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Dollar weakens mildly again as markets are awaiting FOMC rate decision, economic projections and press conference. Headline CPI rose 0.1% mom, 2.7% yoy in February, up from 2.5% yoy and beat expectation of 2.6% yoy. Core CPI rose 0.2% mom mom, 2.2% yoy, down from 2.3% yoy but met expectation of 2.2% yoy. Retail sales rose 0.1% in February, above expectation of -0.1%. Ex-auto sales rose 0.2% , above expectation of -0.1%. Empire state manufacturing index dropped to 16.4 in March, down from 18.7 but beat expectation of 15.0. The data are mixed to positive but markets paid little attention to them.

Fed to upgrade economic projections

Fed is widely expected to hike federal funds rate by 25bps to 0.75-1.00%. The rate hike itself is well priced in. Thus the focus will be largely on three things, the FOMC statement, new economic projection, and Fed chair Janet Yellen's press conference. Markets are looking through today's hike and are eager to get the hints on what Fed would do next. The table below showed FOMC's median projections back in December.

Federal funds rate are projected to be at 1.4% by the end of 2017, 2.1% by the end of 2018. They equivalent to 3 rate hikes in total for this year and 2-3 hikes next year. Any upward revision to the numbers will imply a faster path. In particular, some analysts are anticipating a meaningful revision to 2018's projections to reflect a firmer chance of 3 hikes. Meanwhile, the markets will also look closely to the revisions to economic projections, with focuses on the core PCE number for this year and next.

More on FOMC:

• Upcoming Rate Hikes And 2018 Median Dot Plot In Focus
• FOMC Preview - It's All in the Dots
• Fed Expected to Raise US Interest Rates
• FOMC Preview: Fed to Maintain Signal of Three Hikes this Year

Sterling rebounds as unemployment rate hit 4 decade low

Sterling recovers notably today after stronger than expected job data. ILO unemployment rate dropped to 4.7% in January, better than expectation of being unchanged at 4.8%. Also, that's the lowest level in more than four decades since mid-1975. Employment rose 92k, and hit the highest level on record. However, was growth was disappointing as average weekly earnings rose 2.2% 3moy slowed from 2.6% 3moy and missed expectation of 2.4% 3moy. Meanwhile, claimant counts dropped -11.3k in February versus expectation of 3.2k rise. Claimant count rate was unchanged at 2.1%.

Strength in the Pound is relatively limited though as markets await FOMC rate decision today and then BoE rate decision tomorrow. At the mean time, traders are still awaiting UK prime minister Theresa May to finally trigger the Article 50 to kick start Brexit negotiation with EU.

Dutch voters heading to election

The Dutch election held today is generally seen as a first gauge of spread of populism into Europe, ahead of elections in France and Germany. There have been voices from right-wing parties in the core of EU calling for anti-EU referendum. Meanwhile, the exact result of the election in the Netherland could be less important than the implications. The fractured political environment will certainly produce no majority in the parliament. And as many as five parties are possibly needed to form a coalition. Also from Europe, Swiss PPI dropped -0.2% mom rose 1.3% yoy in February. Eurozone employment rose 0.3% qoq in Q4.

BoJ watched in Asian session

BoJ monetary policy decisions will be the focus in the coming Asian session. The central bank is widely expected to keep interest rate unchanged at -0.1%. Also, it will maintain the Yield Curve Control framework to guide 10 year yield to around zero. With the YCC, BoJ will likely keep the pace of asset purchase at JPY 80T per annum. The announcement could end as a non-event.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2100; (P) 1.2161; (R1) 1.2213; More...

GBP/USD formed a temporary low again at 1.2108 and recovered. Intraday bias is turned neutral for another round of consolidation. But still, outlook stays bearish as long as 1.2346 support turned resistance holds. As noted before, consolidation pattern from 1.1946 is completed at 1.2705 is resuming larger down trend. Below 1.2108 will target a test on 1.1946/86 support zone. Break of 1.1946 will confirm our bearish view.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

USD/CAD is almost unchanged in the Wednesday session. Currently, the pair is trading at 1.3450. On the release front, it's a very busy day in the US. Retail sales and CPI indicators are expected to soften in February. Today's highlight is the Federal Reserve policy meeting, with the central bank widely expected to raise the benchmark rate a quarter-point, from 0.50% to 0.75%. There are no Canadian events on the schedule. On Thursday, the US publishes a host of key indicators, led by unemployment claims.

With the markets expecting a quarter-point rate hike on Wednesday, will the currency markets react to a Fed move? Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move could boost the dollar at the expense of gold. Strong US employment numbers in February have reinforced market speculation that the Fed will raise rates for the first time this year. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. Wage growth climbed 2.6% compared to February 2016, while the participation rate edged up to 63.0%, up from 62.9%. These solid job numbers have also provided President Trump with a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won't mind giving him some additional breathing room, with the economy performing so well.

• Markets bide time ahead of Fed; expected to raise rates
• Netherlands begin voting in election testing anti-establishment mood
• UK Jan wage data misses expectations and below month ago levels

Overnight:

Asia:

• China Premier Li stated that ties between China and US keep moving forward and was optimistic about ties. One-China policy was foundation of China-US relations. Trade war with China would hurt US companies and did not wish for such a scenario. 6.5% GDP target was not low and not easy to meet. China faced "relatively large " employment pressure this year as the number of college graduates would hit record high of 7.95M

Europe:

• EU officials said to consider June 20th meeting to authorize Brexit talks. Considering forcing UK to wait until June for formal terms of Brexit to begin, reducing the time PM May has to negotiate a deal
• Scottish First Min Sturgeon (SNP): Might attempt to join European Free Trade Association (EFTA) instead of staying in EU after vote for independence
• YouGov Times survey showed 57% of Scotland voters want to stay in the UK; 43% want to be independent
• ECB's Nouy (SSM chief): Greece bank situation had noticeably and substantially improved in last two years but NPLs remained a major challenge
• France presidential candidate Fillon reportedly placed under formal investigation over diversion of public finances in relation to jobs for family members investigation (as suspected)

Energy:

• Weekly API Oil Inventories: Crude: -0.5M v +11.6M prior (first draw in 3 weeks)

Economic data

• (FR) France Feb Final CPI EU Harmonized M/M: 0.2% v 0.1%e; Y/Y: 1.4% v 1.4%e, CPI Ex-Tobacco Index: 100.5 v 100.5e
• (CH) Swiss Feb Producer & Import Prices M/M: -0.2% v 0.4%e; Y/Y: 1.3% v 1.8%e
• (IS) Iceland Central Bank (Sedabanki) left its 7-Day Term Deposit Rate at 5.00%
• (UK) Feb Jobless Claims Change: -11.3K v -41.4K prior; Claimant Count Rate: 2.1% v 2.2% prior
• (UK) Jan Average Weekly Earnings 3M/Y: 2.2% v 2.4%e; Weekly Earnings (ex Bonus) 3M/Y: 2.3% v 2.5%e
• (UK) Jan ILO Unemployment Rate 3M/3M: 4.7% v 4.8%e

**Fixed Income Issuance:

• (IN) India sold total INR100B vs. INR100B indicated in 3-month and 12-month Bills
• (DK) Denmark sold total DKK1.26B in 3-month and 6-month Bills

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

**Index snapshot (as of 09:40 GMT)**

Indices [Stoxx50 +0.4% at 3,411, FTSE +0.3% at 7,378, DAX +0.1% at 12,004, CAC-40 +0.2% at 4,985, IBEX-35 +0.7% at 9,970, FTSE MIB +0.7% at 19,667, SMI +0.2% at 8,680, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading higher as market participants await results of the Dutch election as well as the Fed's policy decision due later today; Banking stocks generally higher across the board with the peripheral lender weighted FTSE MIB and IBEX outperforming as a result; Energy, commodity and mining stocks also trading higher as copper and oil prices trade higher intraday; shares of Hikma Pharmaceuticals leading the gains in the FTSE 100 after releasing its FY16 results.

Upcoming scheduled US earnings (pre-market) include Concordia Healthcare, Siteone Landscape Supply, Titan International, and Verso Corp.

Equities (as of 09:30 GMT)

• Consumer Discretionary: [Dufry DUFN.CH +2.6% (FY16 results), Hennes & Mauritz HMB.SE -4.8% (Feb sales), Inditex ITX.ES -1.2% (FY16 results), Robert Walters RWA.UK +3.8% (FY16 results)]
• Consumer Staples: [Sixt SIX2.DE -0.5% (FY16 results)]
• Financials: [Munich Re MUV2.DE -1.6% (outlook, share buyback)]
• Healthcare: [Hikma Pharmaceuticals HIK.UK +7.4% (FY16 results)]
• Industrials: [BASF BAS.DE +0.4% (raises prices globally for antioxidants & light stabilizers by 10%), Polymetal POLY.UK +0.9% (FY16 results)]
• Technology: [Tecan Group TECN.CH -6.9% (FY16 results)]
• Utilities: [Ascopiave ASC.IT +2.0% (FY16 results), E.On EOAN.DE -2.8% (FY16 results, cuts workforce)]

Speakers

• ECB's Praet(Belgium) reiterated Council view that needed to build sufficient confidence that inflation will converge to medium-term target
• UK Brexit Min Davis stated that was expecting Queens approval on Article 50 law (royal assent) on Thursday, Mar 16th. Govt had not done any economic assessment of impact of NOT reaching a Brexit agreement. Could be upside to no deal with EU; not as frightening as people think
• EU's Tusk reiterated view that Euro Area economy is improving. Carefully preparing for Brexit negotiations; would try to keep EU and UK close after Brexit
• EU's Juncker: Unemployment was falling but region was not out of the economic crisis just yet
• Iceland Central Bank stated that it was too early to predict impact of the end of capital controls. To continue to mitigate short-term volatility (**Note: lifter capital controls earlier this week after 8 years)
• BOE Shadow MPC: BoE should prepare the ground for a possible rate hike in the minutes of their next meeting
• Denmark Central Bank raised its 2017 and 2018 GDP growth forecasts
• IEA Mar Monthly Report maintained its 2017 global oil demand growth forecast at 1.4M bpd. Opec production was higher in Feb from 32.06M to 32.0M; compliance of 91% v 90% m/m. OECD oil inventories at 3.03B barrels, +48M barrels (1st rise in six months). It noted that oil market needed time to re-balance as January inventories rise

Currencies

• USD was softer ahead of Fed rate decision where expectations are for another 25bps hike.
• The GBP/USD saw some pre-European action as the pair popped up to test above 1.2250 level. Pair moved off 7-week lows to hit a 1-week high. Dealers saw no news for the move other than buy-stops being elected. One excuse was a report by the Shadow MPC that the BoE should prepare the ground for a possible rate hike in the minutes of their next meeting (tomorrow).
• EUR/USD slightly higher in quiet trade at 1.0630 while USD/JPY was steady in the mid-114 neighborhood.

**Fixed Income:

• Bund futures trade at 159.79 up 24 ticks continuing to bounce from 158.73 lows made yesterday with 2s10s flattening on better demand for longer dated bonds. Continued upside targets 160.20 followed by 160.66. Support lies at yesterday low at 158.73 followed by 158.40.
• Gilt futures trade at 126.39 up 13 ticks trading near highs supported by weaker Avg weekly earnings data out of the UK.. Support moves to 125.75 then 125.57 with further weakness eyeing 125.24. Resistance remains at 126.38 then 126.87 followed by 127.35. Short Sterling futures trade virtually flat across the strp with Jun17Jun18 spread remaining at 17/18bp.
• Wednesday liquidity report showed Tuesday's excess liquidity rose to €1.373T a rise of €2B from €1.371T prior. Use of the marginal lending facility rose to €976M from €620M prior.
• Corporate issuance after a strong start to the week issuance grinding to a halt yesterday as issuers remain sidelined ahead of the FOMC rate meeting this evening. Today is expected to remain quiet ahead of the Fed decision.

Looking Ahead

• (CO) Colombia Feb Consumer Confidence Index: -26.0e v -30.2 prior
• OPEC workshop in Vienna
• 05:50 (EU) ECB allotment in 7-day USD Liquidity Tender at fixed % vs. $915M prior (recd 2 bids)
• 06:00 (EU) Euro Zone Q4 Employment Q/Q: No est v 0.2% prior; Y/Y: No est v 1.2% prior
• 06:00 (ZA) South Africa Q1 Business Confidence: No est v 38 prior
• 06:00 (IT) Italy Feb Final CPI (Including Tobacco) M/M: No est v 0.3% prelim; Y/Y: No est v 1.5% prelim
• 06:00 (IT) Italy Feb Final CPI EU Harmonized M/M: No est v 0.2% prelim; Y/Y: No est v 1.5% prelim, CPI FOI Index Ex Tobacco: No est v 100.6 prior
• 06:00 (EU) Daily Euribor Fixing
• 06:00 (GR) Greece Debt Agency (PDMA) to sell €1.0B in 13-Week Bills
• 06:00 (SE) Sweden to sell Bills - 06:00 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:30 (DE) Germany to sell €1.0B in 2.5% Aug 2046 Bunds
• 06:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.5B in 6-month and 12-month Bills
• 07:00 (US) MBA Mortgage Applications w/e Mar 10th: No est v 3.3% prior
• 07:00 (BR) Brazil Mar FGV Inflation IGP-10 M/M: 0.2%e v 0.1% prior
• 07:00 (ZA) South Africa Jan Retail Sales M/M: +0.2%e v -2.3% prior; Y/Y: 1.1%e v 0.9% prior
• 07:00 (IE) Ireland Feb CPI M/M: No est -0.5% prior; Y/Y: No est v 0.3% prior
• 07:00 (IE) Ireland Feb CPI EU Harmonized M/M: +0.5%e -0.5% prior; Y/Y: 0.4%e v 0.2% prior
• 07:00 (RU) Russia to sell combined RUB45B in 2022 and 2033 OFZ bonds
• 07:45 (US) Daily Libor Fixing
• 08:00 (UK) PM May weekly question time in House of Commons
• 08:00 (FI) Finland govt responds to no-confidence motions
• 08:30 (US) Mar Empire Manufacturing: 15.0e v 18.7 prior
• 08:30 (US) Feb CPI M/M: 0.0%e v 0.6% prior; Y/Y: 2.7%e v 2.5% prior
• 08:30 (US) CPI Ex Food and Energy M/M: 0.2%e v 0.3% prior; Y/Y: 2.2%e v 2.3% prior
• 08:30 (US) Feb CPI Index NSA: 243.416e v 242.839 prior; CPI Core Index SA: 251.155e v 250.783 prior
• 08:30 (US) Feb Advance Retail Sales M/M: 0.1%e v 0.4% prior; Retail Sales Ex Auto M/M: 0.1%e v 0.8% prior, Retail Sales Ex Auto and Gas: 0.2%e v 0.7% prior, Retail Sales Control Group: 0.2%e v 0.4% prior
• 08:30 (US) Feb Real Avg Weekly Earnings Y/Y: No est v -0.5% prior (revised from -0.6%), Real Avg Hourly Earning Y/Y: No est v 0.1% prior (revised from 0.0%)
• 09:00 (US) The Federal Open Market Committee (FOMC) begins final day of policy meeting
• 09:00 (HU) Hungary Central Bank (NBH) Feb Minutes
• 09:00 (PL) Poland Feb CPI Core M/M: 0.1%e v 0.1% prior; Y/Y: 0.4%e v 0.0% prior
• 09:00 (CA) Canada Feb Existing Home Sales M/M: No est v -1.3% prior
• 09:15 (UK) Baltic Dry Bulk Index - 09:45 (IT) ECB's Visco in Milan
• 10:00 (US) Mar NAHB Housing Market Index: 65e v 65 prior
• 10:00 (US) Jan Business Inventories: 0.3%e v 0.4% prior
• 10:00 (BE) Belgium Jan Trade Balance: No est v €0.1B prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 10:50 (UK) BoE conducts reverse Gilt auction (7-15 years)
• 11:00 (PE) Peru Feb Unemployment Rate: 7.5%e v 7.2% prior
• 11:00 (PE) Peru Jan Economic Activity Index (Monthly GDP) Y/Y: 4.5%e v 3.2% prior (revised from 3.3%)
• 12:00 (NG) Nigeria to sell 2021, 2027 and 2036 Bonds
• 12:30 (IL) Israel Feb CPI M/M: -0.2%e v -0.2% prior; Y/Y: 0.2%e v 0.1% prior
• 14:00 (US) FOMC Interest Rate Decision: Expected to Raise Fed Funds Target Range to 0.75-1.00%
• 16:00 (US) Jan Total Net TIC Flows: No est v -$42.8B prior; Net Long-term TIC Flows: No est v -$12.9B prior

The pair is on front foot in early Wednesday's trading and eyeing 0.7600 barrier, after previous day's weakness was contained by rising 55SMA at 0.7538.

This keeps strong support zone between 0.7532 and 0.7502, defined by 200 / 100 SMA's, out of rech or now.

Rising daily cloud continues to underpin (cloud top lies at 0.7527 today), with bullish signal generated on break above daily Tenkan-sen (0.7560).

Recovery rally is testing pivot at 0.7584 (Fibo 38.2% of 0.7739/0.7489 downleg) break of which will open next trigger at 0.7514 (daily Kijun-sen).

Sustained break here is needed to signal higher low at 0.7489 and open way for further retracement of 0.7739/0.7489 correction.

Res: 0.7600; 0.7614; 0.7643; 0.7700
Sup: 0.7560; 0.7545; 0.7532; 0.7494

Oil price bounced to $48.85 per barrel on Wednesday and hit the highest level since last Friday, after spiking to three-month low at $47.08 on Tuesday.

Rally was backed by surprise fall in US inventories in API report, released on Tuesday.

Double-Doji in past two days, with Tuesday's candle with very long tail, signal strong indecision and downside rejection after the price fell below $50 per barrel last week.

Investors are eyeing today's release of EIA crude inventories, which is showing forecast for 3.3 million barrels build in the week behind us, well below previous week's shock on 8.2 million barrels build.

Two long-tailed candles are underpinning, however, the price needs clear break above initial barrier at $48.71 (200SMA) to generate stronger signal for retest of breakpoint at $50.00 (daily cloud base / near Fibo 38.2% of $55.01/$47.08 fall).

Initial reversal signal is generating as daily RSI/slow stochastic are emerging from oversold territory.

Alternative scenario sees repeated close below 200SMA as signal of extended consolidation before broader bears resume.

Res: 48.71; 50.00; 50.70; 51.05
Sup: 48.31; 47.90; 47.08; 45.27

The DAX Index continues to hug the 12,000 level this week. In the Wednesday session, the DAX is at 11,989.50. On the release front, Eurozone Employment Change edged up to 0.3%, above the forecast of 0.2%. In the US, today's highlight is the Federal Reserve policy meeting, with the central bank widely expected to raise the benchmark rate a quarter-point, from 0.50% to 0.75%. On Thursday, the eurozone releases Final CPI, with the markets expecting the index to improve to 2.0%.

German numbers were a mixed bag on Tuesday. There was further indication that inflation continues to improve, as Final CPI rebounded with a gain of 0.6%, compared to a 0.6% decline a month earlier. The well-respected ZEW Economic Sentiment report improved to 1.28, although the markets had expected a stronger reading. Eurozone ZEW Economic Sentiment climbed to 25.6, its strongest gain since December 2015.

The eurozone continues to post improved inflation and growth data, and this has led to calls in some quarters for the ECB to tighten monetary policy. The ECB has kept the benchmark rate at a flat 0.0%, and its asset-purchase program does not expire until December. Will ECB President Mario Draghi taper the monthly purchases or at least signal such an intent? Draghi is doing his best to perform a complicated balancing act. A stronger economy would favor tighter policy, but he does not want ECB to become entangled in heated political contests in Europe. Dutch voters are having their say on Wednesday, while France holds elections in April, followed by Germany in September.

More job numbers out of the US, more good news for the economy. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. The excellent NFP report makes it a virtual certainty that the Fed will raise rates by a quarter-point on Wednesday. Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move will likely give the dollar a boost against its major rivals, such as the euro. The solid job numbers also give President Trump a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won't mind giving him some additional breathing room with the economy performing well.

Wednesday March 15: Five things the markets are talking about

Volatility is rising this week, with the VIX stateside jumping the most in four-weeks yesterday.

In Europe, elections remain a wild card for investors. Today's vote in the Netherlands will deliver a reading on the state of "populism" in the region as races in France and Germany begin to heat up.

In the U.S, investors have the Fed rate decision and economic projections to contend with (2pm EDT). The 100% implied probability means that, similar to Draghi's press conference last week, the tone of chair Yellen's press conference and forward guidance will decide if today decisions are a snooze fest or whether the 'mighty' USD and bond yields pivot away to higher or lower levels.

Down-under, there is the Aussie jobs report and the Bank of Japan (BoJ) rate announcement to open the Australasian sessions.

1. Global stocks mark time, wait for Fed decision

After a strong start to the week, Asian share prices consolidated in the overnight session, preferring to seek guidance from today's Fed rate announcement.

In Japan, the Nikkei share average (-0.2%) was dragged down by a firmer yen (¥114.60) along with the broader Topix (-0.2%).

In Hong Kong with investors also focusing on today's Fed dot-plot, the Hang Sang was on the back foot, retreating -0.2%. Sector performance were mixed, with energy shares leading the decline as lower oil prices dragged down the sector, while property stocks continued to outperform.

In China, stocks were roughly flat, with investors awaiting cues for direction as they closely monitored Premier Li Keqiang's press conference at the end of China's annual parliamentary meeting.

In Europe, equity indices are trading higher as market participants await results of today's Dutch election as well as the Fed's policy decision. Banking stocks are leading the gains on the Eurostoxx, while energy, commodity and mining stocks are trading higher on the FTSE 100.

U.S stocks are set to open in the black (+0.2%).

Indices: Stoxx50 +0.4% at 3,411, FTSE +0.3% at 7,378, DAX +0.1% at 12,004, CAC-40 +0.2% at 4,985, IBEX-35 +0.7% at 9,970, FTSE MIB +0.7% at 19,667, SMI +0.2% at 8,680, S&P 500 Futures +0.2%

2. Oil prices jump after surprise U.S. stock draw, gold higher

Oil prices have rebounded from yesterday's three-month lows after U.S industry data last night showed a surprise drawdown in crude stockpiles.

Ahead of the U.S open, Brent futures are up +71c, or +1.4%, at +$51.63, after settling down -43c at +$50.92 on Tuesday, their lowest close since November. U.S. West Texas Intermediate crude is trading up +81c, or +1.7%, at +$48.53 a barrel - the contract fell for a seventh consecutive session yesterday, its longest losing streak in 14- months.

API data yesterday revealed that U.S. crude stocks fell by -531k barrels last week. Market expectations were looking for an increase of +3.7m barrels. If the drawdown is confirmed today by the DoE it would be the first after nine consecutive builds.

Oil started the week under pressure after OPEC reported a rise in global crude stocks and a surprise output jump from its biggest member, Saudi Arabia.

Note: OPEC's monthly report indicated that oil stocks in industrialized nations rose in January to +278m barrels above the five-year average, with U.S. shale and other non-OPEC supply gaining.

Gold prices (+0.4% to +$1,203.31 per ounce) have edged up this morning on safe-haven buying due to uncertainty over the outcome of today's Dutch elections.

Also, the market is waiting for clues on the pace of U.S interest rate hikes this year. With an immediate rate increase by the Fed as a done deal, the market is focusing on what message the Fed chair Yellen will deliver.

Note: In December, the Fed forecast three-rate rises this year.

3. Fed Hike 100% priced in

The argument for a +25bps hike by the Fed was bolstered yesterday, by a stronger-than-expected U.S PPI headline print (+0.3% vs. +0.1% m/m). Fed funds have priced in +100% probability for a hike today. Expect the market to be focusing on any hints of a change in the number of increases the Fed foresees this year in its dot-plot survey (in December the consensus was for three-rate hikes).

Ahead of the open, the yield on U.S 10's fell -1bps to +2.59%, after slipping -3bps on Tuesday. The equivalent Aussie rate was little changed at +2.92%.

This evening, the Bank of Japan (BoJ) is expected to keep its rates and yield-curve policy unchanged in its policy decision. On Thursday, the Bank of England (BoE), Swiss National Bank and Bank Indonesia are also expected to stand pat with their own policy decisions.

4. Dollar consolidates ahead of FOMC

It's not a surprise to see the mighty dollar lose some traction ahead of today's expected Fed rate hike.

The pound (£1.2193) has trimmed some of its overnight gains after data showed U.K wage inflation slowed sharply (see below). The pair had managed to move off yesterday's seven-week low to print a one-week high earlier this morning (£1.2231). EUR/GBP trades at €0.8711, compared with around €0.8698 beforehand, still leaving the pound around +0.2% firmer on the day.

The EUR is slightly higher outright in quiet trade (€1.0630), while USD/JPY is steady in the mid-¥114 neighborhood.

5. U.K unemployment rate hits four decade low

Data this morning revealed that U.K unemployment rate fell to a forty-year low in the three-months through January, while wage growth after inflation slowed sharply. This may suggest that U.K citizens maybe facing a living standard squeeze despite the robust labor market.

Unemployment in the November-January period fell by -0.1% to +4.7% - employment rose by +92k. The market was expecting no change.

Note: Rising inflation is beginning eat into "real" wage growth, a sign that consumers may rein in spending, potentially causing the economy to slow in the months ahead. Adjusted for inflation, regular wages grew by only +0.8% in the three-months through January, the slowest pace of growth in three-years.

This morning's data should dissuade the BoE from adjusting policy any time soon. Fixed income dealers expect no change to the BoE's benchmark rate tomorrow, currently at +0.25%.

• US futures boosted by commodities but caution remains;
• Is sudden hawkish stance a sign that Fed now sees four hikes this year?
• Oil rebounds as inventories fall and Saudi's reaffirm commitment to market stability;
• Dutch election could be the canary in the mine ahead of the French election;
• Sterling volatile as Sturgeon runs into referendum difficulties and jobs data highlights weaker wage growth.

Ahead of today's highly anticipated FOMC decision, US equity markets are expected to open a little higher with the rally in commodities seen supporting the indices while overall caution is likely to remain.

It's quite clear that investors have been gearing up to today's decision from the US Federal Reserve ever since the blackout period began a little over a week ago. Market expectations have been raised dramatically ahead of the meeting by a coordinated onslaught of hawkish commentary from policy makers, to the point that a rate hike is now around 94% priced in. The upside on the hike itself therefore looks very limited which means we're relying on the dot plot and Janet Yellen if we're going to see much of a strengthening in the US dollar or Treasury yields.

I do wonder whether the sudden coordination from policy makers was driven by the belief that four rate hikes will be needed this year, an outcome that is only around 22% priced in at the moment. A rate hike now and another in June would certainly leave the door open to four increases and stop the Fed falling behind the curve if the US economy does respond strongly to either Trumps stimulus plans – should they be enacted this year – or the prospect of them. If the dot plot points to four hikes then I think the dollar may have further to run, if not then we could be perfectly in buy the rumour sell the fact territory.

It's not just the Fed decision that people are focused on today, although a quick look at the markets would suggest it is the dominant event for investors. Commodities are performing very well so far today, with oil in particular buoyed by Tuesday's surprised inventory drawdown, as reported by API, and Saudi Arabia's commitment to oil market stability. The commitment came after the OPEC report showed Saudi output actually increased in February although this was brushed off as being for storage purposes. An extension of the output deal between OPEC and non-OPEC members remains in doubt but the inventory numbers and Saudi energy ministry comments have afforded oil the opportunity to stabilise. It's been quite an aggressive sell-off in oil since the start of last week and a correction is good for the market. The fact that this came as Brent crude closed in on the psychologically significant $50 is no real surprise.

There'll also be a close eye on the Netherlands over the next 24 hours, as the country heads to the polls and we get an idea of just how strong the populist vote has engulfed the eurozone after years of problems. The Dutch election is effectively the canary in the mine for investors as, while Geert Wilders – the eurosceptic far right leader – has led many polls, the fragmented nature of the Dutch parliament combined with the inability of Wilders to find any parties to join a coalition, makes it very unlikely that he will rule. That said, the trend of polls underestimating the populist vote – as we saw last year in the UK Brexit referendum and US Presidential election – would favour Wilders and should we see similar results today, it would cause great concern ahead of the French election over the next couple of months as Marine Le Pen actually stands a realistic chance of winning.

It's been a bit of a rollercoaster ride this morning for the UK, with the pound initially boosted by Nicola Sturgeons acknowledgement that Scotland would probably not seek to join the EU right away in the event of a vote for independence, instead suggesting they could follow a Norway-type model. This came as a number of polls suggested Scots would once again vote to remain, just as they did a couple of years ago. This would be a crushing defeat for Sturgeon and the SNP and it would appear a sudden change of tactics will be necessary if they're going to avoid the same outcome as before. The pound did take a hit today after UK jobs data showed that while the unemployment situation still looks good, wage growth is slowing which, coming at a time when inflation is headed in the other direction, doesn't bode well for the UK's consumer driven economy.

The US Federal Reserve Bank ('the Fed'), has battled to ignite inflation since the GFC and up until now it has raised rates less frequently than the markets have expected, however, this approach may soon change. Today, the Fed is almost universally expected to raise its benchmark interest rates following strong NFP, full employment and an uptick in inflation. The forecast is that the FED will hike the rates by 0.25 % and the event will be volatile as the FED hike might have already been priced in. We need to watch important camarilla levels and POC zones.

Traders should focus on POC and 2 possible breakout points. The major range of the pair is 1.0720-1.0495. As EUR/USD has been sold on rallies as I have shown on Session Recap webinar and Pre-NFP coverage, the current POC 1.0660-75 is still valid for short on rallies (H5, ATR top, X cross) towards 1.0570 - Daily camarilla L4 support. Breakout of L4 should target L5 and Weekly L5 camarilla levels 1.0545 and 1.0495. The only exception to the upside could be the break of 1.0720 towards 1.0765 and that could happen if the FED doesn't hike the rate today which would be a big surprise.

NZDUSD is looking bearish still, with current bounce being a wave four that may see slightly higher price up to 0.7000 psychological level before market resumes downward move to around 0.6840.

NZDUSD, 1H