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FOMC taper lifts Wall Street

A fence-sitting FOMC which announced a long-overdue tapering, but stuck to its no rate hikes and transitory inflation line was enough to greenlight another rally on Wall Street overnight, which was happy to keep the momentum of the impressive Q3 earnings season going. It was another record close as the S&P 500 rose by 0.65%, with the rate-sensitive tech-heavy Nasdaq leaping 1.04% higher. The Dow Jones tracing out a more modest 0.29% gain. US yields firmed overnight but that appears to have weighed more on the Dow Jones while the FOMO gnomes feasted on the S&P and Nasdaq.

The FOMC and Wall Street’s reaction after has been enough to greenlight a positive day in a holiday-thinned Asia. The Nikkei 225 has jumped by 0.92% with the South Korean Kospi rising by 0.77%. China has ignored another liquidity withdrawal by the PBOC, with pent-up demand seeing the Shanghai Composite rise 0.65% and the CSI 300 leap 1.0% higher. Hong Kong is recording some decent gains as well, rising by 0.85%.

In regional Asia, Singapore and Kuala Lumpur are closed with Taipei climbing 0.40% while Bangkok is unchanged with Jakarta rising by 0.90%. In Australia, markets are rebounding after a tough week so far. The ASX 200 and All Ordinaries climbing by 0.35%. The FOMC decision should see European markets open higher today, while it is hard to see anything other than a huge drop in Initial Jobless Claims derailing the positive momentum in US markets this evening.

The rest of the week will be busy, culminating with Friday’s US Non-Farm Payrolls data. Overnight, ADP Employment surged higher, while the US ISM Non-Manufacturing PMI and sub-indices suggest that the services sector is back with higher activity and costs, after a Q3 delta-induced slowdown. The risks are now skewed towards the Non-Farms finally aligning with signals elsewhere in the US economy, after a few weak readings. A number north of 500K could cause equity markets to reconsider ignoring the implications of the Fed taper. Similarly, a low print will provide fuel for the lower-for-longer monetary party in equities.

On Wednesday, at 18:00 GMT, the US Federal Reserve revealed the central bank's future monetary policy. The event caused volatility, which passed the support of the recent low level connecting trend line. However, the pair found support in the 200-hour simple moving average near 1.2380. The SMA provided enough support for a recovery to start.

On Thursday morning, the currency exchange rate had recovered above the 1.2400 mark. Moreover, the 50-hour simple moving average's resistance was passed. Due to that reason it can be assumed that the pair would test the previous high levels.

Namely, the pair could first find resistance in the 1.2429/1.2434 zone. Afterwards, the weekly R1 simple pivot point at 1.2442 might provide resistance. Above these levels, note the Wednesday's high level at 1.2457.

The GBP/JPY currency exchange rate's recovery found resistance in the 200-hour simple moving average near 156.20. On Thursday morning, the rate declined and reached the support of the 50-hour simple moving average near 155.40.

A passing of the support of the 50-hour SMA could result in the rate looking for support in the weekly S1 simple pivot point at 155.19. However, the pivot point failed to hold for long during this week. Due to that reason the pair could decline to the this week's low level at 154.70 or the weekly S2 simple pivot point at 154.41.

However, a recovery of the GBP/JPY rate might find resistance in the 155.74/155.87 zone, before once again testing the resistance of the 200-hour simple moving average.

At midnight to Thursday, the AUD/USD bounced off the resistance of the weekly S1 simple pivot point at 0.7469. By the start of the day's European trading, the rate had retreated to the weekly S2 simple pivot point at 0.7419. Previously, the rate pierced the pivot point. However, it found support in the 0.7412 level. Due to that reason the 0.7412/0.7420 level is marked on the chart.

If the pair passes the support zone of 0.7412/0.7420, it could look for support in the October 12 high and October 18 low level zone and the weekly S3 simple pivot point at 0.7376/0.7384.

On the other hand, a recovery of the rate would face the 50-hour simple moving average at 0.7440. Above the SMA, the weekly S1 simple pivot point at 0.7469 could once again act as resistance.

At GMT midnight to Thursday, the EUR/JPY currency exchange rate bounced off the 132.56 level and began a decline. The decline gradually became sharper, as eventually the rate lost 95 base points. On Thursday morning, the rate ended the decline,as it found support in the 131.48/131.62 zone.

If the support zone causes a recovery of the rate, it could aim at the resistance of the 50-hour simple moving average at 132.00, the weekly simple pivot point at 132.09 and afterwards the 200-hour simple moving average at 132.15. Above these levels, the pair might find resistance in previous high levels at 132.40 and 132.56.

Meanwhile, a passing of the support zone could result in a decline. A potential decline might find support in the weekly S1 simple pivot point at 131.26. Below the pivot point, the 131.00 mark might act as a support level.

Fed announces 15 billion dollar taper

The European Central Federal Reserve Bank of Australia and Japan; sorry, I mean the US Federal Reserve, were completely on message overnight, announcing a USD 15 billion per month taper to their USD 120 bio per month bond-buying programme, while at the same time, saying interest rate hikes were not on the horizon. Combined with a strong US earnings season, those noises were enough to keep the party going in US equities which traced out another record high. The US dollar edged lower while US yields firmed suggesting the street had gone into the FOMC decision long.

How the reality of the taper plays out over the next few months will be interesting. Mr Powell said something along the lines of inflation is still transient, but it could be transient for longer than expected. A rise in US yields over the next couple of months as the taper really gets going should continue to keep the US dollar in the driver’s seat, while hypoxia inducing equity valuations may find the altitude challenging, particularly if consumers start pushing back on pricing increases.

Asian markets, which have been late to the reopening party for obvious reasons, have their central banks lined up in supportive mode still, and rightly so. The stress of the taper could be felt in this region more than others, especially if, as expected, the US dollar rally continues, and US yields rise. That could lead to a burst of imported inflation if the region’s central banks choose not to spend foreign currency reserves defending their currencies. Thankfully this time around, those reserves in the region are bulging at the seams. Probably the elephant in the room will be China. If its slowdown continues, whether by material, Covid-19, property sector defaults or energy of supply-chain constraints, a move to a looser monetary bias and a weaker yuan would give the rest of Asia another headache, especially in currency markets.

The central bank world is rapidly splitting into two teams. Those in the lower for longer camp, forever if you are Europe or Japan, and those that are looking at the distortions caused by unconventional monetary policy, particularly on the young whose future wealth we are stealing with QE, and those on low or fixed salaries. Poland slipped in a 75bps hike overnight and they may well be joined by Norway and the United Kingdom this afternoon. US markets need not worry though; the Fed has signalled, like Europe and Australia, that they will come to the rescue at the first sign of trouble. It is no surprise, therefore, that the music continues to play across equities and other asset classes. You could even argue the crypto-boom is in part a function of the ham-fisted opioid monetary largesse from prominent members of the central bank space.

This week is a busy one still culminating with Friday’s US Non-Farm Payrolls data. Overnight, ADP Employment exploded higher, while the US ISM Non-Manufacturing PMI and sub-indices suggest that the services sector is back with higher activity and costs, after a Q3 delta-induced slowdown. The risks are now skewed towards the Non-Farms finally aligning with signals elsewhere in the US economy, after a few months of disappointments. A number north of 500K could cause equity markets to reconsider ignoring the implications of the Fed taper. Similarly, a low print will keep the lower-for-longer monetary party in equities going well into the night.

The Norges Bank and Bank of England rate decisions aside, I expect to see continued volatility in the energy space as OPEC+ meets today to decide if a change to production targets needs to be revised upwards. I would expect OPEC+ plus to ignore the pressure from COP26, I mean President Biden, to increase oil production. Oil prices fell overnight as inventories rose, but the announcement that the US and Iran would restart talks at the end of the month should be the death knell of production hike hopes from the grouping.

Australia’s Retail Sales rose by 1.30% MoM in September while the headline Q3 number by 4.40%. Market impact has been minimal to non-existent, as the reopening of Victoria and New South Wales, along with international borders, means those numbers will surely rebound strongly, helped along by their resident fence-sitting central bank. The data calendar is tier-2 in Europe and non-existent in Asia today with holidays in Singapore, Malaysia and India reducing activity.

US Initial Jobless Claims will attract higher than usual interest, thanks to being sandwiched between the FOMC and Non-Farm Payrolls. But I would argue to readers that the OPEC+ meeting will be the biggest source of volatility later today. And in case you thought it had gone away, units of China’s Evergrande have another US Dollar P&I totalling USD 82.50 mio due by this Saturday.

Notes/Observations

• Mixed PMI Services data from EU in session but remaining in expansion territory (Beats: none, Misses: Euro Zone, Italy; in-line: France, Germany).
• Fed not rush to raise interest rates; focus turns to Friday’s release of US non-farm payroll data.
• Global yields edge lower in post Fed decision environment.
• BOE rate decision in focus - question of a rate hike today or hints of an increase to come in December.

Asia

• Japan Oct Final PMI Services confirmed 1st expansion in 21 months (50.7 v 50.7 prelim).
• BOJ Gov Kuroda stated that had reaffirmed joint statement between the Govt and BOJ, To continue YCC even after COVID died down, no talks on stimulus package.
• China President XI stated that would deepen international cooperation on shipping; China to ensure smooth global industry and supply chains.

Americas

• Fed left Interest Rate Target unchanged between 0.00-0.25% (as expected). Announced that tapering to begin in November with monthly reductions of $15B from the $120B/month purchases. Decision was unanimous. Continued to see elevated inflation as transitory.
• Fed Chair Powell post rate decision press conference noted Inflation was running well above 2% goal and Fed did understand difficulties of high inflation on families . Our tools could not ease supply constraints; Very difficult to predict future of supply issues on inflation. If saw signs inflation was moving persistently beyond levels the would adjust. Taper would cease by mid-2022 and did not imply any direct signal on rate policy.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.55% at 483.88, FTSE +0.39% at 7,276.40, DAX +0.39% at 16,022.25, CAC-40 +0.45% at 6,982.05, IBEX-35 +0.54% at 9,080.00, FTSE MIB +0.46% at 27,504.00, SMI +0.81% at 12,483.80, S&P 500 Futures +0.10%].
• Market Focal Points/Key Themes: European indices open generally higher and consolidated in the green as the session wore on; sectors leading to the upside include financials and technology; while laggards include telecom and materials; Russia closed for holiday; Roche buybacks stake from Novartis; Alstria receives takeover offer from BAM; takeover of Zooplus reaches threshold; focus on upcoming BOE interest rate decision; earnings expected during the upcoming US session include Air Products, Becton Dickenson, Domtar, and AmerisourceBergen.

Equities

• Consumer discretionary: Deutsche Post [DPW.DE] +2.5% (earnings), Hugo Boss [BOSS.DE] +1% (earnings), Sainsbury [SBRY.UK] -5% (earnings).
• Financials: Commerzbank [CBK.DE] +4% (earnings; raises outlook), Societe Generale [GLE.FR] +3.5% (earnings; new CFO).
• Healthcare: Novartis [NOVN.CH] +1.5%, Roche [ROG.CH] +2.5% (~$20B share sale deal), Credit Suisse Group [CSGN.CH] -1% (earnings).
• Telecom: BT Group [BT.A.UK] +6% (earnings), Telefonica [TEF.ES] +1.5% (earnings).

Speakers

• Norway Central Bank (Norges) Policy Statement reiterated its forward guidance that most likely to raise Deposit Rate further in Dec. Economic upturn was continuing broadly as expected. Supply chain disruptions could damper economic upturn and add to inflation pressures. Higher electricity prices have resulted in high CPI. Underlying inflation was lower that inflation target but could be lifted by higher economic activity and rising wage growth. NOK currency (Krona) appreciation could curb the rise in prices.
• German Association of Chambers of Trade and Industry (DIHK): German firms are more optimistic about business conditions abroad than they were in the spring.
• Philippines Central Bank (BSP) Gov Diokno stated that CPI pressures were stemming from supply-side issues; believed pickup in inflation was transitory. To be vigilant against possibility second round' effects of inflation.
• OPEC+ Delegate noted that US was asking OPEC+ to increase oil output by 600-800K bpd.

Currencies/Fixed Income

• USD was firmer in the session as traders noted a buoyant US economy and higher yields would support the currency. Fed in no rush to raise rates but market attention turning to how long the Fed could defer rate rises, given fears that high inflation could last longer than the Fed had initially projected. US payroll data in focus for Friday.
• GBP/USD at 1.3625 ahead of the BOE rate decision. Markets are seeing a potential rate hike.
• JPY currency was softer as risk sentiment improved after the Fed showed a cautious stance toward raising interest rates.
• Major bond yields were lower in the session as central banks deflect market expectations for rate hikes. Fed Chair Powell and ECB Lagarde have been preaching patience and both continued to believe that inflation pressures would wane over time.

Economic data

• (NL) Netherlands Oct CPI M/M: 1.3% v 0.1% prior; Y/Y: 3.4% v 2.7% prior.
• (NL) Netherlands Oct CPI EU Harmonized M/M: 1.6% v -0.2% prior; Y/Y: 3.7% v 3.0% prior.
• (DE) Germany Sept Factory Orders M/M: 1.3% v 1.8%e; Y/Y: 9.7% v 11.3%e.
• (ZA) South Africa Oct PMI (whole economy): 48.6 v 50.5e (moved back into contraction).
• (ES) Spain Oct Services PMI: 56.6 v 55.8e (7th month of expansion; Composite PMI: 56.2 v 56.0e.
• (IT) Italy Oct Services PMI: 52.4 v 54.5e (6th month of expansion and lowest since Apr); Composite PMI: 54.2 v 55.6e.
• (FR) France Oct Final PMI Services: 56.6 v 56.6e (confirmed 7th straight expansion); PMI Composite: 54.7 v 54.7e.
• (DE) Germany Oct Final PMI Services: 52.4 v 52.4e (confirmed 6th month of expansion); PMI Composite: 52.0 v 52.0e.
• (EU) Euro Zone Oct Final PMI Services: 54.6 v 54.7e (confirms 7th month of expansion); PMI Composite: 54.2 v 54.3e.
• (NO) Norway Central Bank (Norges) left Deposit Rates unchanged at 0.25% (as expected).
• (UK) Oct New Car Registrations Y/Y: -24.6% v -34.4% prior.
• (IS) Iceland Q3 Unemployment Rate: 4.0% v 7.9% prior.
• (IS) Iceland Oct Preliminary Trade Balance (ISK): -12.5B v -18.4B prior.
• (UK) Oct Construction PMI: 54.6 v 52.0e (9th month of expansion).

Fixed income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €4.32B vs. €3.5-4.5B indicated range in 2028, 2031 and 2046 bonds.
• Sold €1.99B in 0.00% Jan 2028 SPGB bonds; Avg yield: +0.044% v -0.025% prior; Bid-to-cover: 1.39x v 1.99x prior.
• Sold €1.32B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 0.483% v 0.466% prior; bid-to-cover: 1.32x v 1.43x prior.
• Sold €1.01B in 2.90% Oct 2046 SPGB; Avg Yield: 1.124% v 2.677% prior; Bid-to-cover: 1.41x v 1.43x prior.
• (ES) Spain Debt Agency (Tesoro) sold €700M vs. €1.0-1.5B indicated range in 1.00% Nov 2030 inflation linked bonds (SPGBi); Real Yield: -1.335% v -1.333% prior; Bid-to-cover: 1.54x v 1.62x prior.

Looking ahead

• (CH) Swiss Q3 Real Estate Bubble Index: # v 1.9 prior.
• 05:50 (FR) France Debt Agency (AFT) to sell €9.0-10.B in 2031, 2039 and 2053 bonds.
• OPEC+ meeting.
• 06:00 (EU) Euro Zone Sept PPI M/M: 2.3%e v 1.1% prior; Y/Y: 15.4%e v 13.4% prior.
• 06:00 (CY) Cyprus Oct CPI M/M: No est v 4.1% prior; Y/Y: No est v -0.1% prior.
• 06:00 (EU) Daily Euribor Fixing.
• 06:25 (EU) Daily ECB Liquidity Stats.
• 06:30 (HU) Hungary Debt Agency (AKK) to sell bonds.
• 07:00 (ZA) South Africa Sept Electricity Production Y/Y: No est v 2.0% prior; Electricity Consumption Y/Y: No est v 2.2% prior.
• 07:30 (US) Oct Challenger Job Cuts: No est v 17.9K prior Y/Y: No est v -84.9% prior.
• 07:30 (TR) Turkey Oct Real Effective Exchange Rate (REER): No est v 63.09 prior.
• 07:45 (US) Daily Libor Fixing.
• 08:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.10% and maintain Total Asset Purchases at £695B (Corporate Bond Target at £20B; Gilt Purchase Target: £875B).
• 08:00 (BR) Brazil Sept Industrial Production M/M: -0.2%e v -0.7% prior; Y/Y: -4.0%e v -0.7% prior.
• 08:00 (MX) Mexico Oct Vehicle Domestic Sales : No est v 76.9K prior.
• 08:30 (US) Q3 Preliminary Nonfarm Productivity: -3.1%e v +2.1% prior; Unit Labor Costs: 7.0%e v 1.3% prior.
• 08:30 (US) Sept Trade Balance: -$80.2Be v -$73.3B prior.
• 08:30 (US) Initial Jobless Claims: 275Ke v 281K prior; Continuing Claims: 2.15Me v 2.243M prior.
• 08:30 (CA) Canada Sept Int'l Merchandise Trade: 1.6Be v 1.9B prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (BR) Brazil Oct PMI Services: No est v 54.6 prior; PMI Composite: No est v 54.7 prior.
• 09:00 (EU) ECB chief lagarde at conference.
• 09:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to raise 2-Week Repurchase Rate by 75bps to 2.25%.
• 09:55 (NO) Norway Central Bank (Norges) Wolden.
• 10:00 (RU) Russia Gold and Forex Reserve w/e Oct 29th: No est v $621.6B prior.
• 10:00 (NL) ECB’s Elderson (Netherlands, SSM).
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.
• 13:00 (CA) Canada to sell 50-year bonds.
• 13:50 (UK) BOE’s Cunliffe.
• 14:15 (DE) ECB’s Schnabel (Germany).
• 19:00 (KR) South Korea Sept Current Account Balance: No est v $7.5B prior; Balance of Goods (BOP): No est v $5.6B prior.
• 19:30 (JP) Japan Sept Household Spending Y/Y: -3.5%e v -3.0% prior.
• 20:30 (AU) RBA Statement on Monetary Policy (SOMP).
• 21:00 (PH) Philippines Oct CPI Y/Y: 4.9%e v 4.8% prior.
• 21:00 (PH) Philippines Sept Trade Balance: -$3.7Be v -$3.6B prior; Exports Y/Y: 6.4%e v 17.6% prior; Imports Y/Y: 18.9%e v 30.8% prior.
• 22:30 (JP) Japan to sell 3-Month Bills.
• 23:00 (ID) Indonesia Oct Foreign Reserves: No est v $146.9B prior.

• Asian stocks following US indices higher.
• Fed's tapering announcement was well-anticipated.
• Dollar set to follow Fed's gaze at employment.
• Pound traders sensitive to BOE policy risks.
• OPEC+ is unlikely to rock oil markets.

Asian stocks are mostly in the green, in step with US stocks that rose to new record highs. The dollar index is not straying far from the psychological 94.0 level, keeping spot gold below its 50-day simple moving average. The Fed's tapering announcement confirmed widely-held expectations, allowing equities to go about their merry way. The reaction across various asset classes, or rather the lack of it, is a testament to the Fed's tack in giving enough heads up to investors and traders about the central bank's policy intentions.

Fed Chair Jerome Powell is still holding fast to the ”transitory” version of the inflation narrative and reiterated his stance of being patient with rates. Yet markets apparently differ, with Fed Funds futures still pricing in a rate hike by mid-2022.

Dollar awaits NFP cues

Understandably, Powell appears willing to lean towards the lesser of two evils, preferring to tolerate faster inflation as long as more Americans are employed. This conundrum will frame the markets' collective mindset when the latest US nonfarm payrolls report is released this Friday.

A positive surprise in the jobs report above the consensus reading of 450k should lower the bar for a first Fed rate hike, which in turn could strengthen tailwinds for the dollar and further suppress gold. However, signs that the US labor market needs more time to heal would buffer Powell's narrative and limit the greenback's near-term upside.

Yet, if markets are correct in the timing of the liftoff in rates, the fear is that such an ill-timed move could trigger the next recession. Such concerns are set to hang over market sentiment in the coming months.

Sterling stuck over BOE decision

Less certain than the Fed's tapering announcement is the BOE's policy decision, with markets pricing in just about an even chance of a UK rate hike today. The risk of a policy mistake by the Bank of England appears greater, judging by the pound's reluctance to climb higher against the US dollar despite the more imminent prospects of a UK rate hike. Such concerns have kept GBPUSD below its 50-day moving average even in the hours leading up to the meeting, with markets cognizant of the downside risks to the UK economic outlook.

OPEC+ likely to stay the course

Oil prices have tumbled closer towards the $80 psychological level ahead of Thursday's OPEC+ meeting, where the alliance is widely expected to stick to its patient stance in restoring their collective output. The 400k BPD figure remains the yardstick for the anticipated outcome; major deviations from that figure could shock oil markets and disrupt the supply-demand outlook.

In the unlikely event that OPEC+ succumbs to extraneous pressures from consumers and adopts a steeper increase in production levels, then we could see oil benchmarks dragged below the $80 mark. However, should OPEC+ stay the course and adhere to their gradual approach in easing back supply cuts, a stronger floor will build, allowing market participants to hold on to expectations that markets will tighten into year-end.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.1579
Prev Close: 1.1612
% chg. over the last day: +0.28%

The ECB President Christine Lagarde said yesterday that the ECB wouldn't have a reason to raise interest rates next year as the inflation outlook in the medium term remained restrained. Given the ECB's conservatism, Europe will remain soft on monetary policy for the longest time. Europe's unemployment rate slightly decreased from 7.5% to 7.4%.

Trading recommendations

Support levels: 1.1573, 1.1548, 1.1502, 1.1453
Resistance levels: 1.1618, 1.1645, 1.1667, 1.1717, 1.1772

From the technical point of view, the EUR/USD is bearish on the hour time frame. But the price managed to return above the breakdown level, which indicates a possible false break move. Under such market conditions, traders should consider sell positions from the resistance levels near the moving average. It is best to look for buy trades from the support levels of lower time frames given the buyers' initiative, but only with short targets.

Alternative scenario: if the price breaks out through the 1.1667 resistance level and fixes above, the mid-term uptrend will likely resume.

News feed for 2021.11.04:

• Eurozone Services PMI (m/m) at 11:00 (GMT+2);
• US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
• Eurozone ECB President Lagarde Speaks at 15:00 (GMT+2).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3612
Prev Close: 1.3684
% chg. over the last day: +0.53%

The Bank of England will hold its monetary policy meeting today. Analysts don’t have a single opinion. Most experts think that the Bank of England will not immediately raise the interest rates. Still, the stimulus program may be reduced from November, especially considering that the Fed has officially started to reduce the QE.

Trading recommendations

Support levels: 1.3617, 1.3532, 1.3457, 1.3360
Resistance levels: 1.3685, 1.3748, 1.3780, 1.3831, 1.3886

On the hourly time frame, the trend on GBP/USD has changed to bearish. The MACD indicator has become inactive, and the price has formed a wide price corridor. Buy trades should be considered only from the support levels of the higher time frame. It is best to look for sell deals from the resistance levels around the moving average.

Alternative scenario: if the price breaks out through the 1.3780 resistance level and consolidates above, the bullish scenario will likely resume.

News feed for 2021.11.04:

• UK Construction PMI (m/m) at 11:30 (GMT+2);
• UK BoE Interest Rate Decision (m/m) at 14:00 (GMT+2);
• UK BoE Monetary Policy Report (m/m) at 14:00 (GMT+2);
• UK BoE Gov Bailey Speaks at 15:00 (GMT+2).

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 113.96
Prev Close: 113.96
% chg. over the last day: 0.00%

After the announcement of the "tapering" from the Fed, fundamentally, the dollar index will be inclined to rise, which will lead to the growth of USDJPY quotes. The Japanese yen is highly correlated with the dollar index, and Japan's monetary policy will remain soft for at least a few more months.

Trading recommendations

Support levels: 113.42, 112.30, 111.53, 110.99, 110.65
Resistance levels: 114.48, 115.15

The main trend of the USD/JPY currency pair is bullish. The price is trading in a wide price corridor. The MACD indicator has become positive, which indicates buyers' pressure. Under such market conditions, it's better to look for buy positions from the buyers' initiative zones on the lower time frames. Sell positions should be considered from the resistance levels of a higher time frame, given there is sellers' initiative.

Alternative scenario: if the price falls below 112.30, the uptrend will likely be broken.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.2404
Prev Close: 1.2387
% chg. over the last day: -0.14%

The Canadian dollar is a commodity currency, so the USD/CAD currency pair highly depends on the dynamics of the dollar index and oil prices. Yesterday, The dollar index sharply fell on the news about reducing the QE program but recovered its position by the end of the trading session. At the same time, oil prices continued to fall ahead of the OPEC+ meeting, which is scheduled today. As a result, USD/CAD quotes were very volatile.

Trading recommendations

Support levels: 1.2352, 1.2306, 1.2260
Resistance levels: 1.2428, 1.2518, 1.2565, 1.2628, 1.2729, 1.2774

From the technical point of view, the trend of the USD/CAD currency pair is bearish. Yesterday, the price attempted to break through the priority change level, but the sellers sharply returned the price back to the wide corridor, forming a false breakout zone. Under such market conditions, it is better to look for sell deals from the false breakout area. Buy trades should be considered from the support levels, given there is the buyers' initiative.

Alternative scenario: if the price breaks out through the 1.2428 resistance level and fixes above, the uptrend will likely resume.

News feed for 2021.11.04:

• OPEC+ Meeting (All Day).

• Fed kicks off tapering but markets calm as Powell promises to be “patient” on rates
• ECB also pushes back on rate hikes, but dollar wins FX race
• Focus is now on Bank of England as pound slips again
• Restart of Iran nuclear talks keeps pressure on oil ahead of OPEC decision

Powell delivers smooth taper

The Federal Reserve announced the long-awaited tapering of its emergency stimulus on Wednesday, confirming plans to reduce its asset purchases by $15 billion a month, starting later this month. But there were no tantrums in the markets as the decision had been telegraphed well in advance. More significantly for investors, Chair Jerome Powell soothed nerves about a possible early rate hike, saying “we can be patient on rates”.

Powell not only indicated that rate hikes were nowhere near on the FOMC's agenda this week, he has clearly set maximum employment as the criteria for liftoff, which according to him, there is “ground to cover” until that's been achieved.

There was a further sigh of relief for jittery investors from the Fed sticking to its transitory narrative of high inflation. Although Powell suggested there was uncertainty around the timing of when price pressures would begin to recede, the Fed doesn't appear to see the need to respond to the spike in inflation just yet.

Fed can't fix the market disconnect

Equity markets cheered the Fed's perceived ‘dovish taper', sending shares on Wall Street to new heights. The Dow Jones, S&P 500 and Nasdaq Composite all closed at all-time highs, extending the week-long record-setting streak.

E-mini futures are pointing to more gains for today, though Dow futures are struggling a bit. With the Fed meeting out of the way, earnings from Alibaba and Square should keep investors busy until tomorrow's nonfarm payrolls report.

Yesterday's super-upbeat data is supporting the positive mood. A beat in both the ADP employment report and ISM non-manufacturing PMI have raised hopes that the US economy got off to a stronger start in the fourth quarter, after losing substantial steam in Q3.

However, there's been no major shift in either Treasury yields or interest rate futures after Powell's reassurances, underlining the disconnect between the Fed and the markets.

Money markets still imply two rate increases in the second half of 2022 and short-dated yields are only down marginally post the Fed meeting.

That's not a good sign for volatility in the coming months and while the Fed's stance on liftoff seems to have appeased equity traders, the fact that Powell left the door open to adjust policy should there be signs of higher inflation becoming more persistent is enough to reinforce bets of an early rate hike.

Dollar climbs, euro plunges, pound eyes BoE decision

Those same hawkish expectations are bolstering the US dollar, which is powering higher on Thursday, pummelling its rivals. The dollar index was last up 0.4%, with the euro taking the hardest punch.

ECB President Christine Lagarde had a second attempt to push back on expectations of rate increases in 2022 on Wednesday, having failed to convince markets in her post-meeting press briefing last week. Lagarde sought to double down on her comments, saying that the conditions to start raising rates are “very unlikely” to be met next year.

Eurozone bond yields extended their decline after her remarks, pushing the single currency back below $1.16 and towards October's 15-month lows.

The pound was also under pressure, reversing lower after failing to crack the $1.37 level earlier in the session.

The Bank of England is due to announce its latest policy decision later today and it's a close call as to whether policymakers will vote to hike rates by 15bps. Although the UK economy appears to be recovering strongly, investors see too many headwinds and a premature policy tightening would only add to the list. Hence, why the pound hasn't fully benefited from the BoE's hawkish signals.

If there is no rate hike today, sterling is in for a bumpy ride, though the BoE's forecasts will be just as important.

Oil steadier but nervous ahead of OPEC decision

There is also uncertainty around the meeting of OPEC and non-OPEC leaders as it's possible the cartel might offer some compromise to the US in easing supply curbs more rapidly to alleviate the global energy crisis.

However, the main driver in the oil markets right now is news that Iran and the West have agreed to resume talks on reaching a nuclear deal on November 29. A deal would pave the way for increased supply from Iran but it would also be hugely negative for oil prices. Having tumbled sharply on Wednesday, WTI and Brent crude futures are trying to recoup their losses today, with both rising above key levels.