Talking Points:

Gold prices are on the upswing at the start of the trading week as the US Dollar finds itself on the defensive once again, offering support to the standby anti-fiat alternative. The greenback’s slide is tracking a flattening of the priced-in rate hike path implied in Fed Funds futures, hinting that moderation after last week’s surge in tightening bets as the catalyst behind price action.

Last week, hawkish minutes from January’s FOMC meeting stoked speculation that the US central bank may withdraw stimulus faster than investors had accounted for. Not surprisingly, commodity prices suffered as a result. A correction now seems to be underway ahead of the next key inflection point in this narrative: Congressional testimony from newly-minted Fed Chair Jerome Powell.

Officials’ confident disposition at last month’s policy conclave preceded the bloodletting that swept global financial markets earlier this month. Investors may be hoping that the new Chair will signal a reluctance to tighten against a backdrop of market turmoil. Mr Powell may be inclined otherwise however. Recently published comments point to acute concerns about the cost of too-loose monetary policy.

Transcripts from the Fed’s policy meetings in 2012 reveal that Powell feared the then-announced third round of quantitative easing (so-called “QE3”) would bring “a much larger balance sheet with likely benefits that are not commensurate to the risks.” He cited “inflation, the difficulty of exitand the grab bag of stability issues" among his worries. He may prove keener on swift normalization than his predecessors.

In the meantime, traders will have to contend with comments from St Louis Fed President James Bullard and Vice Chair Randal Quarles. A small helping of second-tier economic data headlined by January’s New Home Sales report is also on tap. Absent dramatic surprises, none of this seems likely to deliver lasting follow-through however, with markets unwilling to commit until the Mr Powell has said his piece.

Crude oil prices have fallen with risk sentiment trends, edging up US stocks last week. European shares are on the upswing in early trade and futures tracking the S&P 500 benchmark index are pointing higher ahead of the opening bell on Wall Street, suggesting the path of least resistance favors the upside. The absence of asset-specific event risk might undermine substantive trend development however.

See our free guide to learn what are the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices are attempting a tepid recovery. A daily close above the 38.2% Fibonacci expansionat 1356.23 exposes the 1366.06-71.50 zone (January 25 high, 50% expansion). Alternatively, a turn below rising trend line support at 1327.40 targets the 1312.36-16.50 area (38.2% Fib retracement, support shelf).

Gold Prices Rise as Markets Eye Key Speech from Fed Chair Powell

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are challenging resistance at 63.90, the 23.6% Fibonacci expansion. A break above this barrier on a daily closing basis opens the door for a challenge of the 66.63-67.49 area (January 25 high, 38.2% level). Alternatively, a move back below the February 20 high at 62.62 – now recast as support – exposes the February 22 low at 60.79 once again.

Gold Prices Rise as Markets Eye Key Speech from Fed Chair Powell

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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