The Big Day

Market moves on Tuesday reflected some trepidation with so much on the upcoming schedule. The S&P 500 fell 8 points and the yen held a modest bid. The day ahead features the Dutch election, FOMC decision and data on US retail sales and CPI.

The underrated risk might be the US economic numbers. Retail sales have been one of the few soft spots so far in 2017 and anyone betting on 3 or 4 Fed hikes is betting on a pickup. The same goes for inflation, which is forecast to rise 2.2% y/y excluding food and energy. 

The Fed decision itself is largely a non-event. They will hike rates but those data points could affect the statement and how Yellen communicates in the press conference. They may also raise concerns in the markets or solidify the excitement about a pickup in growth.

A clue may have come from Tuesday's PPI report. It showed prices up 0.3% m/m compared to 0.1% expected.

One of the focuses in the Fed decision will be the dot plot but it's tough to see how that could be a dollar tailwind. It already shows the median forecasting three hikes in 2017 and we struggle to see how enough members could change their view to push that to four rates rises. Along the same lines, Yellen may be more constructive but it's not in her nature to pre-commit to hikes. Remember that only two weeks ago the market was pricing in only a 35% chance of a rate rise this week.

The main euro risk will be the Dutch vote. Anti-EU populist candidate Wilders' party was leading at the start of the year but has faded. He's now expected to finish in second place with about 22 seats. Whether he does better or worse will drive sentiment on what happens next. All other parties have vowed not to work with him and it's inconceivable he would win the 76 seats needed for a majority. No matter what the outcome, it will be difficult for any party to cobble together a coalition.

But in the day ahead, the euro trade will be guided by Wilders' performance because it will be seen as a signal on which way the wind is blowing in Europe.

As we digest the fallout from those events, we'll be looking forward to the following day when it's New Zealand GDP, Australian jobs, the SNB, the BOE and the BOJ on the schedule.