• Main drivers: Subdued markets ahead of the Fed; China Caixin PMIs slightly improve; FOMC monetary policy; Biden looking for more OPEC oil production; UK final Services PMIs & ISM Services, ADP and the Fed meeting later.
  • Mild negative bias to sentiment: USD has been gradually regaining strength versus major currencies (though is mixed versus EUR). Further highs on Wall Street but lost momentum in Asia and European indices are mixed to lower. Commodities are mixed again.
  • China Caixin PMIs slightly up: both the unofficial Caixin PMIs tick higher, with services at 53.8 and manufacturing at 51.5 [sentiment neutral]
  • Fed meeting dominates: FOMC is expected to announce the taper of asset purchases by -$15bn per month. The key beyond that will be the Fed’s views on inflation and whether this may force an earlier start to interest rate increases [USD volatility later]
  • US President Biden pushing for OPEC production increases: Biden suggesting that high oil price is due to a refusal by OPEC to pump more oil. The US State Department also called for increases in production [Oil price negative]
  • Central bank speakers: ECB President Christine Lagarde speaking today at 0930GMT; FOMC chair Powell press conference at 1830GMT.
  • Economic Data: 
  • UK final Services PMI at 0930GMT is expected to be unrevised at 58.0 from the flash (up from the final September reading of 55.4). The Composite PMI is expected to be 56.8 (up from 54.9 in September).
  • ADP Employment change at 1215GMT expected to drop to 400,000 (from 568,000 in September)
  • ISM Services at 1400GMT expected to be slightly higher at 62.0 (61.9 in September)
  • FOMC monetary policy at 1800GMT is expected to hold the Fed Funds rate at a range of 0.0% to 0.25% and begin to reduce monthly asset purchases by -$15bn per month.

Markets Outlook

  • Broad outlook: flat/cautious markets ahead of the Fed. A bias of USD regaining strength and positive indices remains in place.
  • Forex: USD mixed versus euro, but regaining strength elsewhere in the major pairs. 
  • EUR/USD hovering around the middle of what is now a four-week trading range between 1.1525/1.1685. We still prefer to sell rallies for a break to the downside below 1.1525. 
  • GBP/USD selling pressure is growing after a third consecutive decisive negative candle yesterday. Key near term resistance is around 1.3690/1.3710, with a near term pivot resistance at 1.3665. We look to sell intraday rallies for pressure on 1.3570/1.3610, a downside break opens 1.3410.
  • AUD/USD A close below 0.7450 has completed a top and open 0.7350/0.7380. We prefer shorts and selling into resistance band now 0.7450/0.7475. 
  • Commodities: mixed outlook on precious metals, oil threatening correction.
  • Gold is once more being neutralised on a drift back towards the $1780 pivot. Resistance at $1800/$1810 continues to be a persistent barrier. We remain neutral for now.
  • Silver falling over under $23.75/$24.00 is turning the market increasingly corrective. We look to sell intraday strength into $23.75/$24.00 which is now resistance. Below $23.75 has opened $23.00/$23.18.
  • Brent Crude oil turning back lower from $85.90. If the early decline confirms into the close, the potential for the range to turn into a top pattern is growing. We are neutral between $82.40/$86.65 but are now cautious of long positions.

Indices: further highs on Wall Street but cautious ahead of potential FOCM related volatility.

  • S&P 500 futures with another strong session and looking decisively bullish (although a little stretched on momentum). The breakout at 4548 is now a basis of support. We look to buy into near term weakness.  
  • DAX Looking strong for a test of 16,000/16,033 but is consolidating early today. We look to buy into near term weakness. Good support 15,755/15,845. 
  • FTSE 100 A drop towards the key support band 7180/7246 looks to be a chance to buy. Another higher low around here with the buying pressure returning would continue the medium-term bullish breakout targeting 7700.