The EURUSD opened up smack in the middle of its well-entrenched 1.19-1.20 near term range as traders are not 100 % sure what the US Feds are going to do but, as importantly, how the markets are going to react.

Everyone can see the Fed’s community cards signalling an upward revision to growth and inflation and lower unemployment forecasts. But also a dovish policy outlook. The median dot is likely to hold at the Zero Lower Bound (ZLB) for 2021 and 2022, but traders are unsure where the Fed will drive on Fourth or Fifth Street and if they will move all-in on lift-off in late 2023.

In December 2020, the dots showed 12 FOMC members thought rates will still be as they are at the end of 2023. One member thought rates take-off would be before the end of 2022, three thought there’d be one hike in 2023, one that there would have been two hikes and one that there would have been 4.

It takes 4 of the 12 to move the median for 2023, but it perhaps only takes one or two to shift position to move the markets. Given the repricing of the Fed, there’ll be considerable attention on the dots on Wednesday.

Ringgit may remain hostage to high US yields

The Malaysian Ringgit should trade in a tight band ahead of this weeks FOMC as traders are still debating if the FOMC will signal a 2023 lift off and possible September Bond market taper. And the MYR could remain hostage to higher US yields of the near terms.

Gold remains tethered to the whims of the US dollar

A technical and physical demand-driven relief rally?

Physical supply coming to market is getting absorbed by real money allocators from China and India towards US$1700. And the failure to break that fundamental and critical technical level on Friday convincingly triggered a short-covering rally on Friday.

Gold still has that endearing inflation appeal, but the next critical test will be to break above March 3 highs at $1740. But ahead of the FOMC, I would expect gold to trade very much tethered to the whims of the US dollar.

The US economy is doing much better from a growth perspective than many had expected just two months ago. In particular, ‘hard’ activity data have surpassed consensus expectations lately and have been the driving force behind Bond yields higher, much to gold investors’ chagrin.

The US yields traded to their peak for the year, and the dollar touched its highest in three months, sending gold prices reeling. The interest rate pressure is likely to be a more extensive and nearer-term factor rather than the positive force of expected inflation, suggesting gold may head lower when interest rates shoot up again.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi