USD benefits from short-covering ahead of FOMC meeting

- Japanese jobs data question Bank of Japan scenario: (JP SEPT JOBLESS RATE: 4.0% V 3.8% expected, 3.8% prior; JOB TO APPLICANT RATIO: 1.06 V 1.06 expected, 1.06 prior) Analysts said that it is hard to judge whether the jobs trend has changed by a single month's data, but today's release raises serious questions about the momentum of Japanese jobs growth. The Bank of Japan's scenario expects tight labor market conditions to lift prices, but today's data questions the need for a rate hike before the end of the year.

- Wall Street Journal Fed watcher Greg Ip said that the next Fed rate decision is a closer call than most market players believe. According to the report the Fed's decision is between a quarter point rate cut and no cut at all. The Wall Street Journal said that many FOMC members believe there is little sign so far that the housing problems have spilled over to the broader economy. Also, Fed officials don't appear to have significantly altered their forecast of a return to moderate growth next year.

- Forex: The USD benefited from short-covering as traders adjust positions ahead of the FOMC meeting and Friday's U.S. jobs data. Traders closed some USD short positions after Wall Street Journal Fed watcher Greg Ip suggested that a Fed rate cut isn't a certainty, adding that a half point cut is unlikely to get serious consideration from the Fed. Looking ahead at the Fed meeting, stock markets could be disappointed by a neutral statement designed to prevent the market from aggressively pricing in future Fed rate cuts. Any renewed volatility in stock markets, inspired by the Fed meeting or not, could weigh on carry trades, and investors sold the AUD and NZD during today's Asian session. Between 17:00 ET and 23:09 ET: EUR/USD -0.12%, USD/JPY -0.12%, AUD/JPY -0.33%, NZD/AUD +0.25%, GBP/JPY -0.21%, CHF/JPY -0.21%

- Equities: Record high oil prices, combined with uncertainty over this week's Fed meeting and U.S. jobs data, led to profit-taking on Asian stock markets. At 22:57 ET the Nikkei is lower by -0.70%, ASX is down -0.31% and the Kospi is -0.44%. Leading decliners on the Nikkei include shares of Toshiba (on weak earnings results), and Takeda Pharmaceutical (the FDA recommended that trials for the company's cholesterol drug be suspended). In Sydney, shares of Lihir Gold traded sharply lower after a disappointing production update. Chinese equities are higher on gains in shares of property shares, while the Hang Seng managed to recover after early selling.

- Commodities: Crude oil lost -0.75% between 18:00 ET and 23:04 ET, last quoted at $92.83/bbl. Spot gold lost -0.34% as the USD rebounded and crude prices moved lower.

(by Eben Esterhuizen and Gavin Pierce)