Markets have reached a crossroad and dealers are sitting tight ahead of FOMC. It seems like a typical pre FOMC week with low currency volatility, as US yields are staying within range.
However, equity markets continue to reach higher ignoring possible Fed monetary policy implications as investors remain focused on US tax reform. But with stock markets at an all-time high, it remains puzzling why investors are not showing a greater level of caution into what should be a very significant call for the Feds. Of course, we must respect price action, but from my chair, risks are near level for a hawkish tilt from the FOMC, even more so if they decide to overlook months of weak inflation data after the essential CPI inflation gauge readings finally broke the previous string of five consecutive downside surprise.
It would not be so far-fetched the Feds come out firing on all cylinders and pave the way for a December rate hike.
Trump headlines from the UN General Assembly provided some curious soundbites, but little market reaction.
The waiting game has set in as FX markets continue to debate the concerning pace of monetary policy normalisation ahead of the key FOMC with the greenback looking for a new narrative.
Japanese Yen
USDJPY remains supported on the on the increasing possibility of a Japanese general election. With Abe cementing his lead in the polls and with the opposition in disarray, an Abe win all but guarantees extended Abenomics and a weaker JPY.
Euro
As expected the G-10 traders have respected the 1.1900 -1.2000 ranges as the EURUSD more or less remains mired in pre FOMC position squaring