The Fed’s interest rate decision in the epicenter of attention

Peter Iosif, ACA, MBA IronFX

The Fed’s interest rate decision to shake the markets

Market attention today is to be placed on the Fed’s interest rate decision. The bank is widely expected to hike rates by 25 basis points and to deliver another rate hike in the December meeting. Should the bank hike rates as expected, the bank’s forward guidance, including the accompanying statement, the new dot plot and Fed Chair Warsh’s press conference, is to come under the scrutiny of the market. A sufficiently hawkish tone, possibly enhancing the market’s expectations for further rate hikes to come, could provide support for the USD while at the same time could weigh on US stock markets and gold’s price.

US equities edge lower

US equities edged lower in yesterday, ahead of the Fed’s interest rate decision. Should the bank hike rates as expected and sound hawkish enough we may see the release weighing on US equities. On the flip side, should the bank fail to sound hawkish we may see US equities gaining. On a more fundamental level, we note that market worries for the outlook of AI technology tend to remain and tend to weigh on US stock markets. The calls for a slowdown in the developing of AI technology, comes in to direct contrast to the market’s expectations for high investments. Also, market worries for high oil prices and inflationary pressures in the US economy tend to continue to weigh on US equities as they tend to squeeze the profit margins.

Gold’s price stabilises

Gold’s price tended to stabilise yesterday even edged higher in today’s Asian session. The Fed’s rate decision in the epicenter of gold traders today and a possibly more hawkish Fed could weigh on gold’s price while a less than expected hawkish Fed could allow gold’s price to gain some ground. In a more general comment, we have to admit that we expected gold’s price to come under greater selling pressure until now, given the current hawkish market expectations for the Fed’s intentions.

Other highlights for today

Today we get UK’s CPI rates for August, Euro Zone’s Industrial output for July, Canada’s House Starts and for August and Building Permits for July while BoC is to release the monetary policy deliberations of last meeting and the weekly US EIA crude oil inventories figure. In tomorrow’s Asian session, we get New Zealand’s GDP rate for Q2.

Charts to keep an eye out

Dow Jones continued to edge lower aiming for the 51700 (S1) support line. The release of the Fed’s interest rate decision could enhance or reverse the current direction. For the time being and in a technical level, we expect the downward motion to continue. The RSI indicator remains at low levels, implying a bearish market sentiment for the index. Should the bears maintain control over the index, we may see the index’s price action breaking the 51700 (S1) support line and start aiming for the 50500 (S2) support level. Should the bulls take control over the index, we may see Dow Jones breaking the 52685 (R1) resistance line and start aiming for the 53500 (R2) resistance level.

XAU/USD stabilised hitting the floor at the 4275 (S1) support line yesterday. The RSI indicator remains just below the reading of 50, resembling more neutral stance rather than a bearish market sentiment for the precious metal’s price. For the time being, we maintain yesterday’s bias for a sideways motion, yet issue a warning for any bearish tendencies of gold’s price. Should the bears take over, we may see gold’s price dropping below the 4275 (S1) support line, aiming for the 3960 (S2) support barrier. For a bullish outlook, which we currently view as a remote scenario, gold’s price has to break the 4550 (R1) resistance line, thus opening the gates for the 4890 (R2) resistance level.

Calendar follows

US 30 Cash daily chart

Support: 51700 (S1), 50500 (S2), 49600 (S3).
Resistance: 52685 (R1), 53500 (R2), 54500 (R3).

XAU/USD daily chart

Support: 4275 (S1), 3960 (S2), 3600 (S3).
Resistance: 4550 (R1), 4890 (R2), 5245 (R3).

Author

Peter Iosif, ACA, MBA

IronFX

Mr. Iosif joined IronFX in 2017 as part of the sales force. His high level of competence and expertise enabled him to climb up the company ladder quickly and move to the IronFX Strategy team as a Research Analyst. Mr.

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