Market activity was subdued on Tuesday as investors awaited the Federal Reserve's interest rate decision scheduled for early Thursday.
In the Middle East, the situation showed no significant developments. The potential postponement of a late-month diplomatic visit suggests the conflict is unlikely to conclude soon. An Israeli strike eliminated a senior Iranian security official, who was widely considered the de facto military commander while the supreme leader recuperates.
Simultaneously, the Strait of Hormuz remains largely blocked, and Iran continues its aerial assaults on oil and gas infrastructure in nations like the UAE. This has forced Gulf countries to significantly cut production capacity, raising concerns about an emerging energy supply crisis.
In financial markets, international oil prices closed slightly higher on Tuesday. However, the US Dollar Index declined for a second consecutive day, temporarily breaking its recent correlation with oil as market focus shifts to central bank meetings this week. US and European equities extended their rebounds, while gold ended the previous session nearly unchanged at $5,006.
The Reserve Bank of Australia implemented a consecutive rate hike on Tuesday, but the 5-4 vote revealed a less hawkish stance than anticipated. Markets are now pricing in a 40% probability of a rate hike in May, with the Australian dollar closing above 0.71. Following the RBA, other major central banks may be compelled to shift their monetary policies from accommodative to neutral or even restrictive to address potential inflation risks.
Attention on Wednesday turns to the US Producer Price Index for February and the Bank of Canada's rate decision. Amid the dominance of geopolitical risks, the impact of economic data may be muted. The Bank of Canada is widely expected to hold rates steady.
The primary event for the evening and the week is undoubtedly the Federal Reserve's interest rate announcement. For what is expected to be the penultimate meeting chaired by Jerome Powell, the consensus is for rates to remain unchanged. The focus will be on the economic projections and the "dot plot," which will reveal the Fed's outlook on inflation and the future path of interest rates. The December dot plot forecast one rate cut this year; if this expectation is maintained, it could temporarily pressure the US dollar. Conversely, a shift to forecasting no cuts in 2024 would signal a move to a neutral stance, potentially allowing the dollar index to challenge the 100 level again, while putting pressure on US stocks and gold. Powell's subsequent press conference may provide further insights. Currently, the interest rate path implied by markets is noticeably more hawkish than a month ago, even incorporating slight bets on a potential rate hike.
According to the chart, gold began the week oscillating around $5,000, confined to a range between $4,970 and $5,040, continuing the weak correction seen since last week. A break above the upper boundary of this range could encourage buyers to test the trendline resistance near $5,080/90, though selling pressure is expected to intensify there. Conversely, a break below the lower boundary could see a decline towards $4,850, a level that represents both a previous low and a significant long-term trendline. However, the direction for gold will likely be determined by the upcoming Fed decision. A maintained dovish stance would be temporarily positive for gold, while a shift to a neutral outlook would be negative.
According to the chart, Bitcoin's rally encountered resistance near the $76,000 level, suggesting potential for a short-term pullback from overbought conditions. The $73,000 level is one to watch, followed by support near the lower boundary of the consolidation pattern around $66,600. However, weekly chart signals indicate the broader uptrend may continue, with a pattern of oscillating higher likely being the primary direction for now. A decisive break above the trendline resistance near $79,000 could further confirm the reversal structure and bolster buyer confidence.