The Federal Reserve is widely expected to maintain interest rates at 525 to 550 basis points (bps) during this week's FOMC meeting. Although neither economists nor the markets foresee a change, the meeting remains significant for traders. There's a 50% probability that the Fed could raise interest rates by 25 bps before year's end. Consequently, this week's meeting could offer hints regarding a potential rate hike at the FOMC meetings scheduled for 1 November or 13 December.
The unveiling of their latest economic projections makes this week's gathering more interesting than usual. These are end-of-year targets.
The economy is doing better than expected
Reflecting upon the outlook released last June, the labour market is doing better than expected, while inflation is hotter. The economy needs to decelerate further for inflation to soften and the labour market to weaken, but that looks less likely today.
Leading indicators like the US Services PMI have turned positive and accelerated recently since its slump at the start of the year. The US Manufacturing PMI is still below the 50 threshold, but new orders suggest that we could lift above 50 in the next six months, and retail sales and industrial production have beat expectations in recent months. The only negative is the consistent down revisions in the Non-Farm payrolls figures. The latest figure showed that the US economy added 187K new jobs, while the prior reading was adjusted lower to 157K.
Given the current situation, it is unsurprising to see the US dollar gaining ground, and the Fed is likely to remain open to increasing interest rates.
A hawkish fed could send gold prices lower
The Fed may remain open to increased interest rates and be slightly more hawkish than expected. If proven correct, the US dollar stands to gain and gold prices to suffer. If they signal a pause, the opposite is likely to happen. Forex and gold traders won’t have to open a position ahead of the meeting and opt to wait for the charts to help lead their decisions.
The gold price is the most exciting instrument in light of the Fed meeting. The price keeps drifting lower in a bullish wedge, and a break to the $1953 high or the $1884 low could start a new trend in the price of XAUUSD. A break to $1953 could lead the price to the next high at $1988, followed by this year's high of $2080. While a break to $1884 could send the price to the $1800 low.
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XAUUSD Daily Chart
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