Headlines

* Fed poised for hike, unlikely to signal further action past July

* Alphabet jumps as profit beat estimates, Microsoft lower on Azure slowdown

* Dollar drops off two-week high, gold perks up above $1959

* Asia stocks mixed as caution prevails heading into FOMC decision

FX: USD gave back some recent gains after it hit the 50-day SMA at 101.61. The 50% mark of the July sell-off at 101.57 also acted as resistance. The 2-year yield moved lower, backing away from near-term resistance at 4.92%. The 50-day SMA is support at 4.84%. The 10-year yield popped up to 3.92% but now trades below 3.90%. US consumer confidence rose to a two-year high in July amid steady job growth and cooling price pressures.

EUR dropped for a fifth day in a row. But support at the early February high at 1.1032 held its ground.  The German IFO Business Confidence reading slipped below expectations. The data showed most sectors of the economy are struggling. It indicates that the recovery from the early year slump is still tough amid weak China demand and rising rates.

GBP jumped 0.62%, its best day in two weeks. Buyers halted seven consecutive days of losses. The mid-June top at 1.2848 again did a solid job of support.  The 50-day SMA at 1.2858 is doing the same.

USD/JPY is lower today for a third day in a quiet session amid pre-BoJ jitters. Near-term support is 140.73 with the 50-day SMA above at 141.54.

AUD is lower today after weaker-than-expected inflation. This bolstered the idea of the RBA continuing to pause at its meeting next week. A couple of SMAs are holding as support around 0.6724/27. USD/CAD tested the mid-1.31 area again. Support is coming from firmer commodity prices. Crude and wheat are notable gainers in the last few sessions.

Stocks: US equities closed in the green again after a deluge of earnings. The benchmark S&P 500 rose 0.28% to 4567. The blue-chip index reached its highest level in more than a year, though not a higher close. The tech-laden Nasdaq led the way gaining 0.73%. The Dow notched its longest win streak in over six years, adding 0.08%.  This was its 12^th straight positive session and longest rally since February 2017. GE surged to fresh 5-year highs after impressive Q2 results and encouraging guidance. 3M also performed well after exceeding margin expectations and full-year guidance.

 Asian stocks were trading mixed with most indices lacking direction ahead of the FOMC meeting. Chinese stocks were weaker after the previous day’s jump on stimulus hopes. The Nikkei 225 swung between gains and losses. There is a lot of second-guessing around Friday’s BoJ meeting.   

US equity futures are contained. After the bell, tech giants Microsoft and Alphabet reported earnings. The former dropped over 3% after hours. Despite beating earnings estimates, growth in Azure, the cloud-services business, disappointed. Google’s parent surged over 6% as its Q2 revenue surpassed analyst expectations. Both Google Search and YouTube beat. Meta reports after today’s close. Online advertising will be key. Focus will also be on any AI developments which investors are judging many tech stocks on.

European equity futures are pointing to a softer open. The Euro Stoxx 50 closed up 0.2% yesterday.

Gold has found support around the Fib level (38.2%) of the May decline at $1959. The 50% point of that move is at $1980. All eyes are on the Fed.

Day Ahead – FOMC in the spotlight

The FOMC kicks off the trio of upcoming G3 central bank meetings later today. A 25bp rate hike is baked in. That means attention will shift to hints as to whether this is the last hike in the cycle, a pause is coming or Powell signals one more rate rise. The latter would be in line with the current dot plot published in June which pointed to 50bp of further tightening.

If Powell suggests that the next meeting in September is “live”, that will be hawkish. In the short term, it should see dollar buying. But history shows markets are quite attuned to the top of the rate cycle when it comes. The USD generally weakens once peak rates are in. We note markets currently price in only just over a one in three chance of another rate increase by November. The pause scenario after today’s hike could be positive for stocks. Speculation will mount that the end of the cycle is coming. Potentially that sets up Jackson Hole at the end of next month as a time when Powell could confirm this.

Chart of the Day – Gold tracks sideways

Gold is having a relatively decent run. It is up four straight weeks so far and its gains in July have reversed last month’s losses. The non-yielding precious metal dipped to a low of $1893 in late June. This month’s uptrend made two-month highs last week at $1987. But previous May resistance held back a push towards $2000. Much could depend on the FOMC and Powell’s press conference. A dovish bias could support bugs and a move higher above $1980. But if the Fed leave options open and hint at at least one more rate hike, gold will look to the 50-day SMA at $1942 as major support.