Tomorrow FOMC Will Decide QE3′s Fate

Tomorrow is the much awaited day, when chairman Ben Bernanke will expose his decision concerning the evolution of the third Quantitative Easing program that has been implemented for one year, so far. Everybody’s eyes will be on Fed’s chairman and for sure the markets will be highly sensitive to each word delivered.

The big question is: will the QE3 be reduced now? Or later this year?

Most of the investors, and also most of the surveys conducted by Reuters and Bloomberg are pointing towards a contraction of $10 billion that will be announced tomorrow, but the amount may vary between $5 and $25 billion. Tomorrow are expected forecasts about the American economy for 2016 and it will be interested to follow the way they will treat the fact that in January 2014 Ben Bernanke will no longer lead the Federal Banks of the United States. Janet Yellen is the favorite so far, but we have to be careful to any possible surprises.

Even if economists believe that Yellen’s approach will be almost the same as the one of Bernanke and another chairman will make radical changes, we cannot expect this scenario to happen. Giving the size and importance of the QE, no matter the chairman, decisions will be taken in the best interest of the American economy. Thus, tapering will happen gradually and further changes will be made according to data coming from the labor and housing sectors, in particular. Anyhow, the difficult part of the process of strengthening the economy just now is coming, and the next chairman will have to be able to control the situation in a proper way.

Both gold an silver’s futures dropped in anticipation of the decision that is coming tomorrow, investors preferring to wait. As it concerns the price of gold, it is expected to further decline until the end of this year. Same for the emerging markets, which are already feeling the effects of the “absence of QE” due to the considerable decrease of inflows of money.

Gold (XAUUSD) might Bottom around Current Levels


Chart: XAUUSD, Daily

After hitting a low under 1180$ per ounce the price of Gold bounced back to 1290$ per ounce. The most interesting thing about this throwback is that the commercials are still net short on this instrument, but the open interest is on the up move. This might mean that the precious metal is being bought by private investors more, and less by Central Banks and Hedge Funds.

Tomorrow Ben Bernanke is expected to have another speech. Investors will look for signals regarding the Quantitative Easing. If the Fed will start tapering it later than September, we might see another rally in the price of gold, while if this date will be maintained there is a possibility for the price to drop suddenly.

Looking at the technical analysis of gold’s price chart using a system based on Ichimoku Kinko Hyo, we observed that the price is now in the layer between the Tenkan-sen and Kijun-sen averages. Adding a Fibonacci retrace we can conclude that 1300$ per ounce is a very good resistance level. If the price will break and close above this level we can expect for it to rally to 1350$ per ounce, where it will find itself in the Kumo.

Even though the signals are bullish, keep an eye on the 1270$ support. A break under this level could mean another drop for the price of gold. The target levels for a down move are 1210$ and 1180$ per ounce.

EURUSD Was Not Yet Ready for…

In the first week of June, Mario Draghi said that ECB will keep the interest rates at record low for an extended period of time and there are arguments for it to be cut even more. In the same week, on Friday the Non-Farm Payrolls surprised the market with a value above all forecasts. The dollar got stronger and stronger, managing to get the EURUSD quotation under 1.2800.

The story does not end here. Last week, the second week of the month, were published the FOMC Meeting Minutes and Ben Bernanke had a speech titled “A Century of US Central Banking: Goals, Frameworks, and Accountability”. Investors were disappointed to see that, in the minutes, there was no date from which Fed will start tapering the monetary easing program. The full attention was moved to Ben’s speech, but nothing was said about any dates. This time the dollar started to lose and in several hours EURUSD got back over 300 pips.

Next week Ben Bernanke will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC


Chart: EURUSD, Daily

Looking at the price action of EURUSD we can say that it wasn’t ready to break out from the consolidation pattern, which is actually a symmetrical triangle.  The lower boundary is around 1.28 level while the upper one sits at 1.34. The main axis, as it can be seen on the chart, is 1.3200. This level seems to be the equilibrium one.

If the price breaks above 1.32 we can expect for it to test the upper line of the triangle, while if it drops or remains under the pressure rises on the lower line of the pattern.  This currency pair will remain sensible to the economic data published from the United States and will the volatility will increase during the speeches of Mario Draghi and Ben Bernanke.

Is Gold going to Rally Back to 1300$ per Ounce?


Chart: GOLD, H4

As it looks now, in our opinion, the answer would be not yet. The FOMC meeting minutes showed that there are more members that agree with the tapering of the Quantitative Easing program, but it wasn’t specified the date for the start of the tapering. The speculated date was September this year, but it seems that the Federal Reserve has to see whether the unemployment rate is heading to 7%.

After the Minutes the dollar lost some ground, gold rallied to 1265$ per ounce but didn’t stay too much there. In less than an hour Ben Bernanke will have a speech and the investors will keep their eyes and ears focused on what the Fed’s chairman is going to say.

From the technical point of view, the price of gold encounter a good resistance area at 1268.00 level, that was tested 2 more times in the past 3 weeks, and could not pas. The bounce off 1265$ might mean that the pressure is still on the downside, even though it can be spotted an Ascending Triangle price pattern on the chart.

To wrap it up, during the speech of Bernanke we will look at the support 1243.30 and resistance 12568.45 key levels. Under the support the targets will be 1220.00, 1200.00 and 1180.00, while above resistance the price targets would be 1302.45 and 1350.00.