20140129

Good morning,

Risk taking changed sentiment in yesterday's trading session on back of upbeat confidence indicators and solid earnings from the US. As counterweight to the positive sentiment, the markets observed disappointing US Durables (December headline out at -4.3% vs. 1.8% exp and core at -1.6% vs. +0.5% exp). That said, the markets closed with a decent gain in Europe (EURO STOXX up 1.0%) and the US followed suit with S&P500 taking home 0.6%, rebounding from the 100-day SMA support. Overnight, the positive mood has continued and the Nikkei is up 2.7% in time of writing. In FX markets, as a result of risk taking in the equity markets, the JPY was sent on the bid, but the US Dollar did not move considerably ahead of the FOMC, despite an increase in the short term bill auction rates.

Today, the market will most probably be in a wait-and-see mode ahead of the Fed, and we do not expect significant movements in the earlier session. UK Housing figures this morning should support the Sterling higher and a re-test of 2014 highs in Cable at 1.6668 would not be unlikely, depending on how BoE Governor Carney will address the market at 12:15GMT.

From Europe, the M3 Money Supply will be of little interest, but the German 10-year Bond Auction ahead of lunch will have an impact, if we observe a deviation from the prior level at 1.69%.

Tonight, the FOMC will announce the monetary policy and the forward guidelines for the US economy. In light of the  recent development in US Housing and employment should, the Fed could surprise by being dovish, but market expectations are for an additional $10bn cut to $65bn per month, which should be done in order to keep their credibility towards the market. However, the Fed surprised in August 2013, when they postponed the tapering, so the outcome is not 100% clear yet.