By Jameel Ahmad, Chief Market Analyst, FXTM
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The combination of some stabilisation 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 Wednesday. While this might lead to increased positivity that indices can continue to record gains from investors with a greater appetite for risk, there will be a more cautious approach among traders as they await the FOMC policy announcement this evening.
What everyone wants to know from is clear guidance on the likely time frame to expect a US interest rate increase. We have repeatedly been told that rates will rise at some point later this year, but the timing on when this will occur still remains 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 timings, or 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.
The market might also be looking for information on the “international risks” message highlighted in a previous FOMC statement. Some saw this message regarding the Fed keeping an eye on international risks as an indication that it will leave interest rates unchanged until the volatility in the China markets calm down and the Greece situation draws to a conclusion. I believe that the Fed should still raise interest rates anyway, because not only is the US economy performing on a consistent basis but if there are concerns about economic health elsewhere, the Fed being in a position to begin raising interest rates would provide a welcome boost to the global economy.
The USD has suffered weakness against its trading partners after a misfire in the consumer confidence reading Tuesday afternoon, but what was 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 buy the metal for nearly two months with this also including the period when the Greece uncertainty reached its peak. This sentiment has weakened further since Gold fell below the psychological $1100 level and bearing in mind that it is currently failing to maintain itself above $1100, it does look like Gold is exposed to further selling pressure.
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