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XTB TRADEBEAT

3 markets ahead of the Fed/ECB

Summary:

  • Fed to raise rates, outlook crucial for the dollar
  • ECB could announce termination of the QE program 
  • DE30 rebounded from the key 12600 support
  • EURUSD looks weak below the 50-day LWMA
  • Gold prices at the lower limit of a triangle waiting for a signal

What will Fed do?

In our view the Fed will increase interest rates to 1.75% - 2% corridor. There’s no reason not to do it: economy is solid, unemployment is low, inflation is highest in 6 years, markets are in a good shape. However, this has been mostly discounted by the markets and the question is what the Fed suggests about future moves. Economic improvement could suggest that the consensus in a so called dot-plot moves higher to indicate a total of 4 hikes this year. However, president Jerome Powell could be on a dovish side of that consensus and could present a cautious tone during the conference. 

What will the ECB do?

Fresh off the Italian bond mini crisis the ECB will need to decide whether to announce a phase down of the bond purchase program. Declines in the PMI indices warrants caution but uptick in inflation may encourage the Bank to take action. Numerous members could say different things but when a much respected Chief Economist of the Bank (Peter Praet) says this meeting could be "pivotal" there’s no need to assume otherwise. The ECB could say that the program will run in its current shape until the end of September and the is phased out over the final quarter of the year. It is highly unlikely that it will say anything specific about future rate increases other than suggesting a long period between the end of QE and the first move in rates.

DE30

Somehow, someway the 12600 support worked not only short term but actually managed to stem a decline that we saw after an evening star formation (red circle). Bulls managed to defend this area and although we are yet to see if that translates into a rally, lower shades indicate that buyers are active in picking up local dips. With the support remaining firm at 12600 points there’s no clear resistance in sight. (source: xStation5)

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EURUSD

EURUSD saw a dramatic turnaround at he 1.1550 zone but after climbing above 1.18 we’ve seen some exhaustion. Do notice that the pair reached a downward moving 50-day LWMA and upper shades indicate demand weakness at this point. However Fed/ECB meeting could provide new strong impulses. (source: xStation5)

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Gold

Gold is at the most intriguing point out of the three. Being unable to break through the key resistance zone at 1366 the price returned to the trend line that also acts as a lower limit in a triangle formation and we see the 4th day of a consolidation at this point. Will the market rebound from there or will we eventually see a break lower? Central bank decisions can have an impact and it’s just about time as there’s not much room left in this triangle. (source: xStation5).

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