highlights the potential for a deeper corrective phase. However, a sustained break of the critical .6973/63 support zone and mid-to-late June lows is necessary to confirm the downside risks

 

Fed seen holding rates steady as inflation watch continues

The U.S. Federal Reserve is expected to keep interest rates unchanged this week, deferring any possible increase until September or December, as policymakers hold out for more evidence of a pickup in inflation.

Central to the debate at the Fed's July 26-27 policy meeting will be how to reconcile upbeat U.S. economic data, highlighted by strong job gains in June, with a global growth slowdown and other headwinds threatening the inflation trajectory.

For San Francisco Fed President John Williams, one of the 17 members participating in the central bank's rate-setting deliberations, all that is needed is a bit more confidence that inflation is indeed headed toward the Fed's 2 percent target.

The inflation measure the Fed prefers to track is currently at 1.6 percent.

With monthly job gains well above the level needed to prevent an uptick in unemployment, and no signs of a rise in productivity, some Fed policymakers are likely to argue for a quick increase in rates to avoid a surge in inflation.

"That is the danger – and you can be sure that the hawks are going to be arguing that," said Alan Blinder, a Princeton University professor and a former Fed vice chairman. "I have a hunch that they will talking in July about September."

Other policymakers, like influential New York Fed President William Dudley, have signaled they would rather wait for more tangible signs of a rise in inflation before pulling the trigger on a rate increase.

"There's not a lot of reason to raise rates until inflation goes up," said Kevin Logan, chief U.S. economist at HSBC in New York.

The U.S. central bank began its latest policy meeting Tuesday morning and is scheduled to issue its statement at 2 p.m. EDT (1800 GMT) on Wednesday.

HEADWINDS

The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade, and signaled four rate hikes were coming in 2016 as it moved to "normalize" the ultra-stimulative monetary policy adopted in response to the 2007-2009 financial crisis.

But headwinds in the global economy, financial market volatility and uncertainty over the impact of Britain's decision to leave the European Union forced it to delay a rate hike and scale back the number of projected hikes to two for the year.

Still, absent a shock to markets or a reversal in U.S. economic data, even dovish policymakers like Dudley have signaled that their cautious approach to normalizing monetary policy likely allows for at least one rate hike this year.

After Wednesday, the Fed has three more policy meetings scheduled this year - in September, November and December. A November rate hike is seen as highly unlikely, as that meeting comes one week before the U.S. presidential election.

Economists polled by Reuters expect the Fed to hold rates steady until after the election.

"Rate normalization has fallen down the Fed priority list and will remain there until the dust is well settled on the financial markets and the economy," Jefferies economists predicted in a note last week.

Read More at www.reuters.com