What Price Action Is Telling Us About The FOMC-Trade War And The Euro

The FOMC outlook

The Federal Reserve's high-wire act takes on a whole new level of importance tonight, and while the markets have pretty much come to a dovish conclusion. But without question, Chair Jerome Powell faces an agonisingly painful task crafting a sufficiently dovish signal without spooking the markets in either direction. So, I think the goal must be to convey an amply dovish messaging that will hold risk markets in check while providing a convincing blueprint for on how to move forward. Indeed, a trickier task than what meets the eye.

Trade War

Which brings me a full circle to this morning's pressing question, what odds do you put on this U.S.-China trade agreement? Again, divorcing myself from opinion and based strictly on price action which suggests the markets now believe an imminent escalation has been pushed back, and the negotiating window isn't entirely as shut as we all thought. Suggesting U.S. President Donald Trump could delay exercising his option on $300 billion in tariffs. But just as it's difficult to predict the Presidents next tantrum it's just as challenging to predict his lasting sense of calm.

Currency Markets

Currency markets are doing little more than biding time while going through their obligatory pre FOMC position squaring machinations.

On the Euro

Adding to the range bound nature of the currency markets is the chatter of some chunky l expirations in EUR/USD today around the 1.12 handle making the rounds. Confirming why the EUR/USD is trading dead in the water and we expect the EURUSD should remain utterly range bound into the FOMC. But after yesterday's dovish comments from ECB President Draghi, the market is probably looking for an opportunity to sell Euro post FOMC unless of course, we get a shockingly dovish display from the Feds.