"If, contrary to expectations, inflation does not slow down, it would be advisable for the Committee (on open market operations) to remove stimulus measures faster than expected," the minutes of the FOMC meeting, published on Wednesday, said.
Nothing new was said in the minutes regarding the prospects for the Fed's monetary policy. On the contrary, they weakened expectations of a more aggressive tightening of the Fed's policy. After last week the U.S. Department of Labor reported another increase in consumer inflation in the country. The consumer price index (CPI) in January rose by 0.6% (+7.5% in annual terms) after rising by 7.0% in December. Speculation intensified that Fed officials could raise interest rates at the March meeting by 50 basis points at once. Some market participants and economists even assumed that the Fed's interest rate would be raised 5-7 times more this year.
However, the minutes of the Open Market Committee meeting released on Wednesday do not confirm this: they only reiterate that decisions to tighten policy will be considered from meeting to meeting.
Market participants were probably so disappointed with the neutral FOMC protocols that they practically ignored the strong macroeconomic statistics released on Wednesday from the U.S. Retail sales showed steady growth in January by 3.8% (against the forecast of +2.0% and after a decrease of 2.5% in December). At the same time, industrial production rose by 1.4% (against the forecast of +0.4% and after a decline of 0.1% in December).
As a result of yesterday's trading day, the dollar weakened, and the dollar index (DXY) fell to 95.70. At the time of writing, DXY futures are trading near 95.86, but the dollar does not yet have a strong positive momentum for further strengthening. Perhaps the reason for growth will appear today, when at 13:30 (GMT) the weekly statistics on the number of applications for unemployment benefits in the U.S. for the week of February 11 will be released.
Initial jobless claims are expected to decline to 219K from 223K, 239K, 261K, 290K in previous reporting periods. One way or another, this is still a low number of applications for unemployment. It remains at the lowest level for several decades - about 200,000. This is a positive factor for the dollar, after it became clear from the report of the U.S. Department of Labor that unemployment in the country is at the minimum pandemic and multi-year level of 4.0%.
Meanwhile, the weakening of expectations of a more aggressive tightening of the Fed's monetary policy (after the protocols published yesterday from the January meeting) contribute to the growth of gold quotes. Thus, the XAU/USD pair reached a new 8-month high of 1,893.00 today. Gold quotes are extremely sensitive to changes in the monetary policy of the world's leading central banks, especially the Fed. When it tightens, the quotes of the national currency (under normal conditions) tend to grow, while the price of gold falls.
However, as we can see from the long-term charts, its price is not going to fall. Gold does not generate investment income, but is a popular defensive asset, especially in the face of rising inflation. And if the Fed fails to contain rising inflation, it will make it more difficult for the Fed to keep the balance between economic growth and the monetary tightening cycle, and this, in turn, could hurt the dollar. According to analysts of the gold market, the dynamics of its prices will depend on "whether investors' fears about inflation will intensify and whether interest rates will rise faster than expected."
But as we can see from rising gold prices, the conventional scale is tilting in favor of buyers of this precious metal, which also receives support from the ongoing tensions between Russia and Ukraine.
Technical analysis and trading recommendations
At the time of writing, the XAU/USD pair is trading near 1,885.00, remaining in a long-term bull market and moving within an ascending channel on the weekly chart. Its upper limit is close to 1,916.00 (local highs in 2021). This mark will be a reference in case of further growth of XAU/USD and after the breakdown of today's local resistance level of 1,893.00.
Data coming from the U.S. point to accelerating inflation, which puts pressure on the Fed to tighten monetary policy as aggressively as possible. And the closer the March meeting of the U.S. Federal Reserve, the stronger the volatility in the quotes of the dollar and gold will grow. In the meantime, long positions look preferable in the XAU/USD pair.
In an alternative scenario, XAU/USD will return to the key long-term and psychologically important support level of 1,800.00. The first signal for the implementation of this scenario will be a breakdown of the local support level of 1,877.00, and a breakdown of the support levels of 1,853.00 and 1,845.00 (200 EMA on the 1-hour chart) will confirm this scenario.
In case of further decline, XAU/USD will head towards the bottom of the range (between 1,752.00 and 1,877.00) and further towards the bottom of the wider range passing through 1,682.00 (38.2% Fibonacci retracement of the upward wave since December 2015 and marks 1,050.00). A break of the support levels of 1,640.00 (200 EMA on the weekly chart), 1,560.00 (50% Fibonacci level) will increase the risks of breaking the long-term bullish trend of XAU/USD.
Support levels: 1877.00 1853.00 1845.00 1832.00 1822.00 1805.00 1800.00 1785.00 1752.00 1725.00 1700.00 1682.00 1640.00 1560.0
Resistance levels: 1893.00, 1900.00, 1916.00, 1963.00, 1976.00, 2000.00, 2010.00
Trading recommendations
Sell Stop 1866.00. Stop-Loss 1894.00. Take-Profit 1853.00, 1845.00, 1832.00, 1822.00, 1805.00, 1800.00, 1785.00, 1752.00, 1725.00, 1700.00, 1682.00, 1640.00, 1560.00
Buy Stop 1894.00. Stop-Loss 1866.00. Take-Profit 1900.00, 1916.00, 1963.00, 1976.00, 2000.00, 2010.00