The major event risk across financial markets today will be the Federal Reserve policy meeting, which is widely expected to conclude with interest rates being hiked by 25 basis points.
With a rate hike in June considered a done deal, investors may be more concerned with the economic projections and press conference with Fed Chair, Jerome Powell. Markets are poised to closely scrutinize the Fed’s monetary policy statement for clues on how fast the Fed may raise interest rates during the second half of this year. With inflation jumping to a six-year high in May and the U.S. economic outlook being encouraging, it will be interesting to see if there is an upgrade to the “dot-plot” forecasts. If the Federal Reserve expresses optimism over the health of the U.S. economy and offers fresh insight into rate hike timings beyond June, this could be viewed as hawkish by market players.
Traders will also closely scrutinize Powell’s comments for any signs of inflation fears returning or that trade tensions have impacted monetary policy. Expectations over the Fed raising rates more frequently could be heightened if Powell announces that he will be holding news conferences after every policy meeting.
In regards to the technical picture, the Dollar Index remains firmly bullish on the daily charts with 94.00 acting as a level of interest. A solid breakout above this level could trigger a jump toward 94.30.
Turkish Lira tumbles ahead of FOMC
A growing sense of anxiety over Turkey’s looming presidential and parliamentary elections next week has left the Lira vulnerable to downside risks.
Heightened expectations over the Federal Reserve tightening monetary policy simply added to the Lira’s woes, with the local currency tumbling across the board today. With high inflation fears and political instability in Turkey likely to continue haunting investor attraction towards the Lira, currency weakness could remain a recurrent market theme.
Focusing purely on the technical picture, the USD/TRY is currently following a positive trajectory on the daily charts. Prices have scope to punch above 4.700 if the Lira continues to depreciate.
Commodity spotlight: Gold
Gold drifted slightly lower ahead of the Federal Reserve meeting this evening, which is expected to conclude with the announcement of an interest rate increase.
For an extended period, the yellow metal has bounced within a range, with $1,300 per oz. acting as a psychological pivotal point. Price action continues to suggest that Gold needs a fresh directional catalyst to make its next significant move. A U.S. interest rate increase in June, coupled with expectations of further rate hikes during the second half of the year could spell trouble for zero-yielding gold.
Focusing on the technical picture, investors will continue closely observing how prices behave around the $1,300 level. A breakout above $1,300 could trigger an incline towards $1,324. Alternatively, a failure for bulls to conquer $1,300 is likely to result in a decline back to $1,280.