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Yen slides on election talk, pound firms
Cable consolidates the post-Bank of England (BoE) gains. The key support to the post-BoE rally stands at 1.3438 (major 38.2% retrace). In the aftermath of the latest BoE meeting, the market brainstorming has resulted in a ‘one and done’ consensus if the BoE would eventually raise the interest rate. Hedge fund managers believe that Governor Mark Carney may simply be bluffing. Yet despite the fading hawkish BoE bets, an important medium-term support is eyed at 1.3420 (Fibonacci 50% retracement on post-Brexit sell-off) and should lend a basis to a sustained pound appreciation following the recent hawkish development on the UK’s monetary policy.

The FTSE 100 stocks opened downbeat and will likely remain under pressure of the stronger pound. Solid resistance is eyed approaching the 200-day moving average (7310p).

The DAX consolidates above its 100-day moving average (12’461). German general election will take place on September 24. According to the latest polls, Chancellor Angela Merkel’s Christian Democratic Union (CDU) and its ally Christian Social Union (CSU) are expected to obtain 36% of the vote, yet uncertainties persist on the final coalition with Merkel’s CDU and the time to form a coalition. Euro traders could refrain from entering and/or maintaining fresh directional positions before the election weekend. The ZEW survey on September expectations and the Eurozone's July current account data are due today and can trigger a short-term minor price volatility. The EURUSD will likely fluctuate around its 200-hour moving average (1.1960). The 50-day moving average (1.1840) could lend a stronger support if needed.

Will the Fed announce QT?

The US dollar swings between the bulls and the bears. The Federal Reserve (Fed) begins its two-day meeting today. The FOMC will announce its policy verdict on Wednesday. The US markets are risk-on before the Fed decision.

Analysts expect the Fed to keep the possibility of a December interest rate hike on the table. There could be discussions on the balance sheet normalisation as well, referred to as QT, Quantitative Tightening. The probability of a December rate hike rose to 50%, too low to trigger a panic across the stock markets yet too high to be ruled out by the currency and money markets.

The US 10-year yield advanced to 2.22%, the 3-month average.

The US stocks traded to new record highs. The S&P500 and the Dow Jones hit fresh all-time highs of $2’508 and $22’355 respectively. The US equity futures edged higher in Asia, yet turned flat-to-negative as European traders stepped in.

The Dow Jones rolling index traded at uncharted territory overnight, hinting that the upside potential may not have exhausted just yet.

Gold prepares to test $1’300 support

The downside correction in gold deepened to $1’305. The key support to July – August rise stands at $1’300 (major 38.2% retrace). This level distinguishes between the continuation of the two-month positive trend and a bearish reversal. A hawkish Fed reaction could send the ounce below the $1’300 mark, while a dovish surprise should attract the dip buyers at, or below the $1'300 mark.

Yen plunges, Japanese stocks rally as Abe considers snap election

The improved global risk sentiment and firmer US dollar take the pressure off the Japanese yen. In addition, the rising tensions with North Korea and PM Abe considering a snap election should continue playing against the yen even if the market turns risk-off for whatever reason. Due to the rising idiosyncratic risks, Japanese yen is not the ideal harbour for safe-haven investors.

The USDJPY surpassed its 200-day moving average (111.50) and 111.74 (major 61.8% retrace on July – September decline). The pair is presently consolidating gains above the daily Ichimoku cloud top (111.55). The next resistance is eyed at the 112.00 mark. Call options trail from 110 to 112 at today’s expiry and should give support to the positive trend.

The Bank of Japan (BoJ) also meets this week and is expected to maintain its dovish policy stance. The divergence between the Fed and the BoJ outlook is in favour of a stronger US dollar against the yen. The short-term support is eyed at 110.05 (daily cloud base).

Nikkei (+1.96%) and Topix (+1.77%) rallied on softer yen. Insurers and banks soared by 2.75% in Tokyo.

AUDUSD slips below 0.80

The AUDUSD demand is fading due to the broad-based USD appreciation and dovish minutes from the Reserve Bank of Australia (RBA). The RBA predicts a solid employment growth and a gradual pick-up in the Australian economy. Yet, the high household debt is still a major risk. The bank sees no rate hike in the foreseeable future, even less given that the strong Aussie weighs on inflation and low inflation is suitable for a prolonged period of status quo on rates.

The AUDUSD could attract sellers above the 0.80 level and encourage a slide toward 0.7936 (minor 23.6% retrace on April – September rise) and 0.7820 (major 38.2% retrace), if the USD strengthens on Fed.

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