Following bearish sentiment in Asia, European stock markets opened marginally lower on Wednesday, as investors cautiously await the outcome of the Federal Reserve decision due later today. As risk trades wait on the bond market reaction to the Fed, trading ranges are fairly muted at this stage. US 10-year Treasury yields are a little higher early in Europe.
The US central bank is expected to acknowledge stronger economic growth, which should put the Fed’s easy policies in the spotlight. Investors are also wondering whether the bank will step-in to cap the recent rally in long-term bond yields and address rising inflation expectations. As a reminder, earlier this month, Powell failed to hint at any impending reaction from the bank to rising long-term rates.
Against this backdrop, the FTSE 100 in London sheds 0.27% to 6,785, Italy’s FTSE MIB is flat at 24,260, France’s CAC 40 is down by 0.23% to 6,041, while the German DAX 30 is 0.03% lower, at 14,552. US stock index futures are flat and muted ahead of the key event of the week, followed by the Bank of England and the Bank of Japan meetings on Thursday and Friday, respectively.
In currencies, the dollar is flat versus major counterparts as traders await the Fed’s response to the recent sell-off in bond markets. Updated economic projections will be in focus as well. If the central bank’s rhetoric is not as dovish as expected, the greenback would stage a rally across the board. In this scenario, the EURUSD pair could see a deeper retreat later in the day. The euro is now below the 1.1900 handle while deriving support from the 1.1880 area. A break below this zone would pave the way towards this year’s lows around 1.1835. On the upside, the 1.2000 figure remains the key barrier for euro bulls.
Meanwhile, oil prices remain under some pressure on Wednesday following modest losses seen yesterday. Brent crude was rejected from the $70 at the beginning of the week and has been struggling to regain bullish bias since then. It looks like the path of least resistance for oil futures remains to the downside for the time being despite the API report showed overnight that US crude oil stockpiles decreased by 1 million barrels last week. If the pressure intensifies any time soon, Brent crude would target the ascending 20-DMA, today at $66.25.
Nathan Lambert, Head of Global FX Analytical Department