FOMC, geopolitics in focus

The Federal Open Market Committee meeting would normally be the chief focus for the week ahead as we await a rate hike and a new set of accompanying materials, including the dot plot forecasts and inflation forecasts. The focus will prove especially keen on whether the Fed raises its forecasts for rates in 2019 (June forecast for two to three rate hikes assuming we get a December hike as well; the market is still a full 25 basis point hike below that forecast).

This week, however, we find oil prices and geopolitics vying for traders’ attention as well. On the US-China trade war theme, after the market last week attempted to look beyond the latest and largest round of US and China tariffs, China’s move to call off any further negotiations as long as the US side is constantly threatening new tariffs is an ugly development, as is the suggestion from an Axios piece that the US is planning a more profound anti-China push that goes far beyond the threat of a less-than-half-of-1% GDP impact from the so-far announced tariffs.

Also on the geopolitical front, and more likely a more urgent story for this week, is the UN General Assembly, which kicks off tomorrow and will feature a speech from President Trump. He will also participate in a meeting on Wednesday and has offered to talk to Iran’s leader Rouhani face-to-face at the UN, an offer that Iran has declined. With Israel’s Prime Minister also set to speak on Thursday the clear risk is of an escalation of the showdown between Iran after the US nixed the nuclear deal and re-imposed sanctions.

Brent crude has pushed above the $80/b level for the front month, a level that was only briefly crossed in May of this year for the first time since 2014.

Chart: GBPUSD weekly

The weekly candlestick  for GBPUSD shows an ugly shooting star with a very long shadow, likely effectively capping the price action for now as we’re unlikely to see any friendly overtures from either side in the Brexit negotiations ahead of the Conservative party conference that kicks off this coming weekend.  It looks like the situation could go all the way to the wire, so we may not see anything technically decisive until either a deal or an extension of the negotiation period under Article 50 is announced. Until then, endless headline risk and focal points are now 1.3000, the 1.3300 area top from last week, and the 61.8% Fibo retracement of the rally wave around 1.2900 and then the summer-time low below 1.2700.