Sun, Dec 04, 2022 @ 09:52 GMT
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Two Trades to Watch: Gold, EUR/GBP

Gold awaits the Fed announcement

Gold is trading under pressure at $1665, hovering just above the 2022 low of $1654 reached on Monday.

The precious metal has traded in a tight range ahead of the Fed rate decision later today. The US central bank is widely expected to raise interest rates by 75 basis points, the third consecutive 75 basis point hike, taking rates to a level last seen in 2008.

However, a surprise move by Sweden’s Riksbank yesterday, hiking rates by 100 basis points, has opened investors’ minds to a larger hike by the Fed.

The market could be more interested in what comes next. After August’s inflation data showed core inflation rose by more than expected, the Fed could adopt a more hawkish outlook for the coming meetings, upwardly revising the dot plot.

A more hawkish Fed would likely lift the USD and drag USD-denominated, non-yielding gold lower.

Where next for Gold?

Gold trades below its multi-month falling trendline, 20 & 50 sma. Sellers need to break below 1654 to extend the bearish selloff towards the 1650 psychological level.

It’s worth noting the RSI divergence is appearing, which could point to a reversal. Buyers will need to rise above support at 1680 the July 21 low, and 1689 the September 1 low to expose the 20 sma at 1709. It would take a move above 1733 the September high, to create a higher high.

EUR/GBP falls on Putin’s threats, UK government borrowing rises

EUR/GBP is falling for a third straight session. The euro trades under pressure following comments from Russian President Putin, who announced military mobilisation and also warned that he is not bluffing over nuclear weapons.

Putin’s comments followed the announcement of referendums to pave the way for the annexation of large parts of Ukraine.

The prospect of the war getting worse is unnerving investors, pulling the euro lower.

The pound is rising versus the euro, but trades lower against the USD, after data revealed that the UK government borrowed more than expected in August.

Public sector net borrowing rose to £11.8 billion. Meanwhile, the cost of servicing that debt rose to a record level for August.

Interest payments reached £8.2 billion last month, up £1.5 billion from August in 2021. The high-interest repayments come as the government prepares to borrow more with the government’s mini-budget on Friday.

Where next for EUR/GBP?

EIR/GBP broke out of a falling channel at the start of September and has extended the rise higher, running into resistance at 0.8787.

The selloff is approaching support at 0.8723 the June high; a break below here could open the door to 0.87 round number and expose the 20 sma at 0.8645.

Should bulls successfully defend 0.8723, buyers could look to retake 0.8787 to extend the bullish trend towards 0.88.
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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