• FOMC preview: Is a more optimistic tone warranted? All eyes will be on the FOMC policy meeting today, where the Committee is almost certain to keep the Federal funds rate unchanged. Given that there is no press conference and no updated forecasts to be released at this meeting, market participants are likely to focus on the meeting statement, which we expect to reflect a more hawkish bias than the one in June. At the June meeting officials expressed their concerns over the softness in the May employment data and noted that the outcome of the UK referendum could delay their hiking plans. However, the “Brexit” vote has so far not caused the market chaos that many expected, while US data were resilient, suggesting a pick-up in Q2 GDP. Jobs growth recovered in June while retail sales firmed, and financial conditions have calmed considerably with the SnP 500 recently reaching a new all-time high. We expect Fed members to acknowledge this in their statement, something that could support the dollar somewhat on the decision. Nevertheless, we believe that some members in Yellen’s squad will still be nervous that the referendum outcome may have more serious effects in the future, perhaps when the UK PM Theresa May decides to invoke the Article 50. According to the Fed fund futures, the market has brought well forth its expectations for the next rate hike, which it now prices fully in August 2017 from January 2019 ahead of the release of the May employment report. Yet, we stick to our guns and we view the market as more pessimistic than the economic environment currently suggests. We believe that September and December are the most likely candidates for the Fed to act, but we assign a higher probability to a potential hike in December. We believe that the two months left until the September meeting may be too soon for the FOMC to conclude that the US remained unaffected by the “Brexit” vote, while the November gathering is just a week before the US election, a period that could be marked by heightened volatility.

• Abe says stimulus package to exceed 28 trillion yen Overnight, there were fresh reports that Japan’s PM Abe will announce the details of a 27 trillion yen fiscal package that would also include the issuance of 50 year bonds. This came in contrast to yesterday’s story, which suggested that the measures would account to a mere 6 trillion yen. The yen slid on these news, but quickly recovered after the Ministry of Finance stated that it is not considering issuing 50 year bonds. Thereafter, PM Abe confirmed that the size of the package will exceed 28 trillion yen, causing JPY to tumble once again. Given Abe’s confirmation that the size of the package will be significant and considering the elevated expectations for BoJ easing on Friday, we believe that JPY’s short-term bias is to the downside. Additionally, an optimistic tone from the FOMC tonight could cause USD/JPY to spike higher.

• Aussie tumbles on lackluster Q2 inflation data The Australian dollar rose briefly overnight, ahead of the nation’s Q2 CPI data. However, after the figures were out, the currency reversed its gains almost immediately to trade even lower against its US counterpart. The headline CPI print slowed by more than expected, while the trimmed mean rate remained unchanged, exceeding expectations of a decline. Given that the data were rather mixed and that inflation remains subdued overall, it appears that investors have raised their bets regarding further RBA easing, possibly as early as next week.

• As for today’s indicators, during the European day, the UK’s 1st estimate of Q2 GDP is coming out. The forecast is for the nation’s growth rate to have remained unchanged from the previous quarter at +0.4% qoq. Nonetheless, we view the risks around that forecast as tilted to the downside. We believe that the uncertainty that dominated the pre-referendum era may have caused firms to delay some of their spending and investment plans, something that may have weighed on growth. Indeed, according to the Markit service-sector PMI reports, the service sector, which accounts for almost 80% of the nation’s GDP, suffered its worst quarter for more than three years in the three months from April to June. Even though pre-referendum data may attract less attention than usual, a potential slowdown in Q2 GDP could signify that Brexit-related uncertainties were already affecting the economy prior to the vote. Something like that could bring GBP under renewed selling interest.

• Sweden’s consumer and manufacturing confidence indices, both for July, are coming out. In Germany, the Gfk consumer sentiment index for August is already out and the print was slightly higher than expected.

• In the US, durable goods orders for June are coming out and expectations are for the headline figure to have fallen, while the core rate is forecast to have risen following a minor decline in May. Considering the mixed expectations and the FOMC meeting later in the day, the reaction in USD may remain limited. We also get the nation’s pending home sales for June.

• We have no speakers scheduled for today.

The Market