Traders are cautious today and no one is in mood to make bigger bets ahead of action packed week. Basically there is no time for trades to have any kind of break or in other words “sell in May and go away” term isn’t valid for this years. The reason is that the Federal reserve is about to make a major change in its monetary policy which investors have not witnessed in almost a decade.
Analysts are united for the first time in their prediction and the expectations are that the chairman of the Federal Reserve is going to cut the interest rate in order to boost the economy. We think that the interest rate cut is going to be 25 basis points and this should start providing some aid to stubborn inflation numbers which are not moving in the direction where the Fed wants it.
So what does this mean for the dollar index and for the stock markets? Well, the dollar index hasn’t lost much of steam although there was a major roller coaster event last week when Donald Trump decided that he is not going to start a currency war. Thus, we do not expect the dollar index to give up much ground and the uptrend is highly likely to stay intact.
As for the precious metal, it is holding its key psychological support level of 1400 and all eyes are on this. Gold price should not break this level and if the Wednesday’s event pushes the gold price lower than it means an emergence of a new trend. For the time being, the price is still trading in a bullish flag pattern on a daily time frame. The price is also trading above the 50-day , 100day and 200-day moving averages, and all of this together, strengthens the bull case.
In the commodity space, oil price- WTI continues to trade near the $56 mark as tensions continue to simmer about the Strait of Hormuz. The UK’s new prime minister has decided to use naval war ships to escort the oil vessels. On the China-US trade talk front, there isn’t much progress made and this hasn’t helped the oil demand. Until and unless we see some a clear solution on this, it is likely that the demand will continue to suffer as a result of this. Looking at the CFTC data, short bets have jumped the most in nearly 11 months and this means that the speculators are expecting the price to move lower which does seem a little odd because geopolitical tensions over in the Middle East is a serious matter of concern.
