Two trades to watch: Gold, GBP/USD

Gold's recovery depends on the Fed. GBP/USD trades in range ahead of the FOMC.


Gold's recovery depends on the Fed

After hitting a 9 month low in early March Gold prices have been creeping higher thanks to the weaker than forecast inflation and easing treasury yields.

Following the disappoint CPI read expectations of the Fed moving earlier to tighten policy eased.

The passing of President Biden’s $1.9 trillion covid stimulus package and an accelerated vaccine programme reignited recovery optimism.

So far the Fed has shown little to no concern for the bond market sell off.

The FOMC will likely direct Gold. Any hint of Operation twist, increasing the purchase of longer term bonds could be gold positive. Although Fed chat suggests this is unlikely.

A more neutral response from the Fed, sticking to its accommodative stance and saying that there is a long way to go to reach its goals. As long as yields don’t shoot higher, gold could extend its recovery.

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Where next for Gold?

The price remains in a downward trend since early August. The selloff steepened since the start of the year and gold remains in the descending channel. 

The price has rebounded off the 1675 low and is currently attempting to break above resistance at 1740, the 20 sma on the daily chart and a horizontal resistance which has capped the price several times this month.

A break through this level could see gold test 1775 the upper band of the descending channel, ahead of 1800 round number and 50 sma. It would take a move beyond 1815 high Feb. 24 to negate the longer term bearish trend.

Failure to take 1740 could see 1675 support the 9 month low hit at the start of the month come into play, ahead 1640 low April 8.
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GBP/USD all eyes on the Fed

GBP/USD is pushing mildly higher after three days of losses. Still trading is muted ahead of the Fed.

There is no UK data to be released, instead the Pound is licking its wounds following BoE Andrew Bailey’s cautious words. 

The Fed is expected to leave rates unchanged but upwardly revise the GDP & inflation forecast.

Jerome Powell will attempt to walk a fine line between recovery optimism without raising concerns of overheating.

Where next for GBP/USD ?

GBP/USD trades below a descending trend line dating back to late February. Although it has been range bound between 1.40 and 1.38 since early March. The RSI is neutral at 50 supporting evidence that GBP/USD trades with a neutral bias.

Therefore, it could be prudent to wait for a post Fed break out trade. Any move high need to break through 1.3925 the descending trend line before 1.3955, last week’s high comes into play. It would take a move above 1.40 psychological level for buyers to gain momentum and look back towards 1.4240 high.

On the flip side, failure to break 1.39 could see the pair head back towards 1.38 yesterday’s low, beyond here the sellers look towards 1.3550. 

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