Fundamental Overview
Markets are entering a wait-and-see phase ahead of Wednesday’s FOMC decision, with an 88–90% probability of a Federal Reserve rate hike to 3.75–4.00% currently priced in.
UK labour data showed a considerable increase in claimants, although the unemployment rate performed slightly better than expected. Attention now turns to UK inflation on Wednesday, with the headline rate expected to rise to 3.1% from 2.9%.
The Bank of England follows on Thursday, while the Bank of Japan is expected to raise rates by 25 basis points. A narrowing interest-rate differential could become increasingly important for the Japanese yen and the carry trade.
Risk Sentiment
Market conditions remain mildly risk-off. Elevated bond yields, hawkish central-bank expectations, ongoing conflict across regions important to global energy supplies and concerns surrounding the AI trade continue to support a cautious backdrop.
Bond yields are pushing towards significant highs while equity markets remain relatively elevated. This divergence increases the importance of upcoming central-bank decisions as potential catalysts for the next directional move.
Technical Overview
Yesterday’s price action reinforced the importance of gap closing. The Nasdaq and S&P 500 moved back towards their previous closing levels despite the bearish bias, while US oil also experienced a technical gap-closing move.
Markets have now moved into considerable consolidation, particularly across US indices. However, the broader directional bias remains unchanged: potential weakness across US equity indices, yen strength, US dollar strength and continued strength in US and UK oil.
EUR/USD is being watched for a potential sell below 1.1523.
Focus for Today
Patience remains essential as markets consolidate ahead of Wednesday’s FOMC catalyst.
Potential opportunities include selling US indices on a break to new lows, EUR/USD weakness below 1.1523, yen strength and structural opportunities to buy oil.
With markets increasingly close to a major central-bank catalyst, the priority is to wait for price structure to confirm the opportunity and define risk before execution.
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