Is it September?
The Federal Open Market Committee meeting draws to a conclusion this evening and the question on the lips of virtually everyone who trades will focus on whether the US Federal Reserve is moving towards a September rate hike.
"It is clear that it won't give any firm guidance on a September hike — rather, the FOMC will try to keep all doors open," says Michael Boye from Copenhagen's Fixed Income desk. "Nevertheless, the more bullish it sounds, the more the chance of a hike."
"We'll see some cautious optimism that the Q1 weakness in the US was an aberration, Q2 was encouraging, but also a requirement for more data input before pulling the trigger on rates," says John J Hardy, head of forex strategy at Saxo Bank. "There is no downside risk to the current state of expectations."
"The upside risk is that if they do see a couple of months of positive data, it [the Fed] will be happy to lift rates," he adds. "Currently, the expectations are for liftoff in October or December and if that is shifted back to September, that will be very dollar bullish."
"All in all, markets are very complacent and they have a right to be complacent," says Hardy.
Hardy anticipates USDJPY as one likely mover on the back of FOMC tonight with the resistance line at 123.80.
"Everything is springloaded and waiting for FOMC," he says. "I tend to believe in dollar strength so stay on your toes for tonight."
USDJPY was at 123.58 at 0655 GMT.
USDJPY looks "springloaded" for a move either way. Photo: iStock
Wings of a dove
Certainly, bonds markets are increasingly factoring in a mildly dove-like statement, says Boye. US 10-year Treasury yields have slipped from that 2.5% high of last week to 2.3% and he adds that Fed Funds Futures have also dropped "by a few basis points" possibly reflecting "a safe-haven move."
Boye also suggests "watching out for dotplot revisions which are marked fairly aggressively so you would expect some kind of downward revision. In the absence of this, you could anticipate this as some kind of hawkish signal from the statement too."
US Treasuries are coming down from those 2.5% highs. Photo: iStock
Roadblock
It's a very different picture in Greece with "quite aggressive comments yesterday from the Greek side bringing progress to a complete halt along with reports that Greece will now seek a postponement of the IMF payments due at the end of this month," says Boye.
Greek two-year yields shot even higher to above 29% in the aftermath of those comments.
"Bond markets are clearly pointing towards some kind of default scenario," warns Boye.
Getting volatile
From the Floor's noticed that volatilities in the FX Options space have been somewhat dull for a number of months but at last, there looks likes some kind of pickup with NOK pairs in particular, ahead of tomorrow's Norges Bank meeting, getting perky.
"Front-end vols on NOK pairs are elevated with the meeting ahead and also on the FOMC," says Dan Larsen from Copenhagen's FX Options desk. "It's time to let the games begin as we kick off with the FOMC tonight."
Larsen also points to unusual developments in euro pairs.
"All euro crosses are trading significantly higher than the general market, which indicates that Greece is playing a big part here and this could continue until the end of the month," he says.
Gold's doldrums
It's still a bit of rangebound doldrumatics for gold with moves to the upside capped at $1,194/oz and the downside ultimately grounded at $1,167/oz.
"We'll see if the FOMC meeting tonight can swing the market into action," says Ole Hansen, head of commodities strategy at Saxo Bank. "It would need some fireworks today."
Platinum meanwhile hit yet another six-year low in the Asia session demonstrating the general malaise permeating the precious metals sector.
WTI crude too seems stuck at around the $60/barrel mark with little or no sign of improvement, although an expected slip for the seventh week in a row for US oil inventories today will provide some support.
The fundamentals in oil nevertheless remain firmly on the supply side.
"Libya has said it will double oil exports to 800,000 barrels next month and production has now exceeded demand for the longest sustained period since the 1980s," says Hansen.
In the second quarter of 2014, oil production was 1.05 million b/d. in Q2 2015, it hit 2.6 mil b/d.
Brent crude was at $63.71/b at 0655 GMT. WTI crude was at $60.04/b.
And finally...
FedEx (NYSE:FDX) and Oracle both unveil Q2 results today with the former particularly significant "as it gives its reflections on the state of the US economy," says head of macro strategy Mads Koefoed.
Traders meanwhile will be primarily focused on Oracle's Cloud plans with "growth expected to have coverage of more than 90% of their products."