The market is swiftly turning its attention back to fundamentals this week despite the improving situation in the Middle East. This week’s Federal Reserve Bank meeting is one of the most highly anticipated interest rate decisions of the year, and maybe even the last few years. Just a week ago the odds of a 25-basis point rate hike were sitting around the 16% mark, however the increased inflationary concerns from the situation in the Middle East has led to the market now pricing in a 40% chance of a hike which puts the meeting very much in the ‘live’ category. Despite a sharp deescalation in the conflict over the past few days, US yields and the dollar remain bid near annual highs.
The market is also wary of the new Kevin Warsh led FOMC as forward guidance and communication style has changed since he came in as Chair and this has led to further uncertainty with regard to the committee’s likely move on Wednesday. In addition to the actual decision, we could see further volatility from the message that we receive from the committee regarding future moves. Overall, the market is expecting plenty of volatility around the event which could prove to be a pivotal update for the coming months.
Gold is looking poised to break out from recent ranges on the back of this rate announcement and traders are preparing for big moves which ever way the update comes out as it has been trading so strongly on the dollar side of the equation for the last few months despite elevated haven risks. A hike, or even a surprise ‘hawkish hike’ would see the dollar jump strongly and most likely see gold break through recent support levels to target a fresh downside range, while a more dovish ‘wait and see’ approach could pull back on rate hike expectations and see gold jump higher through resistance levels to trad back into higher ranges.
Resistance 2: $4,202.13 – July High
Resistance 1: $4,111.69 – Trendline Resistance
Support 1: $3,984.13 – Trendline Support
Support 2: $3,942.99 – 2026 Low
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