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The US Federal Reserve meeting begins today. The FOMC decision will be released tomorrow, and financial markets are now pricing about a 90% to 93% probability of a 0.25% rate hike. Such a move would take the federal-funds target range to 3.75%–4.00% and would be the Fed’s first rate increase since mid-2023. Ahead of the meeting, the US Dollar is firm, trading near its two-week high price. The USD/JPY is near 154.60. Rising oil prices, inflation concerns, and US Treasury yields have strengthened the case for tighter Fed policy and are supporting the greenback, with the 10-year treasury yield now trading above 5%. Trend traders will be long of such treasury yield futures, which have historically been one of the most reliably trending asset classes.
Canadian CPI data showed month-on-month deflation of 0.1%. August’s Canadian headline CPI reading matched the expected monthly contraction, reversing July’s 0.5% rise. The annual inflation rate held at 3.0%, matching both the prior reading and expectations, while core CPI rose 0.1% monthly and annual core inflation edged up from 2.3% to 2.4%. The Canadian Dollar remained weak - the inflation release did not provide the Loonie with support, as it broadly matched market expectations and left inflation above the Bank of Canada’s 2% target. USD/CAD traded near 1.3920 after the data, close to a 12-day high.
The Bank of Japan is also expected to hike its interest rate later this week. The BoJ is widely expected to raise its policy rate by 0.25% to 1.25% at Friday’s meeting and may signal that further tightening is possible. However, the Japanese Yen has paused and weakened modestly as stronger US yields and increasingly certain Fed-tightening expectations have helped USD/JPY rebound from last week’s low near 152.89, and the Yen is generally weaker so far this week.
Crude oil is rising again and remains well above $100. WTI Crude is trading near $102.70, while Brent is close to $107.00. Renewed concern over Middle East supply and shipping disruption is keeping a substantial geopolitical risk premium in energy markets, while higher oil prices are feeding directly into global inflation and central bank tightening expectations. It remains highly dangerous to trade. The fundamental trend is higher while disruption risks around the Strait of Hormuz persist, but crude oil has already undergone violent reversals in recent sessions. Any credible announcement of restored shipping flows or de-escalation could produce a large and fast decline. Traders should use conservative position sizes and expect unusually wide intraday ranges.
Agricultural commodities remain broadly supported. The longer-term bullish case for Corn, Soybeans, and Sugar remains intact, although these markets are vulnerable to sharp pullbacks after their recent advances. Soybean prices continue to benefit from renewed Chinese buying, firm crush demand, and limited Brazilian farmer selling. Trend traders will still be long of Soybeans and Sugar, but these trades might be overly mature to enter. As futures in these soft commodities tend to be large, many investors and traders access them through affordable ETFs such as CANE and SOYB.
Gold remains under bearish pressure. Spot Gold is trading close to $4,292 per ounce, below the pivotal $4,300 level, after reaching a new one-month low price. A stronger Dollar, elevated yields, and near-certain expectations of a Fed hike are weighing on the metal. A sustained daily close below $4,250 would be a bearish technical development and could open the way for still lower prices.
Other key events this week include UK inflation data and the Bank of England's policy meeting tomorrow, as well as UK labour-market data due today. The BoE is expected to leave its Bank Rate unchanged at 3.75%, but the vote split and forward guidance could move Sterling.