19.06.201914:13 Forex Analysis & Reviews: Gold votes for Fed independence

On the eve of the announcement of the FOMC meeting results, gold continues to wander around 14-month highs. He is not particularly confused by either the rally of US stock indices or the return of investor interest in the US dollar. Stocks of specialized exchange-traded funds (ETF) rose to their highest level since February, as well as rising geopolitical tensions in the Middle East. Also, the weak statistics on industrial production in China and an increase in the likelihood of erratic Brexit create a favorable environment for the XAU/USD bulls. However, after the press conference of Jerome Powell, the situation may seriously change.

Donald Trump said that he had a telephone conversation with his colleague from Beijing and their meeting on the sidelines of the G20 summit in Japanese Osaka will take place. The owner of the White House called Xi Jinping a great leader but stressed that the deal with China should be fair. The contact groups will work even before the two presidents meet, which allows us to count on the de-escalation of the conflict and gives rise to the growth of the US stock market. Improving the global risk appetite coupled with a strong US dollar puts serious pressure on gold as a rule but this time, the precious metal decided to wait for the results of the FOMC meeting.

The dynamics of US interest rates on loans, dollars and S&P 500

On the one hand, Jerome Powell is under serious pressure from the US president, who does not tire of criticizing the Fed's monetary policy, the growing recession risks and the weak report on US employment in May. On the other hand, everything is not so bad in the US economy, as is commonly believed amid the growth of retail sales, industrial production and an increase in the yield curve signal. In addition, if the Fed unexpectedly reduces rates, it will lose its credibility. The market will say that the Central Bank went in the wake of Donald Trump.

The FOMC forecast on the federal funds rate will be important. If in December the open market Committee expected that it would increase twice in 2019, it did not expect a weakening of monetary policy in March. The futures market signals two acts of monetary expansion in the current year. If the Fed does not give a hint about any of them, the US dollar will strengthen against the main world currencies and the XAU/USD "bears" will go on the counter-attack. Thus, the importance of the Federal Reserve June meeting for gold is difficult to overestimate. The reaction of the market to its results will either show whether the precious metal has not climbed too high or on the contrary, will its success at the beginning of summer be the beginning of a long rally?

Technically, the gold update of the June highs is able to open the way for the bulls upwards in directed to the target of 161.8% according to the AB = CD pattern. It is located near the mark of $1395 per ounce. As long as quotes are above the support of $1311 (23.6% of the upward long-term wave), the situation is controlled by the buyers of the precious metal.

Gold daily chart