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Pre-FOMC nerves spook markets

Markets have turned lower again ahead of the Federal Open Market Committee decision tonight, with a stronger dollar taking a bite out of equities too following US GDP news.

The US Federal Reserve
Source: Bloomberg

FTSE heads back to 6770 region

The 6770 level comes back into focus for the FTSE 100 this afternoon, following a swift turnaround over the past two sessions that has put indices on the back foot. Barclays remains the standout winner of the day, and banks generally can still take the credit for limiting the extent of the damage. However, the natural pre-FOMC tendency of equity markets has been enhanced by the bounceback in US economic growth, which has given the US dollar a lift and left the key indices without much visible support. This itself was exacerbated by a weaker ADP number that removed any hope of a positive spin to the afternoon. However, the final verdict won’t arrive until after the Federal Reserve meeting, and with month-end looming there is still time for indices to make up lost ground.

Dow moves through 50-DMA

The Dow Jones is moving through the 50-day moving average for the first time since mid-May, a sign of the usual summer fragility that can sink an equity rally in quick time.

Most stock watchers have spent the day watching Twitter edge lower following the euphoric reaction to the results last night, but sentiment towards the company does seem to have been dramatically transformed. More growth is needed, but Twitter seems to have found its footing after a long period of uncertainty. The poorer ADP figure bodes poorly for Friday’s job numbers, and if the Fed fails to act in a suitably dovish manner the outlook for stocks looks increasingly cloudy.

Strong dollar caps oil's gains

Only the lingering expectations of further geopolitical flare ups is preventing a significant drop in gold prices, as the dollar surges following the US GDP reading. With the dollar back in favour the appeal of gold has been diminished once again, leaving open the possibility that the late summer will witness a push in the direction of $1280.

Although the dollar took a chunk out of oil’s gains today, the confirmation of a rebounding US economy raised the possibility of increased demand, giving both Brent and NYMEX a lift. It would be nice to think that Brent is about to break out of its tight range, but ahead of the FOMC meeting that is probably too much to ask. 

USD/JPY eyes ¥103

USD/JPY raced in the direction of ¥103 after the economic data, its highest level since the beginning of June and solidly back through the 200-DMA. The bounce today has carried us well away from the 200-DMA, but now we need to clear the ¥102.70-¥102.80 region from the beginning of June. The daily relative strength index is recording an overbought reading, which leads to the possibility of a retracement in the coming days. Beyond the June high of ¥103, the ¥104 level should prove to be resistance.

GBP/USD’s uptrend is the one to watch now, as it comes under serious pressure. Ideally UK data could stem the selling, but there is precious little of that on the calendar this week, with only manufacturing PMI on Friday a possible reason for people to stop selling the pound. 

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