All eyes on Washington on Wednesday

Washington the place to be

All eyes will be on Washington on Wednesday, with high-level trade talks getting under way between the US and China, and the Federal Reserve announcing its latest monetary policy decision.

Deteriorating Sino-US trade relations and an overly keen Federal Reserve were two of the most prominent causes of the sell-off in the final quarter of last year so it’s no surprise that so much attention will be on these events today. Markets have bounced back from the fourth quarter plunge but they’re still yet to fully recover and so confidence remains very sensitive to developments in both areas.

Trade talks appeared to be moving along smoothly until last week, after which rumours of a cancelled meeting, reports of a deal being “miles and miles” away and the US decision to charge Huawei have given a different impression. There will be hopes on both sides that any differences that have arisen can be ironed out during this visit, with the 90 day deadline now being a little over a month away.

Dollar frozen ahead FOMC decision and start of high level US-China trade talks

Fed still has work to do with yield curve still inverted

The Fed has made significant strides in settling investors, worried about interest rates rising too quickly and the economic ramifications of an overly aggressive tightening policy. They’re not out of the woods yet though and much will depend on how they manage the upcoming months. Questions around quantitative tightening are expected to arise today, when Chairman Jerome Powell holds his press conference. The US yield curve remains inverted which will continue to unsettle investors concerned about potential recession risks.

US Yield Curve

Source – Thomson Reuters Eikon

Dollar soft ahead of meetings, supporting gold

A more dovish Fed and/or progress in the trade talks could weigh on the US dollar at a time when it’s already coming under pressure. The greenback has shown some resilience considering just how significant a shift we’ve already seen from the central bank and the progress seen between Washington and Beijing but there is room for it to come under pressure again.

Gold Daily Chart

OANDA fxTrade Advanced Charting Platform

The drop in the dollar since mid-December has been a major driving force behind gold performing so well, rising above $1,300 finally last week and building on that in recent days. Softness in the dollar ahead of the meetings in Washington is lifting gold again today, with $1,320 offering the next test for the yellow metal.

DAX edges lower as markets brace for decline in German CPI

Oil rally stalled but risk appetite could return

The rally in oil has stalled over the last few weeks, with WTI and Brent having gained around 25% from the lows in late December. This has coincided with a similar pause in the equity market rally over the last couple of weeks which suggests the momentum from a bump in risk appetite has petered out. This could continue in the coming weeks but WTI and Brent face a big test of resistance around $65 and $55, respectively, a break of which could be very bullish.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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.