FX Moves Ahead of the FOMC Minutes; Gold Lingering

Dollar regains demand ahead of the minutes statement.

Bullion.Directory precious metals analysis 19 May, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Twitter @Lemieux_26

The dollar had seen some rather strong selling pressure on the back of poor economic data and recent strength in the euro (until yesterday), pulling back seven percent after failing to surpass 100 on the DXY index. 

Central banks, once again, influenced markets with their rhetoric. European Central Bank (ECB) official Benoit Coeure’s remarks to an audience made up of hedge funds, supposedly behind closed doors, immediately began to move the markets.

With no media coverage, Coeure told the audience that the ECB would front-load their quantitative easing buying ahead of the summer months due to liquidity concerns. The EURUSD pair quickly dropped 50 pips, likely on leaked information.

The comments were not officially published until two hours later, appearing in the Wall Street Journal, causing the pair to free fall 150 pips. The move in the euro, combined with a steep drop in the Sterling due to the UK’s first deflationary CPI print in 60 years, pushed the dollar above 95. These are the two heaviest weighted currencies in the dollar index, the euro making up over a third of the weighting.

The pop in the dollar caused gold to loose its quarterly high on volume that peaked above the 20-day moving average. Price action closed below $1,209, which was the last buffer before testing the area between $1,200 and $1,197.

Silver fell almost four percent since reaching $17.68 per toz. However, the white metal rallied hard in recent weeks and is pulling back from overbought territory. Since April 24, silver accumulated a 13.42 percent gain until yesterday’s drop. Gold rallied just under five percent in the same time frame.

Traders will be looking to today’s FOMC minutes for further clues on when the mysterious, but elusive rate hike will actually take place. It is expected that the minutes will try to balance both the prospects of a rate hike while maintaining the view that accommodating monetary policy is  still needed. After only missing Q1 GDP print by a tenth of a point, the Atlanta Fed’s GDPNow forecast is tracking Q2’s non-weather impacted GDP figure to be a tepid .7 percent opposed to the general consensus of 2.7 percent.

This week will end with a bang. At 9AM EST this Friday, ECB’s Mario Draghi, BoE’s Mark Carney and the BoJ’s Haruhiko Kuroda will speak. Fed Chair Janet Yellen will cap the central bank extravaganza at 1PM.

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