FED and BoC decisions today

The Fed’s and the BoC’s interest rate decisions are set to take place during today’s American session, with the Fed widely expected to remain on hold, whilst the BoC may hike rates

MORNING OVERVIEW

We’re looking forward to the Fed’s interest rate decision today in which the bank is widely expected to remain on hold. Moreover, the BoC’s interest rate decision is also taking place today, in which the bank is expected to hike by 25 basis points. Earlier on today, the RBNZ took the markets by surprise by remaining on hold.

MARKET SNAPSHOT

KEY MARKET THEMES

01 — FED decision today

The Fed is widely expected to remain on hold during their meeting later on today during the American trading session. The majority of market participants are currently anticipating the bank to remain on hold with FFF implying an 87% probability for such a scenario to materialize. In turn the attention could turn to Fed Chair Warsh’s comments for any clues into the bank’s decisions for their next meeting. In our view, having seen the acceleration of inflationary pressures in the US economy, combined with a relatively resilient labour market, we would not be surprised to see the Fed Chair striking a hawkish undertone in his communications today, which could provide support for the greenback.

Market implication (USD): Bullish

02 — BoC decision in sight

The Bank of Canada’s interest rate decision is set to take place tonight, with the bank widely expected by economists to hike rates by 25 basis points. Specifically, CAD OIS currently places a 77% probability for such a scenario to materialize. In turn, should the bank hike rates by 25 basis points and imply further rate hikes down the line, it may provide further support for the Loonie.

Market implication (CAD): Bullish

03 — The drums of war between the US and Iran resume

According to the WSJ, “The U.S. has told several Gulf Arab countries to be prepared for a short, intense military campaign after the U.S. midterm elections, people briefed on the conversations said”. The possibility of a resumption of hostilities in the Middle East which can threaten the global oil supply, could provide support for oil prices.

Market implication (OIL): Bullish

WHAT MATTERS TODAY

FED Decision

Time GMT+2): 20:30

Expected: 4.0%
Previous: 4.0%

Potential market reaction:
Could support USD

BOC Decision

Time GMT+2): 15:45

Expected: 2.5%
Previous: 2.25%

Potential market reaction:
Could support CAD

ASSET FOCUS

[GOLD , Commodities]

Gold appears to be moving in a downwards fashion, with the precious metal’s price having cleared our old support now turned to resistance at the 4080 (R1) level. We opt for a bearish outlook for the commodity’s price and supporting our case is the RSI indicator below our chart which tends to imply a bearish market sentiment. For our bearish outlook to be maintained, we would require a break below our 3945 (S1) support level, with the next possible target for the bears being our 3820 (S2) support line. On the other hand, for a sideways bias we would require gold’s price to remain confined between our 3945 (S1) support level and our 4080 (R1) resistance line. Lastly, for a bullish outlook, we would require a clear break above our 4080 (R1) resistance level, with the next possible target for the bulls being our 4200 (R2) resistance line.

KEY LEVELS

• Resistance (R1): 4080
• Resistance (R2): 4200
• Support (S1): 3945
• Support (S2): 3820

Technical View: Bearish

CROSS-ASSET VIEW

TRADING SPHERE VIEW

Bearish for GOLD

Our base case:
We wouldn’t be surprised to see gold’s price moving lower, considering the anticipated improvement in the Durable goods orders rate which could support the dollar. Moreover, with the Fed’s interest rate decision tomorrow,any hawkish implications could aid the dollar whilst weighing on gold’s price.

What would change our view:
Dovish Fed commentary

RISKS TO THE VIEW

Unexpected events

An unexpected event could upend our view

TODAY’s WATCHLIST

01 FED Decision

02 BOC Decision