Date: 20 Feb 2019

The release of the Federal Open Market Committee meeting minutes is likely to set the tone for financial markets this week, with investors expected to scrutinize every detail of the accounts from the Federal Reserve’s two-day policy meeting last month. Market participants will look for more signs that Federal Reserve officials are turning more dovish towards the U.S economy, in the wake of the ongoing global slowdown.

After four interest rate increases last year, the Federal Reserve removed key hawkish language from its monetary policy statement last month and also talked down parts of the American economy. FED Chair Jerome Powell’s cautious tone was partly seen as a way to appease U.S President Donald Trump and also to end the ongoing turmoil in stock markets, with investors fearing further increase hikes in the first quarter of the year could further slow the U.S economy.

The Federal Reserve also mentioned that there was scope for the central bank to adjust its balance sheet at last month’s policy meeting if worsening or deteriorating economic conditions arise. If we see a further elaboration of U.S policymakers thoughts on some balance sheet adjustment today, it is likely that market participants will factor in that the FOMC has moved away from it’s ‘wait-and-see approach’ and adopted a significantly more dovish stance.

Earlier this month the U.S economy recorded much better than expected monthly jobs numbers, although last week we saw a series of underwhelming U.S economic data points. U.S retail sales, manufacturing production and PPI inflation all significantly missed expectations, sparking worries that fears that FED Chair Jerome Powell’s fears are showing up in U.S economic data.

 

XAU/USD Daily Mount Chart | Source: ActivTrader Platform

XAU/USD Daily Mount Chart | Source: ActivTrader

 

The U.S Dollar is starting to trade on the back foot going into this evening’s release of the FOMC meeting minutes, following comments from Cleveland Federal President Loretta Mester. Mester sunk the greenback on Tuesday, as she became the latest U.S. central banker to support ending the balance sheet run-off this year and slowing rate increases.

Gold has also been surging higher from global central bank’s turning more dovish, with the yellow-metal moving close to multi-year trading peaks. A clean break above the $1,370 level is likely to spark a major upside technical breakout, which could see gold prices headed north of $1,400 over the coming weeks.

 

Written by Nathan Batchelor, External Analyst

 

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