The U.S. Dollar Index, along with most major markets, remained mixed heading into tomorrow’s FOMC announcement, reports Adam Button.
The U.S. dollar remains mixed even after the US Empire manufacturing index (NY ISM) fell to three-year lows. The chance of a significant breakthrough in U.S. - China trade talks at the G20 meeting is fading.
The Commodity Futures Trading Commission’s Commitments of Trader (COT) positioning data showed that USD longs continue to falter but remain dominant on a net-basis. Gold net have broken out key resistance. All eyes on this week's U.S. and UK central bank meetings as well as the annual week-long ECB conference at Sintra in Portugal, where speeches from ECB President Mario Draghi & comp will serve as the equivalent of a Thursday press conference. Gold and bond yields appear to be making up their minds, rising and falling respectively ahead of the Fed but the U.S. Dollar Index remains mixed. British pound traders await three more ballots for the Prime Minister race due Tuesday, Wednesday and Thursday. Anti-no deal Brexit Rory Stewart is the fastest gainer in the odds.
The chance of a genuine breakthrough at the G20 has fallen to almost nil. There have been no reports of serious preparatory talks or meaningful discussion on the main trade issues. That could be happening through back-channels but it's tough to believe it would be kept quiet.
US Commerce Sec Wilbur Ross said a deal with China can be achieved, but it won't come at the G20. One positive sign was that VP Pence delayed a speech that was harshly critical of China and was slated to be delivered on the anniversary of the Tiananmen Square massacre. There are signs, however, that it's being rescheduled for after the G20.
Trump had said it was imperative that Chinese President Xi attend the meeting or that fresh tariffs would be levied, however he changed his tone last week and said it wasn't imperative that Xi attend.
At the moment, the market is optimistic about the Federal Reserve easing and progress on a deal. Wednesday's FOMC meeting will be a major market-mover. Expect major stock indices to get cold feet ahead of the Fed early in the week but the main theme will be consolidation.
The Empire Fed on Monday fell by the most on record, all the way to -8.6 from +11.0. That was also the lowest reading since October 2016.
Sintra Week
The importance of the ECB's annual Sintra conference is its indication for the markets. Recall how the euro rallied after the July 6 conference when Draghi sounded less dovish than expected. Should he and his colleagues offer a similar disposition to policy, we could see EURUSD push higher. The question is: Will any bounce in the euro serve as an offset to a possible Wednesday euro sell-off that could be the result of a not-so dovish Fed?
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com
