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Quarterly Window Dressing

Markets Likely To Experience Additional Volatility With Quarterly Rebalancing Due Today

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The US Dollar has been trending somewhat stronger week-to-date, however, with large hedge funds and institutional investors squaring off positions in order to rebalance portfolios, the markets could be volatile in the day ahead.

Modest Risk-Aversion in Play

The Aussie and the Kiwi are the top performing currencies this morning in what seems to be a modest risk-off mentality prevailing across markets. However, in stark contrast to the safety-bid, the Yen and the Swiss Franc are the weakest currencies at the moment. Data during the Asian session saw Australian building permits data decline more than expected, posting a -6.90% decline for the month, below estimates of -2.00%. On an annualized basis, building permits grew at a slower pace of 5.10%, below forecasts of 7.40% expansion and softer than last month's 13.40% annualized growth. The markets could see some volatility in a relief rally as institutional investors square off their positions ahead of the end of the quarter today. The S&P500 index has bounced off key support at 1873 and is currently trending higher following yesterday’s gains with resistance at 1915.

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Gold Declines to Support

The commodity markets rolled over again yesterday after a brief relief rally with sentiment turning negative owing to the weak global backdrop. Gold futures have given up the gains made last week with prices trading back towards $1125, with $1120 marking a significant support level on the downside. A breach of this support could see a decline lower to test the trend line near $1112 which would open the way for further declines to the downside. There is however an emerging inverse head and shoulders pattern still in play. While prices reversed off the highs at $1150 region to dip below the neckline at $1135, the current lows coincide with the lows of the right shoulder. A break lower could potentially invalidate the inverse head and shoulders pattern and see gold prices set for further declines in the near-term.

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UK Second Quarter GDP Due

The United Kingdom Office for National Statistics (ONS) will be releasing the final second quarter GDP revision today. The median consensus estimates point to quarterly UK GDP remaining steady at 0.70%. A surprise revision however could offer some temporary relief for the British Pound which has fallen demonstrably versus global peers. GBPUSD declined off the highs near 1.5638 for eight straight days to fall below previous lows from September 4th at the 1.5165 level of minor support. A stronger than anticipated GDP print could catalyze a possible bounce off this level and see the GBPUSD rebound higher, experiencing a technical correction towards 1.5340 at the minimum. Alternatively, an unchanged GDP print could keep the British Pound suppressed against the Greenback in the near-term.

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ADP Private Payrolls

Monthly private payrolls data is set to be released by ADP today at 13:15 GMT. Expectations are for a modest increase in the ADP private payrolls to 194,000 jobs added in the month of September compared to 190,000 a month ago. ADP private payrolls have largely failed to track the real job growth numbers released by the BLS but nevertheless remains a strong indication of the prevailing trend. However, the markets are likely to experience a moderate reaction to the data today especially considering end of quarter window-dressing. Federal Reserve Chair Janet Yellen is also expected to speak late into the evening at the St. Louis Federal Reserve's annual banking conference. USDJPY remains range bound with no clear directional bias being established on the daily charts but prices are consolidating within a descending triangle pattern.

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