The Fed will decide today between a 50 basis point and a 25 basis point rate cut, with most traders and investors betting on the deeper cut, which helped the main U.S. stock index hit a new all-time high yesterday.
➡️ Markets are completely focused on the US Federal Reserve meeting later today, where it is widely expected to begin a process of interest rate cuts for the first time in 4 years. Sentiment has shifted in favor of an expected cut of 0.50%, with 65% expecting this versus 35% expecting a cut of 0.25%, according to the CME FedWatch tool. However, the swap market is implying a 55% probability of a deep rate cut. The market surprise will be towards a 25bp rate cut, which would certainly see at least a temporary but sharp sell-off in risk assets. For now, markets are mostly consolidating as we wait to see what action the Fed will take.
➡️ Gold looks bullish in the long and medium term and continues to trade near the all-time high reached yesterday, just below 2,600 $. Gold is trading in clear skies and could continue to move higher. Trend traders will be interested in being long on gold.
➡️ The Japanese yen weakened yesterday from its long-term uptrend as a currency with monetary policy diverging from the dovish moves to cut rates seen almost everywhere. The USD/JPY currency pair It has not traded at a new low, and it rose when better-than-expected US retail sales data was announced yesterday. Trend traders will be interested in being long the yen.
➡️ In the Forex market, the Japanese yen was the strongest currency since the opening of the Tokyo Stock Exchange today, while the US dollar and the Australian dollar were the weakest, in line with long-term trends.
➡️ The 2-year U.S. Treasury yield looks bearish and will likely fall further if the Fed announces a 50 basis point rate cut later today. Trend traders will be interested in shorting here if they can access this asset (micro futures contracts are available on the CME).
➡️ UK Consumer Price Index (CPI) data is due to be released today, with the rate expected to come in at an unchanged annualised rate of 2.21TP3Q.
➡️ US retail sales data released yesterday came in better than expected, showing a monthly increase of 0.1%, when a decline of 0.2% was expected. This has shifted sentiment slightly towards an expectation of a 25 basis point rate cut by the Fed today.
➡️ Canadian CPI (inflation) data released yesterday was weaker than expected, falling 0.2% month-over-month, when no change was expected. However, the median CPI rose slightly, unexpectedly, to 2.3% annualized, so the message was a bit mixed.
Credit by DailyForex.com
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