The moves in markets following the FOMC minutes release initially saw a decline in equities in the US but the recovery has surpassed yesterday’s high and has led to a further advance in price overnight. The risk on tone seems counter intuitive but coupled with the moves in bonds and FX, alongside commodities over the last 12 hours, it makes a degree of sense. The FED minutes highlighted the former majority view that members saw the rise in inflation as transitory, but more FED members are now of the view that inflation may last longer and be more persistent. The minutes also mentions the outlined the tapering process and that the taper should conclude around the middle of next year. No formal decision was made on the taper launch date, but the mid-November/mid- December window was mentioned. The minutes said that “the path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS)”, for a combined $15 Billion taper per month. A number of members raised the possibility of beginning to increase the target range by the end of next year. The staff continued to judge that the risks around the inflation projection were tilted to the upside. The possibility of more severe and persistent supply issues viewed as especially salient. Initially stocks sold off with the USD strengthening. However stocks found support and rallied, Gold continued to gain ground and the USD weakened. These trends have generally continued overnight. After the US close, FED Member Bowman said that she would prefer to begin the taper in November. He said that she was particularly concerned asset purchases are pushing up valuations, or continued easy Fed policy poses risks to inflation expectations. She added that the benefits of Fed's asset purchases now likely outweighed by costs. Bowman says she does not expect employment to fully return to pre-pandemic levels any time soon, for reasons unrelated to monetary policy. She added that inflation readings will step down as supply bottlenecks resolved. The Japanese 225 closed up 1.46% today. The Hang Seng traded down -1.43% while the Shanghai Composite was down -0.1%. Gold is trading at 1792.00 while USDJPY is trading at 113.430.
Today, US Unemployment Claims are expected to come in at 315K from 326K last week. US PPI is expected to fall to 0.6% from 0.7%. US FED Member Barkin is to speak later today.
The USDJPY moved lower after the trend line was broken around the 110.100 area in July and the price action is now breaking higher after consolidating in this area. The trend line is being retested today as resistance around 113.550. The resistance is the short term is found at 113.820 and support around 113.230. The 113.500 area is a key area with a break above this area opening the path to the pair potentially attempting to gain a foothold above 114.000 resistance, and trying to establish a base in this area. A break above this level may seek to test the 114.350 level followed by the potential resistance at 115.000.
Support may be seen at the 113.000 area with 112.075 below. The 111.650 area may be supportive followed by 111.000/110.800. The 110.444 area may provide support followed by 110.00 and the 109.185 area. The 109.000 level is expected to be supportive followed by support at 108.570.
The EURGBP pair moved back up through the broken falling trend line in April and is continuing its consolidating phase with a downward bias. The pair broke down from the March high at the 0.9500 level and is currently trading around 0.8475. Resistance may be seen around the 0.85000 and the 0.8530 areas. Further resistance may be found at the 0.8560 area followed by 0.8600. The 0.8670 level may provide resistance in the short term. Previous resistance may be encountered at 0.8720.
In the short term the 0.8470 area may be used as support as the April low. The 0.8450 area is potentially supportive of price and is followed by the 0.8440 area. Below this area the 0.8427/0.8425 zone may be supportive followed by 0.8400.