Financial markets received a breath of fresh air on Wednesday following the hawkish tilted FOMC statement which bolstered expectations of a probable US interest rate rise before year end. It was widely expected that US interest rates would remain unchanged in July with the main focus directed towards the tone and details of the meeting.
A striking change to the statement was the acknowledgment of US labour markets strengthening which consequently elevated the bullish sentiment towards the US economy. With domestic economic activity expanding at a moderate pace, the Fed may have been provided yet another compelling reason to break the trend of central bank caution.
Although some concerns still lingered over inflation remaining below the 2% target, future forecasts have predicted a potential pickup as the economy continues to grow. As of now, near term risks to the economic outlook have diminished and such should provide the clarity investors have long sought over when the Federal Reserve plans to act.
The Dollar Index slightly weakened following Wednesday’s FOMC statement but still remains technically bullish. Prices are trading above the daily 20 SMA while the MACD has crossed to the upside. A decisive breakout above 97.50 could open a path towards 98.00 and potentially higher.
Stock markets on standby
Global stocks ventured higher on Wednesday as the rising optimism over central banks intervening to expel the global uncertainties nourished investor risk appetite. Asian equities were mostly mixed on Thursday with the building anxiety ahead of the anticipated Bank of Japan policy meeting pressuring the Nikkei.
In Europe, stocks received a welcome boost from the impressive earnings from both luxury and auto stocks while Wall Street was left unmoved by the Fed hawks. Stock markets could remain on standby ahead of the Bank of Japan meeting on Friday with potential surprises creating explosive levels of volatility across the board.
Commodity spotlight – Gold
Gold surged ferociously with prices hitting $1342 during trading on Wednesday following the Federal Reserve’s decision to keeping rates unchanged which offered a foundation for bulls to install a round of buying.
This metal is becoming increasingly sensitive to US rate hike expectations and more explosive moves could be expected as more data or releases affecting US rate hopes are released. With optimism still visible over the Fed taking action in 2016, the main driver behind gold’s resurgence could be risk aversion. It should be kept in mind that anxiety is mounting ahead of the BoJ policy meeting while the visible fears over the global economy have attracted investors to safe-haven investments.
Gold was previously entangled in a tough tug of war but prices could continue to trade higher if the risk-off trading environment encourages buyers to attack. From a technical standpoint, bulls need to break above the $1345 resistance to be back in business.
Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.