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Gold range-bound with all eyes on Fed verdict

 

“There is simply no substitute for hard work when it comes to achieving success.” — Heather Bresch 

 

 

 

HEADLINES

 

  • Sterling firm but held back by weak data, Fed
  • Gold range-bound with all eyes on Fed verdict
  • Oil rises on U.S. inventory drop, Russian gas cuts
  • Wall St rises on Microsoft, Alphabet earnings as Fed decision looms
  • 10-year Treasury yield remains lower even after Fed’s second consecutive big rate hike
  • EUR/USD: We expect exchange rate to fall to 0.96 or lower – Wells Fargo
  • EURUSD Short Term: Upside favored

 

 

Sterling firm but held back by weak data, Fed 

 

The British pound edged higher on Wednesday thanks to a broadly sturdy dollar but gains were capped by a fresh slate of weak data highlighting the problems facing the economy.

Gains were also capped ahead of the outcome of a two-day U.S. Federal Reserve meeting where policymakers are widely expected to raise interest rates by 75 bps.

British employers are feeling the most pessimistic about hiring and investment since the depths of the coronavirus pandemic crisis in 2020, while shops and supermarkets in Britain increased prices by 4.4% in the 12 months to July, the largest rise in more than a decade.

 

 

 

COMMODITIES

 

Gold range-bound with all eyes on Fed verdict 

 

Gold prices were hemmed into a tight range on Wednesday with investors focused on the outcome of the U.S. Federal Reserve’s policy meeting for signals on its rate hike plans.

Spot gold rose 0.1% to $1,718.91 per ounce by 1607 GMT. U.S. gold futures were little changed at $1,717.00.

Despite gold’s status as an inflation hedge, bullion’s shine dims amid rising interest rates as it is a non-interest yielding asset.

Gold has lost more than $300 since climbing past the $2,000-per-ounce level in early March due to the Fed’s aggressive rate increases and the dollar’s recent rally, overshadowing bullion’s appeal as a safe-haven despite recession risks.

 

 

 

ENERGY

 

Oil rises on U.S. inventory drop, Russian gas cuts 

 

Oil rose by $2 a barrel on Wednesday as a report of lower inventories in the United States and cuts in Russian gas flows to Europe offset concern about weaker demand and a looming U.S. interest rate hike.

U.S. crude oil stockpiles dropped 4.5 million barrels last week as exports surged to an all-time high due to U.S. crude's big discount to international benchmark Brent, the U.S. Energy Information Administration said on Wednesday.

 

 

 

STOCKS

 

Wall St rises on Microsoft, Alphabet earnings as Fed decision looms 

 

The tech-heavy Nasdaq surged nearly 3% on Wednesday, leading Wall Street's main indexes higher, as upbeat quarterly reports from Microsoft and Alphabet lifted sentiment ahead of a key U.S. interest rate decision later in the day.

Investors widely expect the U.S. central bank to increase interest rates by another 75 basis points later on Wednesday, with focus likely to shift to how deeply signs of an economic slowdown have registered with its policymakers.

Money market traders were even betting on a one-in-four chance that the Fed would surprise markets with a larger 1-percentage-point increase, as per CME Group's Fedwatch tool.

 

10-year Treasury yield remains lower even after Fed’s second consecutive big rate hike 

 

The second consecutive big rate hike from the Federal Reserve was broadly in line with what economists were expecting. Traders will parse through comments from Fed Chair Powell at his press conference for direction on the September meeting, as well as future interest rate hikes.

The Fed statement was much the same although the central bank did give a nod to the slowing economy by adding a line saying, “Recent indicators of spending and production have softened.”

The central bank is attempting to curb inflation while navigating a backdrop of slowing growth, as evidenced by weaker-than-expected data last week on business activity and jobs.

 

 

 

ANALYSIS

 

EUR/USD: We expect exchange rate to fall to 0.96 or lower – Wells Fargo 

 

“In the months and quarters ahead we will be watching closely for further signs that “peak inflation and peak interest rates are closer at hand. Central bank policy rates and changes to interest rate expectations are important factors we consider when we construct our view on the US dollar. In the short term, we believe market conditions are still conducive to a stronger greenback, and we maintain our view for moderate dollar strength through the end of this year.”

“Should inflation show more concrete signs of peaking and Fed rate hike expectations scale back even further, we believe the dollar could top out earlier than we currently forecast. As of now, we believe the trade-weighted US dollar is likely to peak in Q1-2023 and trend lower over the course of next year as the Federal Reserve entertains, signals, and eventually lowers interest rates.”

“We have become less constructive on the euro's prospects. With the Eurozone now expected to fall into recession and a relatively limited monetary tightening cycle likely from the European Central Bank (ECB), we expect the EUR/USD exchange rate to fall to 0.9600 or lower.”

 

 

 

CHART

 

EURUSD Short Term: Upside favored

 

Technical View: Long position above 1.011. Target 1.0185. Conversely, break below 1.011, to open 1.009.

Comments: The pair is expected to resume advance after correction.

 

 

Source: Trading Central 

 

 

 

 

CALENDAR

 

*Times in GMT

 

 

Source: FX Street Economic Calendar

 

 

 

SOURCES

 

https://www.reuters.com/markets/europe/sterling-drifts-higher-capped-by-weak-data-2022-07-27/
https://www.reuters.com/article/global-precious/precious-gold-range-bound-with-all-eyes-on-fed-verdict-idUSL4N2Z8352
https://www.reuters.com/business/energy/oil-rises-us-crude-stock-drawdown-2022-07-27/
https://www.reuters.com/markets/europe/microsoft-alphabet-earnings-lift-futures-ahead-fed-decision-2022-07-27/
https://www.cnbc.com/2022/07/27/us-treasury-yields-edge-higher-ahead-of-key-fed-decision.html
https://www.fxstreet.com/news/eur-usd-we-expect-exchange-rate-to-fall-to-096-or-lower-wells-fargo-202207271445

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