Markets higher ahead of Fed minutes

Fed minutes eyed after Powell dovish shift

It looks as though we’re heading for a fourth day in the green on Wednesday, as US stocks look to extend their winning streak on the back of strong data and a more dovish Fed.

The FOMC minutes this evening will be an interesting read, given the clear reluctance within the committee to dramatically alter the course for interest rates at the meeting, followed a couple of weeks later by its Chair delivering a much more flexible and, one could argue, dovish message. At the December meeting, the committee reduced its forecasts for rate hikes this year from three to two but some were expecting it to go further. Powell’s recent comments would suggest it won’t take much.

Markets have gone one step further and priced in no more hikes this year, with the odds of one at times being as low as 0%. These expectations have pared slightly but even now, a hike is only slightly priced in, with the rebound in markets taking the edge off the growing pessimism. This has naturally been helped by some good economic data on Friday and efforts to resolve the trade war.

Euro steady, investors eye Fed minutes

Gold continues to pare gains

The apparent improvement in trade relations between the US and China is not only boosting equity markets, it’s taking some of the shine off gold as its safe haven appeal wanes. The dollar is also coming under pressure – which has typically been bullish for gold – as bullish positions that were built up during the escalation are slightly reversed. This hasn’t been enough to stop gold slipping though although it may limit any decline.

Gold Daily Chart

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Gold is finding some support around $1,280 at the moment but may slip a little further in the near-term as risk appetite continues to improve. That said, I expect a weakening dollar to continue to support the yellow metal and any hint that policy makers are open to further downward revisions in rate hikes may give it a little push. If gold pushes below $1,280 then $1,260 will be an interesting level. That said, I still remain bullish and expect $1,300 to come under pressure again before too long.

USD/CAD – Bank of Canada rate decision in focus

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.