On Tuesday, foreign exchange and commodities markets experienced great volatility. The EUR/USD pair fell through 1.1350, despite broader US Dollar weakness. Traders are busy getting ready for next week’s Federal Open Market Committee (FOMC) meeting. They say they are counting on it to bring a whole new wave of trading activity.
As the European session continues, the EUR/USD is retracing some of its gains. It is currently headed back down towards the 1.1300 level because political worries have reemerged on the continent and are weighing on the Euro. The lack of clarity regarding Germany’s political future has added to the very cautious mood among investors.
At the same time, traders are starting to look ahead to the FOMC meeting later this week. The US Dollar stays on the back foot. This dovish outlook has rather surprisingly sparked an impressive daily bullish run for the GBP/USD currency pair. It’s since risen well above 1.3350, largely on the back of the US Dollar’s ongoing weakness. The GBP/USD increase is a sign that there’s more consolidation above the mid-1.3200s, showing the increased gumption of the sterling.
In the commodities space, gold remains in the spotlight as it rises to a two-week high over $2,370. The safe-haven metal is building up bullish impetus for a second straight day, moving to clamp $2,400. All of this growth is being supercharged by continued safe-haven demand thanks to the ongoing geopolitical turmoil sweeping the planet.
Geopolitical unrest, especially in the Middle East, increased investors’ thirst for safe-haven assets. In particular, Israel’s immanent ground offensive into the Gaza Strip has stoked fears among market participants. That constant is a reminder of larger movement at play — one in which geopolitical affairs have an oversized effect on traders’ actions.
Our EUR/USD forecast sees the pair still stuck in a range around 1.1300 heading into the FOMC’s policy meeting. As market participants await more clarity from the Federal Reserve regarding its monetary policy direction, many traders have opted to move to the sidelines.
Gold’s gain is impressive — it reached a two-week high above $3,370 during the day session. The precious metal’s lucrative rebound is a clear indication that investors are still seeking out safe-haven investments in a time of continued world uncertainty.
“Markets may be breathing easier, but investors should not mistake easing conditions for resolution.” – author