Financial market research and analysis

The Federal Reserve will give its monetary policy verdict later today and is expected to leave interest rates unchanged. The FOMC’s accompanying statement will be in focus as investors are preparing to read between the lines to figure out whether or not a rate hike in July, or in September, is still a sound option. The latest trading activity in the US sovereign market suggests less than a 50% chance for any rate hike to happen before the end of 2016.

The US dollar remains mixed given that the most of the bearish adjustment in USD positions have occurred over the past two weeks. Traders have been pricing in a dovish shift in Fed’s rhetoric since the latest US labour data was a complete flop. This being said, the FOMC Chairwoman Janet Yellen is not yet anxious about a single month data. Therefore, any sign of optimism in the Fed’s statement could revive US rate hike expectations and trigger a relief rally in the US dollar.

Is Brexit overpriced?

The UK broke out in a cold sweat, as a fifth poll hinting at a potential Brexit hit the headlines within the last 24 hours. Volumes are thin on the buy side. UK bonds sold-off, the GBPUSD tanked to 1.4087 and FTSE futures tested the 5900 level on the downside. At this point in time, the big question is whether the poll samples represent UK voters well enough as the polls were not accurate for both the Scottish referendum and the 2015 general election .

The FTSE is like a cat on hot bricks. The UK’s 100 largest companies lost nearly £100 billion worth of value during the last four trading sessions. Despite a slight upside correction in London opening, there is little improvement in sentiment after the fifth Brexit poll privileged the ‘Leave’ camp.

Technically, the index is in the mid-term bearish consolidation zone below the 6072p level, the major 38.2% retracement on February – April rise. A further sell-off could bring us to the 100-month moving average, 5840p.

Gold hit a five-week high, $1291, as investors are rushing into safe haven assets. With the flat-to-negative yields in relatively low-risk German, Japan and Swiss bonds, there is no longer an opportunity cost in holding gold. The bull market is set to develop further. It is just a matter of time before the $1300 offers are cleared. Yet, a recovery in the US dollar could justify a short-term downside correction in gold prices as the market approaches the overbought territory. The $1255-$1245 area (50 and 100-day moving averages respectively) should lend support to potential pullbacks in the short-run. From a mid-term technical perspective, gold is considered in a positive trend above $1206, the major 38.2% retracement on December 2015 – May 2016 rise.