The combination of some stabilization in the Shanghai Composite Index after recent intense pressures and a rebound in the commodity markets has provided the platform for major indices to end a consecutive streak of losses. Market sentiment is looking a little bit more positive once again and this will motivate an optimistic opening for Europe today. While this might lead to increased positivity that indices can continue to record gains from a more risk appetite approach from investors, I think there will be a more cautious approach among traders as they await the FOMC policy announcement this evening.
What everyone wants to know from tonight’s FOMC announcement is clear guidance on the likely timeframe to expect a US interest rate increase. We have repeatedly been told that US interest rates will rise at some point later this year, but the timing on when still remains largely unclear. This has been the case since the beginning of the year and if the announcement tonight still fails to provide any clarity on the timing issue and even raises suspicions that the Federal Reserve might swerve away from their repeated commitment to begin raising interest rates later this year, the USD will be exposed to downside risks.
One thing that market participants might also be looking for this evening is increased background information on the “international risks” message highlighted in a previous FOMC statement. Some saw this message regarding the Federal Reserve keeping an eye on international risks as an indication that the Federal Reserve will leave interest rates unchanged until the volatility in the China markets calms down and the Greece situation finally draws to a conclusion. I personally believe the Federal Reserve should still begin raising US interest rates anyway because not only is the US economy continuing to perform on a consistent basis but if there are concerns about economic health elsewhere, the Federal Reserve being in a position to begin raising US interest rates would provide a welcome boost to the global economy.
The USD suffered some weakness against its trading partners after a misfire in the consumer confidence reading yesterday afternoon, but what I found particularly interesting was that Gold failed to show inspired bullish movement even with the USD weakening elsewhere. There has been complete hesitation from the Gold bulls to purchase the metal for nearly two months with this also including when the Greece uncertainty reached its peak. This sentiment has weakened even further since Gold fell below the psychological $1100 level and bearing in mind that it is currently failing to maintain itself back above $1100, it does look like Gold is exposed to further selling pressures.
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