Dollar waits for Fed; Pound jumps while gold wobbles

July 31, 2018 11:00 AM

Dollar bulls were absent during Tuesday’s trading session as investors remained on the sidelines ahead of the Federal Reserve’s two-day monetary policy meeting. Markets could offer a muted response to the meeting, especially when considering how there will be no updated economic projections or post-announcement press conference by Federal Reserve Chairman Jerome Powell.

Although U.S. interest rates are widely expected to be left unchanged in July, investors are more likely to be concerned with any potential tweaks in the language of the policy statement. Buying sentiment towards the Dollar could receive a boost if the central bank strikes a hawkish tone. With the fundamental drivers behind the dollar’s appreciation in recent months still intact, the outlook remains tilted to the upside.

Regarding the technical picture, the Dollar Index has found itself in a messy range on the daily charts with support around 94.00 and resistance slightly below the 95.00 level. Bulls need to conquer the 95.00 level for the Dollar Index to witness further upside towards 95.50.

Pound edges higher, but for how long?

Will the Bank of England come to the pound’s rescue, or will it send the currency tumbling this week? This remains a question on the minds of many market players.

Although the Bank of England is expected to raise interest rates on Thursday, there is mixed caution in the air that the central bank may once again backtrack from market expectations. With inflationary pressures cooling, wage growth disappointing and Brexit uncertainty weighing on sentiment, it will be interesting to see what argument the BoE presents in the event of a rate hike.

A situation where the central bank leaves interest rates unchanged could spell nothing but further pain for the Pound. However, an interest rate hike may end up offering the battered Pound that much-needed lifeline. Focusing on the technical picture, the British pound/U.S. dollar currency pair (GBP/USD) has scope to sink lower if prices secure a solid daily close below 1.3084. Alternatively, a breakout above 1.3150 could encourage an incline towards 1.3208.

Commodity spotlight:  Gold 

It has certainly been another painfully bearish trading month for Gold, thanks mostly to a broadly stronger dollar and heightened U.S. rate hike expectations.

The yellow metal has clearly struggled to register any meaningful recovery in recent weeks, despite global trade tensions creating uncertainty and stimulating risk aversion. With the yellow metal likely to remain highly sensitive to the negative correlation against the dollar, further losses may be witnessed moving forward. Investors may be offered a fresh opportunity to send the zero-yielding metal lower this week if the Federal Reserve strikes a hawkish tone and Friday’s US jobs report exceeds market expectations. Regarding the technical picture, Gold is heavily bearish on the daily charts. A solid breakdown below $1,213 per oz. could trigger a decline towards the psychological $1200 level. Bears remain in firm control below the $1,234 resistance level.

 

About the Author

Lukman Otunuga is an FXTM research analyst