Market Update – Risk Sentiment Slips, Gold, VIX Better Bid as US CPI and FOMC Near

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Risk Sentiment Slips, Gold, VIX Better Bid as US CPI and FOMC Near

European indices are lower Tuesday, US counterparts are also in the red.Gold respects support but pullback remains muted.US CPI and FOMC decision out on Wednesday.

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European indices are still feeling the effects of last weekend’s European Elections where right-wing parties fared much better than expected. In the wake of a crushing defeat, French President Emmanuel Macron called for a parliamentary election at the end of the month, the Belgium PM resigned, while German Chancellor Olaf Scholz’s center-left Social Democrats polled just 14%, their worst-ever result in a nationwide vote. European indices fell during the day Monday, before recovering towards the end of the session, and renewed selling today has seen some indices hit multi-week lows.

The FTSE 100 is also under pressure today as risk sentiment sours, with the UK index touching lows last seen at the start of May. Today’s UK labor data has not helped the FTSE’s cause either.

UK Sheds Jobs but Pay Grows Complicating BoE Rate Outlook

FTSE 100 Daily Chart




of clients are net long.




of clients are net short.

Change in

Longs

Shorts

OI

Daily
39%
-20%
-1%

Weekly
40%
-16%
2%

Gold is pulling back some of Friday’s post-NFP losses after nearing a noted level of support around $2,280/oz. level. The precious metal remains below the 20-day- and 50-day simple moving averages, at $2,355/oz. and $2,343/oz. respectively and will need to break and open above these two indicators if it is to move higher.

Gold Daily Price Chart

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The VIX ‘fear index’ trades around 5% higher on the session, albeit from lowly levels.

VIX Daily Price Chart

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Charts via TradingView

This Wednesday promises to be a crucial day for the US dollar, with the release of consumer price inflation figures and the highly anticipated Federal Reserve monetary policy announcement. These twin events carry the potential to significantly influence a wide range of market assets.

The Federal Open Market Committee (FOMC) decision will be accompanied by the latest Summary of Economic Projections, including the closely watched “dot plot.” This visual representation depicts Fed officials’ projections for US interest rates at the end of each calendar year. According to the current dot plot, two officials expect rates to remain unchanged throughout 2023, while two others anticipate a single 25 basis point cut. Five members are looking for two rate cuts, and nine officials foresee three reductions in 2024.

However, the new dot plot is likely to reflect a scaling back of rate-cut expectations for 2024, reflecting the Fed’s evolving assessment of economic conditions and inflationary pressures. Investors and traders will closely scrutinize the inflation data for indications of persisting price pressures, while the Fed’s policy statement and updated economic projections will provide valuable insights into the central bank’s monetary policy trajectory.

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For all economic data releases and events see the DailyFX Economic Calendar

Are you risk-on or risk-off? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1.

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