The FOMC begins a two-day meeting as market participants look to an escalation in EU sanctions on Russia, graduating to sectoral measures targeting energy, finance and defense — expected to be officially announced on Tuesday. For growth-sensitive commodity currencies, a 0.4% decline in NZD resulting from a softened outlook for dairy prices highlights vulnerabilities facing CAD and AUD in an environ-ment of moderating global growth expectations — highlighted by last week’s IMF outlook revisions. The USD is showing modest, albeit broad-based strength as we approach the NA session. Meanwhile, the US curve continues to flatten as the 2Y yield climbs to its highest level since May 2011—adding to upside USD risk in an environment of rising correlations to yield spreads. However for EUR, a continued decline in both short– and long-term yields has yet to provide for renewed downward pressure amid a consolidation around Friday’s multi-month low. Commodity pric-es are mixed, as oil and gold appear to be finding support from geopo-litical developments while copper falls on the back of China headlines focused on a softened growth outlook for H2 2014. Today’s US releases include Case-Shiller house prices and consumer confidence, the latter of which has been found to be closely tied to US employment figures — adding risk for expectations around Friday’s releases.
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