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Daily Pivots: (S1) 1.4456; (P) 1.4492; (R1) 1.4540; More...

EUR/AUD recovers ahead of 4 hour 55 EMA but it's still staying in range below 1.4649 temporary top. Intraday bias remains neutral for the moment. Also, we're holding on to the view of trend reversal after defending 1.3671 key support. Hence, in case of another fall, downside should be contained by 1.4334 resistance turned support and rise resumption. Above 1.4649 will target 1.4721 key resistance. Decisive break of 1.4721 will confirm our bullish view. However, break of 1.4334 will suggest rejection from 1.4721 and turn bias back to the downside for 1.3980 support instead.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Such correction could be completed after defending 1.3671 key support. Break of 1.4721 cluster resistance (38.2% retracement of 1.6587 to 1.3624 at 1.4756) should confirm this case and target 61.8% retracement at 1.5455 and above. Overall, we'd expect the up trend from 1.1602 to resume later. However, sustained break of 1.3671 will invalidate our bullish view and would turn extend the fall from 1.6587 towards 1.1602 long term bottom.

Daily Pivots: (S1) 1.0811; (P) 1.0842; (R1) 1.0869; More...

Despite edging higher to 1.0872, EUR/CHF quickly retreated. Intraday bias is turned neutral again. At this point, further rally is still expected and break of 1.0872 should target 1.0897 resistance. Decisive break there should confirm our bullish view of reversal and will target 1.0999 resistance next Nonetheless, break of 1.0798 support will indicate short term topping and turn focus back to 55 day EMA (now at 1.0731).

In the bigger picture, the price actions from 1.1198 are seen as a corrective move. Current strong rebound is raising the chance that it's completed after defending 38.2% retracement of 0.9771 to 1.1198 at 1.0653. Decisive break of 1.0999 resistance will target a test on 1.1198 high. For now, this will be the preferred case as long as 1.0652 support holds.

Daily Pivots: (S1) 121.99; (P) 122.29; (R1) 122.77; More...

Intraday bias in EUR/JPY stays on the upside for the moment. Current rally should target 122.88 resistance next. As noted before, the correction from 124.08 should have completed with three waves down to 114.84 already. Break of 122.88 resistance will extend larger rise from 109.20 through 124.08 high. On the downside, below 120.60 minor support will turn bias neutral and bring consolidation before staging another rise.

In the bigger picture, focus is back on 126.09 support turned resistance. Decisive break there will confirm completion of the down trend from 149.76. And in such case, rise from 109.20 is at the same degree and should target 141.04 resistance and above. Meanwhile, rejection from 126.09 and break of 114.84 will extend the fall from 149.76 through 109.20 low.

Investors and traders across different asset classes are eager to know what the Fed is currently thinking, as U.S. equities sit at record highs, the U.S. dollar is close to November 2016 lows, and treasury yields are in a downtrend move.

The question today is not whether the Fed will hike rates or not, but whether the Fed will acknowledge a weak first quarter. Will the tightening pace be interrupted? Are they going to hint towards reducing the balance sheet? Although many questions will remain unanswered in a cautiously drafted statement, any minor tweaks will have a considerable impact on financial markets.

It's very important to realize that U.S. data saw more deterioration than improvement since the Fed last met on 14-15 March this year. Headline inflation moved away from the 2% target in March with the PCE price index falling 0.2%, marking the first decline since June 2016. Consumer spending, meanwhile was flat, suggesting that higher consumer confidence did not translate into more spending. Although I'm not an expert in the Auto industry, automakers reporting a fourth straight monthly decline in new cars sales is also not a good indication of consumers' behavior.

Although the Fed does not depend on one set of data, recent indicators should provide sufficient justification for policy markets to move into the defensive.

The most sensitive currency pair today is USDJPY. The pair has so far appreciated by more than 3.6% from April's low, and is currently trading at 112. I'll be closely watching the yield spread on the 2-year and 5-year treasuries for the next move. The gap between the two bonds has been narrowing since early March, and if the downtrend resumes after an initial pause, then USDJPY could find a short-term top at 112. However, if today's Fed statement ignores the weakness in recent data, the pair may be headed above 113.

Sunrise Market Commentary

• Rates: Upward bias US Treasuries, outperforming German Bunds?
  Risks for US eco data are on the downside of expectations. Overnight future trading suggests that US equity markets are prone for a downward correction. Oil prices are on the verge of breaking below key support with EIA data scheduled for release. This combination suggests an upward bias for US Treasuries, especially if the Fed is (too) cautious in its statement.
• Currencies: Dollar still struggles going into the FOMC decision
  Yesterday, the dollar showed a mixed picture, but in the end the US currency closed near the recent lows against the euro and failed to take out a first resistance against the yen. Today, the eco data might be euro supportive and slightly USD negative. Will the Fed's policy statement be strong enough to give the dollar the highly needed interest rate support?

The Sunrise Headlines

• US stock markets traded narrowly mixed ahead of Apple earnings. Nasdaq futures are lower overnight on mixed Apple results. Risk sentiment on other Asian markets is mixed, with Japan and South Korea closed.
• Apple extended its rebound in the latest quarter with rising profit and revenue, but reported tepid iPhone demand that adds pressure on the technology giant to deliver a hit with its new 10th-anniversary handset later this year.
• The latest Republican effort to reshape the nation's health-care system teetered on the brink of collapse in the House, reflecting a new assertiveness by GOP centrists, a group that in recent years has rarely wielded such power.
• The EU has raised its opening demand for Britain's Brexit bill to an upfront gross payment of up to €100B, according to Financial Times analysis of new stricter demands driven by France and Germany.
• Ford and General Motors have both reported steeper-than-expected declines in US car sales in April, underscoring fears that the market is cooling faster than anticipated after peaking last year.
• Crude oil prices bounced back on Wednesday as a decline in US inventories underpinned the market. They still closed more than 1% lower though as a dip in compliance with OPEC efforts to reduce output and near record supplies capped gains.
• Today's eco calendar heats up with the FOMC meeting, ADP employment report, German employment data and EMU Q1 GDP. Germany sells bonds and ECB Hansson is scheduled to speak

Currencies: Dollar Still Struggles Going Into The FOMC Decision

Fed to decide on 'USD rebound'

There were few eco data with potential to move the euro or the dollar yesterday. Especially EUR/USD held a tight range in the low 1.09 area. Greece's agreement with international creditors and hawkish comments of ECB Nowotny couldn't help the euro. Late in the session EUR/USD drifted slightly higher on USD softness to close the session at 1.0930. USD/JPY tried to regain 112.20 resistance as risk sentiment remained constructive, but the pair returned to the 112 area as US yields lost a few bps later in the session. This move was at least partially driven by a decline of the oil price.

Overnight, several Asian markets including Japan are closed for regional holidays. Mediocre earnings from Apple published after the close yesterday weigh on Asian sentiment. USD/JPY hovers in the 112 area. EUR/USD trades in the 1.0935 area. So, the recent highs are again within reach as investors count down to the Fed's policy decision. The New-Zealand employment/unemployment data were stronger than expected, but wage data remained relatively soft. The kiwi dollar initially gained modestly ground after the publication of the release, but most of the intraday gains already evaporated. NZD/USD trades again near 0.6950.

Today's eco calendar contains the US ADP employment report (consensus: 175K), the non-manufacturing ISM (55.8 from 55.2) and the EMU Q1 GDP (expected 0.5% Q/Q & 1.7% Y/Y). After two exceptionally strong ADP reports, there is room for some payback. We see downside risks for the services ISM as well after a disappointing manufacturing ISM. Risk for the Q1 EMU GDP are balanced. a strong German GDP is needed to reach the 0.5% Q/Q, The FOMC is widely expected to keep its policy rate unchanged (0.75%-1%). In the Fed statement we don't expect a real policy shift. The statement will keep the possibility of a June hike (and another rate hike this year) intact. Will the Fed downplay Q1 growth? Later this week, the Fed governors will speak out, which may give us a better take on the outlook for policy. Q2 GDP should rebound and inflation moved already to the 2% threshold (if not in Q1 GDP deflator terms). The Fed most probably continues the discussion on balance sheet tapering, but it looks too early to already receive an action plan. Markets will be sensitive to these issues, but these might only be tackled when Fed speakers appear Friday

In a daily perspective, the focus will be on the Fed statement. If the Fed elaborates on recent US data softness, it might be a slightly USD negative, even if the FOMC keeps the option of a June rate hike open.

The intraday developments/factors (EU and US data, soft oil price, modest equity correction?.....) are probably also a slightly negative for the dollar. In this context, the Fed will have to sound quite convincing on its future rate hike intentions to support the dollar. We are not convinced that the dollar will get enough interest rate support right now. We don't expect a USD sell-off, but EUR/USD might test and even (temporary ?) regain the 1.0950 area. In this context, it also won't be easy for USD/JPY to regain the 112.20 area in a sustainable way.

Last week, FX trading was driven by the risk trade as European event risk eased. This supported USD/JPY, but also EUR/USD and EUR/JPY. The market pondered whether declining political risk could bring forward the ECB's normalisation process. This hope was moderated after the ECB press conference. From a technical point of view, the rebound of USD/JPY suggests a bottoming out process has started, but the pair needs to regain the 112.20 level (neckline ST double bottom) to improve the picture. A first test yesterday didn't succeed yet. EUR/USD extensively tested the topside of the MT range (1.0874/1.0906 area) late March. The pair returned to the range top after the French election and set minor new highs. We look out how this test turns out. If EUR/USD regains the 1.10 barrier, next resistance comes in in the 1.1145/1.13 area (US pre/post-election swings).

USD: holding near the post-Macron-top. Fed to decide on ST break higher?

EUR/GBP

Sterling to become more sensitive for Brexit headlines?

Yesterday, sterling remained under pressure early in Europe as the harsh comments from EU commission President Juncker on the Brexit negotiations continued to weigh on sterling. Mid-morning, the UK April manufacturing PMI came out surprisingly strong at 57.3 from 54.2 in March. Initially, the gains of sterling remained very modest, but the UK currency gradually received a better bid later in the session. EUR/GBP closed the session at 0.8448. Cable regained the 1.29 level and closed the session at 1.2939.

Today, UK construction PMI is expected to decline slightly from 52.2 to 52.00. This morning, sterling is again trading with a slight negative bias on Press headlines that the EU will take a tough stance on the UK financial obligations at the start of the Brexit negotiations. So, as was the case earlier this week, there are tentative signs that Brexit uncertainty is gradually becoming a bit more important for sterling trading. A more cautious sentiment on risk might also be slightly negative for sterling. On the other hand, EUR/GBP might be supported by some overall euro strength. Will this be enough for EUR/GBP return to the 0.85 barrier today?

Two weeks ago, EUR/GBP dropped below EUR/GBP 0.84 support, (temporary) improving the sterling picture. The pair came within reach of the key 0.8305 support (Dec low), but no real test occurred. After last week's EUR/GBP rebound, the range bottom is better protected. Longer term, Brexit-complications remain potentially negative for sterling. On technical considerations we are inclined to reconsider a cautious EUR/GBP buy-on-dips approach

EUR/GBP: downside better protected after last week's rebound

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 144.23; (P) 144.67; (R1) 145.37; More....

GBP/JPY's rise continued and reached 145.11 so far, breaching 144.77 resistance. The cross continued to lose upside momentum as seen in 4 hour MACD but there is no clear sign of topping yet. Hence, further rise is still expected. As noted before, consolidation pattern from 148.42 has completed at 135.58, ahead of 135.39 medium term fibonacci level. Sustained trading above 144.77 should then resume the whole rebound from 122.36 through 148.42 resistance. On the downside, though, break of 143.79 minor support will bring pull back to 4 hour 55 EMA (now at 142.62) and below, before staging another rally.

In the bigger picture, based on current momentum, rise from 122.36 bottom should be developing into a medium term move. Break of 38.2% retracement of 195.86 to 122.36 at 150.42 should pave the way to 61.8% retracement at 167.78. This will now be the favored case as long as 135.58 support holds.

Dollar strengthens mildly as markets await FOMC rate decision but momentum is limited against European majors. Notable moves are seen in Canadian dollar which is weighed down by oil prices. Meanwhile, Australian Dollar follows stocks lower but is holding above near term support at 0.7439 against Dollar. The Aussie is possibly weighed down by selling against New Zealand Dollar too after impressive job data of the latter. Sterling is also generally weaker today on news that EU is raising the amount of the Brexit deal for UK to EUR 100b. Meanwhile, Euro is also a touch softer ahead of French election TV debate.

EU Raised Brexit Bill to EUR 100b

Regarding Brexit, it's reported that EU has raised the demand on the up-front settlement for UK to as much as EUR 100b. Previously that was estimated to be between EUR 40b and EUR 60b. And the larger demand was believed to be driven by France and Germany. And UK will be asked to cover post-Brexit farm payments and EU administration fees in 2019 and 2020. Nonetheless, over a period of a decade or more, the total amount will be reduced to around EUR 60b in net as UK receives it's share of EU spending and repaid EU loans. And analysts noted that the approach of making the up-front payment bigger than the long term net is an approach that calculates the most extensive possible liabilities.

Macron and Le Pen for TV debate tonight

In France, pro-EU centrist Emmanuel Macron and EU-sceptic far right Marine Le Pen will have a head-to-head TV debate tonight. At this point, polls are still suggesting Marcon as a clear winner out of the run-off of the French Presidential election this Sunday. With just four days to go, Macron is having a strong lead of 20 points over Le Pen. Macron said that he will use "hand-to-hand fighting to demonstrate that her ideas represent false solutions" in the debate. On the other hand, Le Pen said that "his program seems to be very vague, but in reality it is a simple continuation of (Socialist President) Francois Hollande's government."

BoJ asset surged to 90% of GDP

In Japan, based on a reported released by BoJ this week, the central bank's assets grew by JPY 4T between April 20 and 30. And the total assets reached JPY 497.74T. That's equivalent to the 90% of the country's GDP. Government securities made up 85% of the total assets, at JPY 424.59T, up JPY 65T from a year ago. And back in 2013 when BoJ started the QQE program, it only had JPY 134T in Japanese government securities. There are calls for BoJ to explain the problems that it would face holding a balance at this level. Some pointed out there could be much negative impact on the value of JGBs when BoJ starts stimulus exit.

Canadian Dollar tumbles as oil dive extends

Canadian Dollar continues its weakness as selloff in oil extends. WTI crude oil tumbled to as low as 47.35 overnight and is hovering around 48 at the time of writing. There were concerns over excessive supply from Libya, Canada and the US have continued to pressure prices. A media report suggested that OPEC's compliance with the output cut dropped to 90% in April from a revised 92% (from 95%) a month ago. While an OPEC member, Libya is excluded from the output cut deal due to the prolonged disruption in the oil facility since the 2011 Civil War. The country's production has risen above 0.76M bpd, the highest since December 2014, due to the reopening of the major western field of Sharara last week. The country has pledged to raise production.

FOMC to keep monetary policies unchanged

FOMC rate decision will be a major focus today and it's widely expected to keep monetary policies unchanged. At this point, the base case for Fed remains unchanged. That is, Fed will continue with it's plan of a total of three rate hikes this year. That would be followed by a "brief pause" as Fed starts shrinking its balance sheet later in the year. Markets are pricing in over 60% chance of a rate hike by Fed in June. It's generally believed Fed will look past the weaker than expected Q1 GDP data. There is no post meeting press conference scheduled.

On the data front...

New Zealand unemployment rate dropped to 4.9% in Q1, down from 5.2% and below expectation of 5.1%. Employment grew 1.2% qoq, up from prior quarter's 0.7% qoq and beat expectation of 0.8% qoq. UK BRC shop price index dropped -0.5% yoy in April. Germany will release unemployment data today. Eurozone will release GDP and PPI. UK will release construction PMI. From US, ADP employment and ISM services will be released before FOMC rate decision.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 144.23; (P) 144.67; (R1) 145.37; More....

GBP/JPY's rise continued and reached 145.11 so far, breaching 144.77 resistance. The cross continued to lose upside momentum as seen in 4 hour MACD but there is no clear sign of topping yet. Hence, further rise is still expected. As noted before, consolidation pattern from 148.42 has completed at 135.58, ahead of 135.39 medium term fibonacci level. Sustained trading above 144.77 should then resume the whole rebound from 122.36 through 148.42 resistance. On the downside, though, break of 143.79 minor support will bring pull back to 4 hour 55 EMA (now at 142.62) and below, before staging another rally.

In the bigger picture, based on current momentum, rise from 122.36 bottom should be developing into a medium term move. Break of 38.2% retracement of 195.86 to 122.36 at 150.42 should pave the way to 61.8% retracement at 167.78. This will now be the favored case as long as 135.58 support holds.

Economic Indicators Update

Asia Mid-Session Market Update: New Zealand unemployment rate matches multi-year lows, but wage growth stays suppressed; AUD, ASX200 slide on lower iron ore prices

US Session Highlights

(US) Pres Trump tweets: "Our country needs a good 'shutdown' in September to fix mess!"

(US) House Freedom Caucus Chair Meadows (R-NC): GOP still a handful of votes short in the House on AHCA healthcare bill - press

(US) April ISM New York: 55.8 v 56.5 prior

Stock markets traded sideways for the most part on poor auto sales numbers and few other data points. At close, Blue Chips and the broader market managed to post small gains. The best performing sector of S&P were the Industrials +0.5%, worst sector, Consumer Staples -0.7%. Bonds opened lower, sending yield to 2.34% as the reflation trade seemed to gain traction. Eventually FI markets rallied, sending yield back down to 2.28%.

US markets on close: Dow +0.2%, S&P500 +0.1%, Nasdaq +0.1%

Best Sector in S&P500: Industrials

Worst Sector in S&P500: Consumer Staples and Energy

Biggest gainers: COH +11.4%; MLM +7.6%; CMI +6.1%

Biggest losers: ADM -8.9%; MOS -7.2%; NRG -5.4%

At the close: VIX 10.59 (+0.5pts); Treasuries: 2-yr 1.26% (flat), 10-yr 2.29% (-3bps), 30-yr 2.98% (-3bps)

US movers afterhours

ETSY Reports Q1 $0.00 v $0.00e, R$96.9M v $98.6Me; names Josh Silverman as CEO; +15.7% afterhours

OB To Be Acquired By Intact Financial Corporation for $18.10/shr in cash, valued at $1.7B; +15.3% afterhours

FEYE Reports Q1 -$0.09 v -$0.26e, R$173.7M v $164Me; Expects to be profitable from 2018 on, incl Q417; +14.7% afterhours

WTW Reports Q1 +$0.16 v -$0.05e, R$329M v $323Me; 13.7% afterhours

FSLR Reports Q1 +$0.25 v -$0.13e, R892M v $699Me; +8.3% afterhours

MDLZ Reports Q1 $0.53 v $0.50e, R$6.41B v $6.37Be; +2.8% afterhours

AAPL Reports Q2 $2.10 v $2.02e, R$52.9B v $52.6Be; raises dividend 10.5% to $0.63 from $0.57 (indicated yield 1.71%); increases buyback program by $35B (4.4% of market cap) to $210B; iPhone shipments 50.8M v 51.2M y/y (v 52Me); -1.8% afterhours

APC Reports Q1 -$0.60 adj v -$0.23e (unclear if comp), R$3.77B v $2.66Be; -2.5% afterhours

TWLO Reports Q1 -$0.04 v -$0.07e, R$87.4M v $83.5Me; Guides Q2 -$0.11 to -$0.11 v -$0.08e, R$85.5-87.5M v $87.6Me; -29% afterhours

Following extended session:

PRGO: Discloses DOJ investigation related to drug pricing

CTXS: Said to be working with Goldman on a possible sale - press

Key economic data

(NZ) NEW ZEALAND Q1 UNEMPLOYMENT RATE: 4.9% (matches lowest rate since Q4 of 2008) V 5.1%E; EMPLOYMENT CHANGE Q/Q: 1.2% V 0.8%E; Y/Y:5.7% V 5.3%E

(AU) AUSTRALIA APR AIG PERF OF SERVICES INDEX:53.0 V 51.7 PRIOR; 2nd straight expansion and 3-month high

(UK) APR BRC SHOP PRICE INDEX Y/Y: -0.5% V -0.5%E; 48th consecutive decline

(VN) Vietnam Feb PMI Manufacturing: 54.1 v 54.6 prior

Asia Session Notable Observations, Speakers and Press

Asian equities trading mixed in the wake of modest gains on Wall St, though volatility is also compressed ahead of tomorrow's FOMC decision and Japan and Korea closed for holiday. S&P futures are modestly lower, while Nasdaq futures are weighed down by disappointing earnings from Apple after market close. Oil futures were up over 1% on larger than expected draw in API inventories.

In FX, NZD/USD spiked up some 30pips on the release of lower than expected New Zealand unemployment rate as it matched the lows not seen since late 2008, however half of those gains were erased in later Asian hours as traders noted low wage growth and limited expectations of altering RBNZ policy path. AUD/USD also came under some pressure late in the day, testing below $0.75 handle, just as ASX200 index fell to a 1-week low below 5,900, with weakness in the metals sector attributed to a steep 6% drop in Dalian iron ore prices.

China

(CN) Out of 1.1K publicly traded companies in China to post results so far, about 60% project rising profits or reversal from loss to profit for H1 period - Chinese press

(CN) China CBRC said to approve CCB and Agbank’s debt to equity swap units – Chinese Press

Australia

(AU) Australia Trade Min Ciobo: TPP is still possible without US involvement

Korea

(KR) According to 38 North, North Korea appears to continue activity at its nuclear test site - press

Asian Equity Indices/Futures (00:30ET)

Nikkei closed, Hang Seng +0.3%, Shanghai Composite -0.3%, ASX200 -1.1%, Kospi closed

Equity Futures: S&P500 -0.1%; Nasdaq -0.3%, Dax -0.1%, FTSE100 -0.2%

FX ranges/Commodities/Fixed Income (03:00ET)

EUR 1.0920-1.0935; JPY 111.95-112.07; AUD 0.7500-0.7545; NZD 0.6930-0.6970

June Gold flat at 1,256/oz; June Crude Oil +0.6% at $47.94/brl; July Copper -1.1% at $2.61/lb

iShares Silver Trust ETF daily holdings rise to 10,417 tonnes from 10,308 tonnes prior

(US) Weekly API Oil Inventories: Crude: -4.2M v +0.9M prior; (largest draw since Jan 18th 2017)

(RU) Russia govt reportedly favors extension of OPEC deal by six months - press

USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.8892 V 6.8956 PRIOR

(CN) PBOC to inject combined CNY200B v skipped prior in 7-day, 14-day and 28-day reverse repos

(CN) China MOF sells 1-yr bonds at 3.32% v 3.18%e, bid-to-cover 1.47x; Sells 10-yr bonds at 3.52% v 3.49%e, bid-to-cover 2.20x

(AU) Australia MoF (AOFM) sells A$600M in 2.75% 2028 Bonds; avg yield: 2.7213%; bid-to-cover: 4.69x

Asia equities notable movers

NZME, NZM.NZ,-11.2%; NZCC denies merger with Fairfax

Vocus Communications, VOC.AU, -27%, cuts FY17 guidance

Nufarm NUF.AU -1.5%, guidance

Star Entertainment SGR.AU 4.0%, trading update

Woolworths WOW.au -2.0%, Macquarie cut

Melbourne IT, MLB.AU, +7.8%, resumes trading, entitlement offering

Epistar, 2448.TW, +3.3%, San Shing Fastech may make an offer

MediaTek, 2454.TW, -1.8%, may have negative outlook

Key Points:

• Risks of FOMC meeting slanted to the downside.
• Market clearly looking for a strongly hawkish message.
• Fed likely to keep rates on hold whilst remaining 'data dependent'.

As the market gears up for a key decision on interest rates from the U.S. Federal Reserve the reality is that most traders might be missing the risk of a downside move and over estimating the Fed's ability and resolve to act. Subsequently, the greenback could be in for a rough ride if the Fed does exactly what I expect…nothing.

At this stage of the game, the central bank has carefully built expectations of 'at least' three rate rises for 2017. Subsequently, although most economists are not expecting the FOMC to hike rates at this meeting, they are expecting some hawkish rhetoric. However, they could be in for a huge disappointment given the changing economic conditions that the Fed currently faces.

Unfortunately, there has been no net change to the state of the U.S. economy since the last FFR event and, in fact, things might actually have deteriorated. Currently, Citibank's economic surprise index is now in negative territory whilst the latest round of personal income figures gained an anaemic 0.2%. Additionally, consumer spending is also on the slide with the latest print returning a result of zero, which leads us to the next question of where the inflation is.

The reality is that inflationary pressures have largely been absent from the central bank's version of the recovery with the last round of the PCE index coming in at just 1.6%. Subsequently, despite there being records levels of employment, and an unemployment rate below the natural level, we still do not have the kind of persistent price pressures that are likely to spur the central bank into action. There would therefore be little in the way of a case to continue normalising rates, at least with the current economic figures.

Therefore, it makes little sense that the market would be so convincingly Dollar long when the Fed's current policy path is fraught with plenty of uncertainty. Presently, the risks are very much slanted to the downside, especially if the central bank provides a less than hawkish statement following the event. In fact, this could lead to a relatively strong USD depreciation which is likely to catch many retail traders unawares. Subsequently, watch your exposure during this event because the economic fundamentals are suggesting only one outcome and it will be unlikely to satisfy the bulls.

Key Points:

• Silver and gold likely to begin a recovery moving forward.
• Risk appetite may not be as great as it appears at first glance.
• FOMC unlikely to deliver a rate change and impact the metals.

It is always prescient to look at gold and silver prices in the lead up to an FOMC meeting and this time is no different. As a result, we will be investigating both the technical and fundamental factors that are likely to be impacting the metals over the coming days to try and establish a bias.

Beginning with gold's technicals, it is a generally simple story here and the EMA readings give us most of the information we need. Notably, the 12, 20, and 100 day averages are arranged in a fairly bullish fashion and the formation of a doji candle is hinting that the 38.2% Fibonacci level is set to remain in place. This will come as little surprise given that this point also falls in line with a rather visible and long-term point of inflection around the 1251.35 handle.

As for silver's technicals, these are a little more complex as the moving averages are actually contrary to the rally that we are forecasting for the two metals. Luckily, similar to gold, silver has seen a doji candle with a very long shadow form in the prior session just as price action challenged a robust historical support. Typically, this would indicate that bearish momentum is running short and that we are about to see a strong reversal, a forecast reinforced by the highly oversold RSI reading.

Moving onto the fundamentals, the role of these two metals as safe havens may raise questions as to why a rally is forecasted given the seemingly risk-on approach being taken by the market recently. Indeed, the VIX has been tumbling lower over the past fortnight, sinking from around the 15.00 mark all the way back to its current 10.47 reading. In line with this, stock prices have moved back to challenge March's highs which is also a signal of increased risk appetite.

However, if we investigate what has been going on in the bond markets we see a slightly different story unfolding which could hint that underlying fears are greater than it might seem at first glance. More precisely, stocks are no longer strongly outperforming bonds and the two assets classes are delivering similar returns. This shift back towards the relative safety of bonds suggests that we could quite easily see a shift in sentiment capable of driving both gold and silver higher moving ahead.

Ultimately, we may need to see another geopolitical shake up from Trump and friends before we get enough momentum in place to see this underlying market fear capitalised on. However, the near-term technical bias should at least prevent further losses for silver and gold amid the increased volatility in the lead up to the FOMC meeting. Additionally, given we are very unlikely to see rates changed, this technical bias could spark a decent rally in the wake of the announcement which is worth keeping in mind.