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Gold, USDOLLAR Primed for Volatility on FOMC Minutes

Gold, USDOLLAR Primed for Volatility on FOMC Minutes

2016-07-05 19:56:00
Michael Boutros, Omar Habib,
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Talking Points

  • Gold, USDOLLAR at risk heading into FOMC minutes
  • Updated targets & invalidation levels

Tomorrow is the release of the minutes from the latest FOMC policy meeting and although we’ve already seen Chair Yellen’s presser touch on the underlying concerns plaguing the central bank, market participants will be looking to the minutes to highlight the depth of these fears within the committee. Some topics to pay close attention to are:

  • Weakening labor force: May’s jobs report was one that markets really fixated on, with a headline number of only 38k jobs created. The report was abysmal throughout with the unemployment rate falling as a result of a weaker labor force participation rate. It bears watching to see if the FOMC believed this to be a one-off event or the beginning of a trend.
  • Brexit: Chair Yellen mentioned that the possibility of Brexit was one of the reasons for pushing off a rate increase. Since the meeting took place before Brexit actually occurred, it would be interesting to see the specific concerns FOMC members had and if those concerns have already played out/are likely to come about soon.
  • Economic Projections: There was an interesting twist in this meeting: President Esther George voted along with the majority to hold rates steady, instead of dissenting as she has in the past few meetings. The discussion within the committee that led even the more hawkish members to postpone rate-hike forecasts could be a sign of caution or worse – a further weakening US economy.
  • Inflation: The Fed has consistently run under their inflation target since the target’s inception and is likely to continue to do so in the near term. Post-Brexit with a likely strengthening dollar and potentially weakening labor market, inflation is likely to remain below target for longer. The FOMC’s discussion regarding these risks to inflation is important as it directly impacts their projected rate paths.

USDOLLAR Daily

Gold, USDOLLAR Primed for Volatility on FOMC Minutes

Chart prepared by Michael Boutros

Technical Outlook: Heading into the release tomorrow, the U.S. Dollar Index remains within the confines of an ascending median-line formation extending off the 2016 lows. As noted in today’s webinar, the index rallied through the weekly & monthly open with the advance losing steam just ahead of the 100-day moving average at 12023. Seasonality’s turn rather bearish for the greenback heading into the July trade & the rally is vulnerable heading into a key resistance confluence at 12064/75.

Interim support rests at the weekly opening range low at 11953 backed by the median-line / 100-day m moving average at 11932- bullish invalidation. A break below former channel resistance / now support would be needed to validate a reversal lower in the index. Continue tracking this setup and more throughout the week- Subscribe to SB Trade Deskand take advantage of the DailyFX New Subscriber Discount.

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Gold Daily

Gold, USDOLLAR Primed for Volatility on FOMC Minutes

Technical Outlook: Gold is approaching a critical resistance confluence ahead of tomorrow’s release at 1359- this level is defined by the 61.8% extension of the advance off the 2015 low, the 1.618% median-line parallel of the ascending structure and a longer-term trendline resistance extending off the 2011 high. The advance is vulnerable near-term while below this range with interim support seen at 1321 (monthly open) backed by the May high at 1303 (near-term bullish invalidation). A breach above targets subsequent resistance targets at the 38.2% retracement at 1380 & 1400.

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Relevant Data Releases This Week

Gold, USDOLLAR Primed for Volatility on FOMC Minutes

Other Setups in Play:

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---Written by Michael Boutros, Currency Strategist with DailyFX

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