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During Tuesday's trading session, the yellow metal surged to the upper boundary of the medium pattern line at the 1,310.00 mark. On Wednesday morning, gold was trading between the 100-hour and the 200-hour simple moving averages at the 1,302.53 mark.

In regards to the near-term future, most likely, the 200-hour simple moving average will support the rate to push it to the 1,305.00 level.

However, today's US Federal Funds Rate, FOMC Statement release at 18:00 GMT might push the US Dollar to appreciate against the yellow metal to the 1,296.00 level.

In February, UK CPI accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. It's close to the two year low in January. Core CPI, on the other hand, slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 1.9% yoy. RPI was unchanged at 2.5% yoy, matched expectations.

PPI input rose to 3.7% yoy, up from 2.6% yoy. PPI output rose to 2.2% yoy, up from 2.1% yoy. PPI output core slowed to 2.2% yoy, down from 2.4% yoy.

Also from UK, house price index rose 1.7% yoy in January, down from December's 2.5% yoy and missed expectation of 1.7% yoy. It's also the slowest pace since June 2013.

The Euro holds in red on Wednesday's morning, weighed by overbought conditions and lack of momentum and stronger dollar on increased safe-haven demand, following reports on fresh tensions in US/China trade talks. after extension of broader rally ran out of steam at 1.1363 barrier (converged 55/100SMA's) on Tuesday.

Overall picture remains positive and favors final attack at 1.1363/73 pivots (55/100SMA's/50% of 1.1569/1.1176), clear break of which would expose thickening daily cloud (1.1393/1.1413).

Bulls look for adjustment before fresh upside attempts, with dips to be ideally contained by converged 20/30SMA's (1.1321/16). Bulls would be questioned on bearish extension below 10SMA (1.1295).

Traders turn focus towards Fed's announcement, due later today, with the central bank widely expected to keep overnight interest rates unchanged and likely turn more dovish on rising bets on potential rate cut.

Res: 1.1363, 1.1373, 1.1393, 1.1413
Sup: 1.1335, 1.1321, 1.1316, 1.1295

Notes/Observations

• Focus on Fed policy decision with expectations for an accommodative Fed given recent soft US data
• UK CPI remained below BOE target for the 2nd straight month
• PM May sends letter to EU asking for a ‘short’ Brexit delay

Asia:

• China PBOC might cut RRR in Q2 to response to liquidity pressures from large number of maturing medium term lending facility (MLF) loans and tax payments. Expectations for substantial easing of monetary policy were impractical right now
• BOJ Monetary Policy Meeting Minutes for Jan 22-23 meeting (2 meetings ago): Reiterated that most members noted it would take time to reach inflation target of 2% thus appropriate to continue easing persistently

Europe:

• EU Brexit negotiator Barnier stated that were in a key moment in Brexit negotiations; Longer Brexit extension needed to be linked to something new; everyone should finalize preparations for no deal Brexit. If the UK asked for a Brexit delay before the EU Summit on Thurs, leaders would assess the reasons given and usefulness of an extension; Article 50 extension had to be useful for it to be granted. Reiterated the current Brexit deal was the only possible basis for an orderly UK exit
• PM May's office said to have indicated that the Brexit extension letter would be sent to the EU on Wed, Mar 20th
• EU reportedly saw a mid-April deadline for the UK to decide on delay; EU won't use an extension to reopen the Brexit withdrawal agreement
• PM May spokesperson: if there was an Article 50 extension, PM May believed it should be as short as possible. PM determined to find a way to deliver on the will of the British people as quick as possible. PM did not believe that a general election was in the national interest
• Northern Ireland's DUP party said not to support PM May's Brexit deal unless they're convinced it could pass House of Commons vote

Americas:

• China-US trade talks said to be in final stages; Trade Rep Lighthizer and Treasury Sec Mnuchin to fly to Beijing week of March 25th. Lighthizer reportedly seeking details about China's revised intellectual property offers . Some US officials reportedly saw China walking back trade offers; some officials said to see China moves as normal part of the process

Energy:

• Weekly API Oil Inventories: Crude: -2.1M v -2.6M prior
• SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.34% at 382.98, FTSE -0.01% at 7,322.97, DAX -1.02% at 11,669.32, CAC-40 -0.13% at 5,418.75, IBEX-35 -0.17% at 9,476.05, FTSE MIB -0.02% at 21,425.50, SMI -0.40% at 9,487.50, S&P 500 Futures +0.07%]

Market Focal Points/Key Themes:

Equities

• European Indices trade lower across the board following on from a mixed session in Asia and slightly higher US futures this morning. The Dax under performs being led lower by shares of Bayer which trades over 10% lower after losing the first phase of Glyphosate trial.
• In M&A news Inmarsat trades sharply higher after Apax Partners confirmed a $7.21/shr bid for the company; Maersk trades little changed after placing over 17M shares in Total, while Glencore trades lower following the divestiture of its CSA Mine for $575M.
• On the earnings front, Bpost rises despite cutting its outlook; Kier Group falls over 8% after a decline in profits; Hermes gains on earnings and outlook, while Kingfisher trades 3% lower on earnings and guidance. Notably BMW falls sharply after warning 2019 profits well be well below the prior year as well as targeting €12B in cost cutting and efficiency gains by 2022.
• Looking ahead notable earners include General Mills, Pintec Tech and Bio-Path Holdings.
• Consumer discretionary: Kingfisher [KGF.UK] -3% (earnings; CEO to leave; appoints CFO), Hermes [RMS.FR] +1.5% (earnings), Moncler [MONC.IT] -2% (placement), Puma [PUM.DE] +3% (analyst action), zooplus [ZO1.DE] -10% (earnings)
• Consumer staples: British American Tobacco [BATS.UK] n/c, Imperial Brands [IMB.UK] -1% (FDA comments)
• Healthcare: Bayer [BAYN.DE] -12% (statement on Jury's decision), Motif Bio [MTFB.UK] +11% (granted FDA meeting)
• Industrials: BMW [BMW.DE] -4% (outlook), MAN [MAN.DE] +1% (earnings), Kier [KIE.DE] -7% (earnings), Ti Fluid Systems [TIFS.UK] +10% (earnings)
• Technology: Basware [BAS1V.FI] -16% (strategic investment)
• Telecom: Inmarsat [ISAT.UK] +20% (confirms cash offer), Elior [ELIOR.FR] -2% (sale price envisaged by PAI Partners for Elior's concession catering brand 'Areas' below forecasts)

Speakers

• EU Official: Leaders might discuss an extra Brexit Summit, EU will not ask UK for a 2nd Brexit Referendum. Have yet to receive PM May's Brexit letter or received a request for any extension of Article 50; Leaders to discuss no-deal Brexit planning at Summit
• Germany said to plan to pass laws by end of 2019 to create state fund to acquire stakes in key companies
• Iceland Central Bank (Sedlabanki) Policy Statement noted that inflation would likely to rise somewhat over most of 2019 but actual developments to depend on outcome of wage negotiations. Long-term inflation expectations remained above target by all measures. Near-term monetary policy stance to depend on interaction between a narrower output gap, wage-setting decisions and developments in inflation. Reiterated that has both the will and the tools to keep inflation and inflationary expectations at target over the long term
• Thailand Central Bank (BoT) Policy Statement noted that the vote was unanimous to keep policy steady. Reiterated that monetary policy remained accommodative. Domestic economy continued to expand and reiterated that THD currency (Baht) was moving in-line with regional peers . Staff Forecasts cut 2019 GDP from 4.0% to 3.8%, cut exports from 3.8% to 3.0% while maintaining 2019 Headline Inflation at 1.0%
• BOJ Gov Kuroda: Central bank said to be on the dovish side; to continue it persistent large scale easing
• Japan Fin Min Aso stated that he had no difference with PM Abe on BoJ's 2% price target. Oil price decline made it tough to hit price goal. Had discussed numerous times with BoJ Gov Kuroda that it was becoming very difficult to achieve price goal when plunging oil prices weighed on inflation.
• Japan Cabinet Office (Govt) Mar Monthly Economic Report cut its overall economic assessment citing recent weakness in exports and industrial production (1st cut in 3 years)

Currencies/ Fixed Income

• USD was little changed against most major pairs as focus remained on the upcoming Fed policy decision later today. Overall market expectations would be for an accommodative Fed given recent soft US data. EUR/USD little changed at 1.1345 area, USD/JPY at 111.55 just ahead of the US morning.
• GBP currency was softer ahead of the EU Leader Summit as PM May was prepared to send a letter to officials seeking a short Brexit delay. Dealers noted that the current environment suggested no-deal risk could be back around end-June. Dealers noted of some possible maneuvering with the UK political circuit to try to wrestle away the Brexit extension control from the PM into the hands of Parliament

Economic Data

• (DE) Germany Feb PPI M/M: -0.1% v +0.2%e; Y/Y: 2.6% v 2.9%e
• (TH) Thailand Central Bank (BoT) left its Benchmark Interest Rate unchanged at 1.75% (as expected)
• (ZA) South Africa Feb CPI M/M: 0.8% v 0.9%e; Y/Y: 4.1% v 4.1%e (**Note: 2nd straight month annual inflation was below the mid-point of SARB target range of 3.0-6.0%)
• (ZA) South Africa Feb CPI Core M/M: 1.1% v 1.1%e; Y/Y: 4.4% v 4.4%e
• (TW) Taiwan Feb Export Orders Y/Y: -10.9% v -5.6%e v
• (IS) Iceland Central Bank (Sedlabanki) left the 7-Day Term Deposit Rate stands at 4.50%
• (PL) Poland Feb Sold Industrial Output M/M: -1.5% v -3.5%e; Y/Y: 6.9% v 4.8%e
• (PL) Poland Feb PPI M/M: 0.5% v 0.3%e; Y/Y: 2.9% v 2.7%e
• (UK) Feb CPI M/M: 0.5% v 0.4%e; Y/Y: 1.9% v 1.8%e (2nd straight month below BOE target); CPI Core Y/Y: 1.8% v 1.9%e; CPIH Y/Y: 1.8% v 1.8%e
• (UK) Feb RPI M/M: 0.7% v 0.7%e; Y/Y: 2.5% v 2.5%e; RPI Ex- Mortgage Interest Payments (RPI-X) Y/Y: 2.4% v 2.5%e; Retail Price Index: 285.0 v 285.1e
• (UK) Feb PPI Input M/M: 0.6% v 0.6%e; Y/Y: 3.7% v 4.1%e
• (UK) Feb PPI Output M/M: 0.1% v 0.1%e; Y/Y: 2.2% v 2.2%e
• (UK) Feb PPI Output Core M/M: 0.1% v 0.2%e;; Y/Y: 2.2% v 2.3%e
• (UK) Jan ONS House Price Index Y/Y: 1.7% v 2.4%e

Fixed Income Issuance

• (IN) India sold total INR100B vs. INR100B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK2.68B in 2023 and 2029 Bonds

Looking Ahead

• (PT) Portugal Jan Current Account Balance: no est v -€0.2B prior
• 06:00 (EU) Daily Euribor Fixing
• 06:30 (DE) Germany to sell €4.0B in 0% Apr 2024 BOBL
• 06:30 (PT) Portugal to sell €1.25-1.5B in 6-month and 12-month Bills
• 07:00 (US) MBA Mortgage Applications w/e Mar 8th: No est v +2.3% prior
• 07:00 (UK) Mar CBI Industrial Trends Total Orders: 5e v 6 prior; Selling Prices: No est v 22 prior
• 07:00 (ZA) South Africa Jan Retail Sales M/M: +0.4%e v -4.8% prior; Y/Y: +1.4%e v -1.4% prior
• 07:00 (IL) Israel Jan Manufacturing Production M/M: No est v -0.4% prior
• 07:00 (CZ) Czech Republic to sell Bonds
• 07:00 (RU) Russia to sell 2026, 2028 and 2034 OFZ Bonds
• 07:45 (US) Daily Libor Fixing
• 09:00 (RU) Russia Feb Unemployment Rate: 4.9%e v 4.9% prior; Real Wages Y/Y: 0.0%e v 0.2% prior; Real Disposable Income: -1.6%e v -1.3% prior
• 09:00 (RU) Russia Feb Real Retail Sales Y/Y: 1.5%e v 1.6% prior
• 09:00 (UK) Baltic Dry Bulk Index
• 10:00 (BE) Belgium Mar Consumer Confidence Index: No est v -7 prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 10:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation (7-10 year maturities)
• 11:00 (MX) Mexico Weekly International Reserve data
• 11:00 (CO) Colombia Jan Trade Balance: -$1.0Be v -$0.6b prior; Total Imports: No est v $4.2B prior
• 14:00 (US) FOMC Interest Rate Decision: expected to leave rates unchanged between 2.25-2.50%; leave Interest Rate on Excess Reserves unchanged at 2.40%
• 14:30 (US) Fed Chair Powell post rate decision press conference
• 15:00 (MX) Citibanamex Survey of Economists
• 17:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: expected to leave Selic Target Rate unchanged at 6.50%

At the moment, the main currency pairs have become stable before the announcement of the results of the Fed meeting. Recent economic releases from the US were rather weak. Most financial market participants believe that the regulator will keep the range of key interest rates at the same level of 2.25%-2.50%. The Fed will adhere to a "patient" approach concerning monetary policy tightening. We recommend paying attention to the comments by representatives of the Central Bank, as well as to updated economic forecasts.

Yesterday, the Office for National Statistics published ambiguous data on the labor market. In January, the average wage level rose by 3.4%, which was higher than market expectations at 3.2%. The unemployment rate fell from 4.0% to 3.9%. At the same time, the Claimant count change increased to 27.0K in February compared to the expectations of experts 13.1K. The trade negotiations between Washington and Beijing have escalated again. According to Bloomberg, some US officials expressed concern that China might refuse to accept US demands.

The "black gold" prices are consolidating. At the moment, futures for the WTI crude oil are testing the mark of $59.40 per barrel. We recommend paying attention to the data on the EIA crude oil inventories at 16:30 (GMT+2:00).

Market Indicators

• Yesterday, the main US stock indices showed variety of trends: #SPY (+0.02%), #DIA (-0.04%), #QQQ (+0.34%).
• The 10-year US government bonds yield is at the level of 2.59-2.60%.

The news feed on 20.03.2019:

• Consumer price index in the UK at 11:30 (GMT+2:00);
• Fed interest rate decision at 20:00 (GMT+2:00);
• New Zealand GDP at 23:45 (GMT+2:00).

The FOMC will be releasing its interest rate decision later today (18:00, GMT) and is expected to remain on hold at +2.50%. Feds Funds Futures imply a probability for the bank to remain on hold of 99.0%. Market Attention is expected to shift towards the accompanying statement and we expect the bank to maintain its cautious tone, including “patience” about the bank's future rate hike path. The second important issue would be the dot plot and should the bank show that even one rate hike is necessitated in 2019 for the US economy, it could be a hawkish sign for the USD. On the other hand should the renewed projections of the bank increase arguments for a possible slowdown of the US economy we could see the USD weakening. We expect volatility for USD pairs to be extended throughout Fed Chair Powell's press conference later on. USD/JPY rose during today's Asian session breaking the 111.40 (S1) resistance line (now turned to support). We could see the pair having some bearish tendencies, should the Fed dovishly surprise the markets later today. Should the bears take over the pair's direction, we could see it breaking the 111.40 (S1) support line once again and aim for the 110.90 (S2) support barrier. Should on the other hand the bulls take over we could see the pair breaking the 112.0 (R1) resistance line and aim for higher grounds.

USD gets some support from trade tensions

The USD rose against the JPY and the AUD yesterday as renewed tensions were reported to the US-Sino relationships. The gains for the USD were supported by safe haven bids however were contained due to expectations of the Feds meeting. Media reported that US officials expressed concerns about that China is pushing back against US demands in the trade negotiations. US trade representative Lighthizer and US Treasury Secretary Mnuchin are expected to visit China next week for another round of negotiations next week. Currently, we expect the effect of any US-Sino headlines to be temporary as the market tends to focus on the Fed today. AUD/USD dropped yesterday, testing and for a short period during today's Asian session, breaking the 0.7065 (S1) support line. If the USD side of the pair weakens due to a dovish Fed later today, we could see the pair presenting some bullish tendencies. Should the pair's long positions be favoured by the market, we could see it breaking the 0.7120 (R1) resistance line and aim for higher grounds. Should on the other hand the pair come under the selling interest of the market, we could see it breaking the 0.7065 (S1) support line aiming for the 0.7005 (S2) support line.

Other economic highlights, today and early tomorrow

In today's European session we get Germany's PPI rate for February as well as UK's inflation rates for February and the CBI Industrial trend orders for March. In the American session, we get from the US the EIA crude oil inventories figure and just before tomorrow's Asian session starts, we get from New Zealand the GDP growth rate for Q4. During tomorrow's Asian session, we get Australia's employment data for February.

USD/JPY

Support: 111.40 (S1), 110.90 (S2), 110.30 (S3)
Resistance: 112.00 (R1), 112.80 (R2), 113.60 (R3)

AUD/USD H4

Support: 0.7065 (S1), 0.7005 (S2), 0.6950 (S3)
Resistance: 0.7120 (R1), 0.7190 (R2), 0.7245 (R3)

• Fed decision at 18:00 GMT today; new rate projections to dictate market reaction
• Stocks pause rally as trade uncertainty reigns in
• Sterling inches down amid reports May will ask for short Brexit extension

Fed 'dots' to steal the show

The main event today will be the Fed policy decision at 18:00 GMT, which will be followed by a press conference from Chair Powell. No change in policy is expected, so all eyes will be on the updated forecasts for the US economy, Powell's remarks, and most importantly, the new 'dot plot' with projections for the path of interest rates. The latest 'dots' back in December still pointed to two rate hikes in 2019, and while that is almost certain to be revised down given the Fed's recent 'patient' pivot, the question is by how much they will be marked lower.

Namely, will policymakers keep even a single rate increase this year on the table, or will the median 'dot' be marked down more severely to indicate no hikes at all in 2019? On balance, the Fed may prefer to retain some optionality and keep another rate increase later this year in play, contingent on the economy rebounding. Simply put, it seems a little too early to completely abandon hikes at this stage. Since market pricing is now tilted towards rate cuts in 2019, a signal for even one hike could come as a 'reality check' for traders, boosting the dollar and weighing on equities. The opposite reactions would likely ensue in case the new 'dots' imply no hikes this year.

Equity rally takes a breather as trade doubts set in

US stock markets gave back some early gains to close practically unchanged on Tuesday, with sentiment taking a hit after media reports cast doubt on the narrative that the US-China trade talks are close to bearing fruit. China is seemingly walking back on some of its earlier pledges on key issues, because even after agreeing to American demands on intellectual property rights, US negotiators have not offered guarantees that the Trump tariffs will be lifted. On the bright side, Secretary Mnuchin and top US trade negotiator Lighthizer will travel to China next week, for another attempt to iron out a deal.

Taking a step back, optimism for an accord has been riding high for a while, which is combination with the 'cautious' shift by central banks has helped propel global markets much higher. To be fair, such optimism is well-founded because the US President seems thirsty for a deal, and ultimately that's all that matters. That said though, the two sides still appear to be a 'bridge too far' on several issues, including the enforcement mechanism of any deal, so it wouldn't be surprising to see the negotiations drag on for a while longer, before Trump 'settles' ahead of the 2020 elections.

Sterling pulls back as Brexit rollercoaster continues its wild ride

There's never a boring moment in the Brexit saga, with headlines this morning suggesting PM May will only ask the EU for a short extension of Brexit until June. There's good news and bad news here, for the pound. On the one hand, for May to request such a short delay, she must think there's a good chance of her deal eventually passing. However, what happens if UK lawmakers don't budge come summer? Another delay after that may be impossible for technical reasons, if the UK doesn't participate in the upcoming EU Parliament elections.

To be frank, if May indeed asks for a short extension, that would drastically raise the risk of a no-deal happening by 'accident'. Remember the main reason the pound rallied lately was due to the risk of a no-deal being perceived as fading, so if that market perception changes, then sterling buyers could be in short supply. Hence, in the immediate term, a short extension would likely hurt the pound, whereas a longer one could boost it, on expectations for a softer Brexit or another public vote going forward.

UK inflation data are due for release today, but market focus will likely remain mainly on Brexit.

EUR/USD

Current level - 1.1345

The market is awaiting FED's decision later today and trading is likely to remain calm during the current session. Initial resistance lies at 1.1350, followed by 1.1420 and first support comes at 1.1290.

USD/JPY

Current level - 111.55

The return above 111.45 resistance has neutralized the negative bias and the intraday outlook is neutral.

GBP/USD

Current level - 1.3220

The support at 1.3190 is still intact, so the overall outlook remains positive, for a rise towards 1.3450 area.

US futures and European equity markets are reacting negatively as investors are wary about the US and China trade deal. It was pretty much given that only a negative surprise was going to have an impact on the markets when it comes to the trade negotiations saga because all the positive aspect was already priced in the market.

Nonetheless, the US equity markets are as strong as they can be. In fact, the S&P500 is approximately 74 points away from reversing all the losses from the previous quarter. This shows the strength of the current quarter which is coming to an end in 10 days. Year-to-date, the S&P has scored a gain of 12.99 percent, the Dow Jones advanced 10.97 percent and Nasdaq, the leading index, jumped nearly 16.41 percent. This comes on the heels of recovery in the U.S. stocks valuations. Stocks are near their five-year average on a mixed forward 12-month price-to-earnings ratio basis.

The reason that we have experienced such a massive selloff in the Q4 was mainly due to the concerns around the trade war between the U.S. and China and more importantly, investors were wary of the Fed’s hawkish stance. The trade war issue is nearly resolved as both countries are in the final chapter of this. It is the Fed stance which matters the most for now.

It is in this essence that today’s price action is going to be focused mainly on the Fed’s chairman speech. The FOMC minutes will be released later today and Jerome Powell, the Fed Chairman will be grilled on his future plan (with respect to the monetary policy). Mr. Powell will have to continue to stress on one keyword, “patience”.

Awkward Fact

Looking at the economic docket, it becomes fairly clear that the numbers have not printed anything cheerful but the chairman cannot afford to be overly cynical either. It would send the wrong message. This is because the fed funds futures are indicating a minor possibility of an interest rate cut early next year and a dovish statement would only strengthen those odds. The policymakers only need to acknowledge the fact the international headwinds winds are strong and there is an influence of this on the economic activity in the U.S., anything more than this would be calling for trouble.

The fact is that there is nothing in the economic data which warrants the Fed to shift their policy stance, and if there is a surprise on this front, the market participants would react harshly. I am not saying that the Fed isn’t going to increase the interest rate later this year. The argument for that may strength, especially if we look at the above valuation chart. This can serve as a good excuse down the line and the Fed may press the interest rate hike button then. But for now, it isn’t the time. Therefore, we are expecting the theme of patience and data dependence to dominate in today's meeting.

With respect to the Fed's dot plot, we are expecting this to continue to deliver the committee's bias, more interest rate hike but a less hawkish picture as compared to the one in December. This is likely to change once the economy has sailed safely through the soft economic path of 1H.

The precious metal continued to post some modest gains, rising 0.21% on the day amid the prevailing risk-off sentiment. Brexit developments continue to remain in the forefront with the UK seeking to extend the Article 50 extension from March 29 to end of June.

Can Gold Continue the Upside?

The XAUUSD's gains have been somewhat modest. Price action hasn't quite cleared the resistance level of 1306. And, despite an intraday breakout, price settled back below this level. This possibly indicates some weakness around this level. A bearish close today could send gold prices lower to retest the support at 1284.63. While to the upside, the resistance level at 1320 – 1321 remains within reach.