Precious metals trade in tight ranges ahead of the Fed’s message later today. The US dollar is literally unchanged, despite weakness in the tech sector.
Commodities trade in a tight range this week as investors await the FOMC statement and press conference. Gold price holds above $1,800 with no signs that the range will end any time soon.
The Chinese tech sector has declined significantly at the start of the trading week due to new regulations imposed by the government. The lower move triggered some weakness in the Nasdaq 100 index, too, with spillover effects in other indices. However, the Dow Jones managed to hold to the 35,000 level, remaining bid ahead of the Fed’s decision.
European equity markets opened slightly higher today. The FTSE 100 index has regained the 7,000 level recently, and the German Dax index trades above 15,500.
As for the currency market, there is little or no volatility because market participants wait for the main event of the trading week. The odds are skewed in favour of a hawkish surprise from the Fed. However, being a summer month, the press conference might turn out a non-event.
The Canadian inflation data may trigger some volatility in the Canadian pairs. The USD/CAD, in particular, is in a bullish trend since reversing from 1.20 and deviations from the expected 0.4% may change the market direction quickly.
The market participants will focus on today’s Fed press conference and the FOMC statement. Expectations are for the Fed meeting to be fairly benign, but the risks are skewed hawkish.
Markets to Watch
Gold price, USD/CAD, USD/CHF are the markets in focus today.
Gold forms a possible head and shoulders pattern. It has managed to hold above the neckline so far, but the risk is that the price of gold will break it to the downside on a hawkish Fed statement. If that is the case, the measured move points to $1,750 and below.
A similar pattern applies to USD/CAD. The pair has bounced from strong support in the 1.20 area and has traded with a bullish tone ever since. However, if the CPI release surprises, a move below 1.25 opens the gates to 1.2250, as suggested by the reversal pattern.
Safe-haven currencies, such as the Swiss franc, are in strong demand this week. The rout in the tech sector has led to the temporary strengthening of the Japanese yen and the Swiss franc. However, a quick look at the big picture reveals that the overall pattern is bullish on the USD/CHF. The market formed a possible pennant formation, and a breakout above 0.9250 suggests further strength towards the 0.95 area.
Winners and Losers
The tech sector remains weak, influenced by the events in China; the euro is relatively strong so far in the trading week.