US bond yields held onto their recent gains as expectations again increase for another move higher in US rates this year. However, we are still quite a way below levels we got to back in March and still way below last December’s peak after their first hike, probably due to a more cautious market and the gradual revising down of “dot plot” forward guidance.

So all eyes and ears are now on the minutes of the 20-21 September FOMC meeting this evening and whether they reaffirm the more hawkish message that near-term risks to the economic outlook ‘appear roughly balanced’ and that ‘the case for an increase in the Fed Funds rate has strengthened’. Also worthy of note will be their reasoning behind the more gradual expected pace of tightening from next year, as well as a lower neutral rate. Both the Fed’s Esther George and Bill Dudley speak ahead of the minutes.

The broader USD has followed US yields and pushed up to its range highs, but has backed off a little, helped by a sharp reversal in GBP on the back of PM May conceding that parliament should vote on her plan in regards to leaving Europe, but wants lawmakers to leave her room to negotiate.

The BoE’s Cunliffe is also scheduled to appear at a Lords subcommittee inquiry into “the effect of Brexit on financial services”.

Euro area industrial production is expected to be strong at around 1.5%m/m in August, which would more than reverse the 1.1% drop in July. The data are consistent with a moderate pace of GDP growth of around 0.3%q/q in Q3.

GBPUSD

Important Fibonacci support in the 1.2100-1.20890 region held yesterday, suggesting technical levels can again be trusted. A sharp two big figure rebound from there overnight does highlight the illiquid nature of the market too.

Disappointment from the Fed minutes could see a quick move towards 1.2550/60 resistance, but key trend resistance isn’t seen till 1.2800-1.2875. Supports lie at 1.2100/1.2080, 1.1985/1.1975, 1.1870 and 1.1700.

Longer term the drop to 1.1490 suggests that the decline from the ~1.72 highs set back in 2014 is ongoing and still risks another move lower before a more significant base develops. Medium term we are expecting a wide range to develop first.

EURUSD

With 2-year rate spreads widening sharply, EURUSD has remained under pressure after breaking the 1.1120/1.1100 range support. Support lies around 1.1010 ahead of the 1.0900 range lows. Disappointment for the USD in the Fed minutes tonight would see a re-test of 1.1120 resistance, with a move back through there returning us very much to a range environment.

Longer term, we are becoming wary that the 1.0450-1.17 range is developing as a “flag” consolidation ahead of a test of key long-term support in the 1.00-0.99 region. We are monitoring this for greater clarity and confidence in this view. For now, further range trading is likely to persist.

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