Everyone Wating on the Fed

Daily Analysis - 21/03/2018

In Anticipation

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The markets focus on the Fed interest rate meeting which can draw a lot of clues for the future path and might have an immediate effect on their portfolio. As US Dollar is gaining; precious metals tend to lose in value. Crude oil inventories spice up the economic docket.

All Eyes on the Fed


The Federal Reserve is expected to raise interest rates at its first policy meeting under Chairman Jerome Powell and may signal more hikes are coming in response to tax cuts and government spending that could further stoke a robust U.S. economy. The “dot plot” will be closely watched for any indications of a potential update of the Fed’s projected path of interest-rate hikes for the next two years.

The Fed’s effort to stimulate the world’s largest economy after the 2007-2009 financial crisis and recession is coming to an end. It raised the benchmark interest rate three times last year, to a range of 1.25 to 1.50 percent, as the jobless number fell and economic growth accelerated. It is expected to raise rates by another 0.25% on Wednesday.

While the markets anticipate the following increase in June, Powell's Fed could leave its rate outlook unchanged until then to see how the economy absorbs the $1.8 trillion in stimulus expected from the Trump administration tax cuts and planned spending.

The U.S. central bank projected late last year that it would lift rates three times in 2018, but some investors believe the fiscal stimulus and recent hints of inflation pressures will push policymakers to add an additional increase to the mix.

Fed officials have speculated in recent weeks that the stimulus could drive more Americans into an already tight labor market and lift inflation to the central bank’s 2 percent target, or much above that level if the economy gets overheated.

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Gold Finish on the Lows


Gold prices on Tuesday gave back all of the previous day’s gains, marking their lowest finish in nearly three weeks, as the dollar strengthened ahead of a widely expected interest-rate hike by the Federal Reserve.

The Fed will wrap up a two-day monetary policy meeting on Wednesday, with a decision on interest rates and a press conference to follow. Gold prices finished at nearly 3-week low ahead of Fed meeting.

Investors expect that the FOMC’s minutes might indicate that 0.25% interest rate increase is enough for now. Gold has been consolidating in a band between $1,310 and $1,360 since late-January, and the expectation of a quarter point rate rise is fully priced in.

In January 25th the bullion marked one and a half year highs at $1,366. Yesterday, gold prices ended at the lowest finish since March 1 and according to FactSet data, prices settled at $1,305 —their lowest year to date settlement year to date.

Higher interest rates usually drive the US dollar higher and can reduce the appeal of non-yielding precious metals such as gold and silver. Gold holders are also watching whether the Federal Reserve stays ahead of the curve in controlling the inflation growth rate, against which gold typically acts as a hedge.

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Crude Oil Inventories Today


The Energy Information Administration's (EIA) Crude Oil Inventories is set to publish the weekly change in the number of barrels of commercial crude oil held by US firms until the end of last week. The level of inventories influences the price of oil products, which in return can have an impact on inflation.

Oil prices pointed higher on Wednesday, lifted by tensions in the Middle East and healthy demand, although rising U.S. output continues to threaten the oil markets.

U.S. West Texas Intermediate (WTI) crude futures climbed 0.2% higher from their previous close.

Saudi Arabia’s Crown Prince Mohammed bin Salman on Tuesday arrived in Washington, raising speculation the United States could re-impose sanctions on Iran, following renewed criticism of the 2015 nuclear deal.

Political analysts also pointed to the nomination of Mike Pompeo as new U.S. Secretary of State as a risk to oil markets, given he fiercely opposed the 2015 pact as a member of Congress.

Economists also pointed to healthy economic growth as oil price drivers. In a sign of healthy demand, U.S. crude stocks fell by 2.7 million barrels in the week ended March 16 to 425.3 million, the American Petroleum Institute said on Tuesday.

Official U.S. production and inventory data will be released by the Energy Information Administration (EIA) later on Wednesday.

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