This week, market participants focused closely on the Federal Reserve’s future actions as it relates to rate hikes to be announced at the upcoming FOMC meetings in July and September. Since 2018, the Federal Reserve has raised rates only three times. However, all three rate hikes were announced and implemented at the last three FOMC meetings (March, May and June).
The Federal Reserve is expected to raise interest rates at both of its next FOMC meetings in July and September. According to CME’s FedWatch tool, there is a 93.9% chance the Federal Reserve will raise interest rates by 75 basis points at the end of this month. That’s up more than 10% from yesterday’s FedWatch tool, which predicted there was an 83.8% chance of a 75 basis point rate hike.
That increase is a reflection of the hawkish minutes from last month’s FOMC meeting, which were released today. The release of the minutes of the FOMC meeting in June, combined with hawkish statements from many voting members of the Federal Reserve, had a strong bullish influence on the dollar and a bearish influence on gold. For the second day this week, we see the dollar rise to a 20-year high, and gold continues to lose value now at its lowest level since last year.
Current support and resistance levels for gold and the dollar
The current trend of dollar strength and gold weakness may find technical resistance/support near its current values. Of course, there is an obvious caveat to the statement above. The catch is that both the dollar and gold are fueled by headlines that reduce the accuracy of technical studies for predicting financial markets.
The chart above is a weekly Japanese dollar index candlestick. It contains a Fibonacci extension that looks at the rally that began in 2014 when the dollar index had a value of 79 until the end of the rally at 103.95 that occurred in Q1 2017. The Fibonacci extension measures the increase in the value of the dollar during this rally and the extension begins after the 2018 correction when the dollar fell from 103.95 to 88. Key levels to look at in the Fibonacci extension are 61.8%, 78% and 100%. The 61.8% Fibonacci extension occurred at approximately 104, which was the key resistance level from 2017 until May of this year, when the dollar surged above 105. This price point is now most likely a key support level. The next level (78%) at 107.46 is now within striking distance with the dollar index trading to a high of 107.07 today.
Gold futures are down nearly $80 in the past two days. However, a technical chart breakdown first occurred on Friday, July 1 when gold closed below a major trendline support. Yesterday, gold opened below this trend and closed below the 78% Fibonacci retracement we identified in yesterday’s article. Therefore, the next logical level to look for technical support is $1720. This is based on the closing price during August’s flash crash, which sent gold to an intraday low of $1,678, and the bottom that occurred in late September, where both days closed at $1,721.
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