FOMC In View

The US Dollar is having a quieter start to the week as traders prepare for the June FOMC meeting on Wednesday.  Market expectations are generally built around the Fed pausing rates at this meeting with CME pricing for a pause sitting around 75%. However, the wider focus is likely to be on the Fed’s forward guidance and how it projects rates as likely to move over the coming months and into year end.

Fed Guidance on Watch

Market pricing for rate cuts later in the year has pulled back sharply. Friday’s jobs data showed the US economy once again adding a strong amount of jobs last month, adding conviction to this view. As such, the expectation currently is for a ‘hawkish pause’ with the Fed likely to signal that further hikes might still be warranted across the year. Tomorrow’s US CPI print will likely be key in determining the tone of the meeting.

US CPI In Focus

If CPI is seen cooling further last month, this should allow the Fed room to take a more neutral outlook on rates which should see gold prices rising.  However, if CPI was seen sticking around recent levels this will no doubt provoke a more hawkish outlook, weighing on gold near-term.  The final scenario then, which Is the outside scenario, if that CPI surprises to the upside. In this instance, the Fed might still opt to hike at this meeting especially given recent surprise RBA and BOC hikes the ECB hike expected this week, which should see gold prices fall sharply as USD spikes.

Technical Views

XAUUSD

For now, gold prices continue to hover below the 1973.51 level and broken bull channel lows. Momentum studies have turned flat here, indicating two-way risk. However, while price holds below the broken support area, risks are skewed towards a further drop lower near-term with 1871.04 the next support to watch.