This week, the Federal Reserve, the Bank of Japan, and the Bank of England will also hold interest rate meetings, and the three major central banks will simultaneously announce their respective interest rate policies. Due to the excessive speculation in the market and the often-manipulated nature of policy decisions, operators need to be cautious of the occurrence of "central bank discrepancies" or "expectation discrepancies."
The Trend of the Strong Dollar Depends on the Actions of Central Banks
Firstly, the market is highly concerned about whether the strong dollar will continue. Currently, whether the strong dollar will further persist is closely related to the resolutions of the three major central banks. If after the Fed's interest rate meeting, the market interprets the Fed's future interest rate policy as hawkish, that is, the number of interest rate cuts is less than originally expected, and at the same time, non-US central banks show dovishness, then funds will flow into the US dollar and out of non-US currencies. Since the yen is an important non-US currency and the share of yen in circulation in the market is extremely large, many funds are borrowed in yen and then invested in other high-yield currencies, and interest rate differential trading will drive the strong dollar to show an even stronger development trend.
May Constitute an Environment for Multiple Attacks on Gold Prices?
Of course, if the Fed's future actions are expected to be hawkish, US bond yields will also rise. Combined with the strong dollar and the weakness of non-US currencies, in this case, gold will suffer triple blows. Besides being hit by the strength of the dollar and bond yields in speculative trading, it will also be hit by the weakness of non-US currencies in physical holdings. Of course, the market will also ferment and upgrade the speculation by leveraging the Trump situation. However, is the chance of such an extreme situation occurring high now?
The Market May Be Over-speculating Expectations
Regarding the impact of the market on the Fed's interest rate meeting, the Royal Capital Research Department believes that there is excessive speculation in the current market. It not only overly speculates on the benefits of the December interest rate cut but also overly imagines the possibility that the Fed's subsequent policy will turn hawkish, leading to a strong dollar. Of course, it also over-speculates on the future interest rate cut pace of non-US central banks and underestimates the Bank of Japan's intervention in the market.
The Fed's Result May Lack Direction
Even if the Fed implements an interest rate cut in December, it is expected to have little impact on the market. On the one hand, the action in December does not represent continued interest rate cuts in the future. On the other hand, the Trump administration's governance is full of uncertainties, and the Fed is also waiting and seeing.
The Dot Plot May Disappoint the Market
It is believed that the dot plot will still show that there will be opportunities for interest rate cuts next year, and the number of interest rate cuts may remain in the market-predicted range of 2 to 3 times. This will first hit the recent expectation that the Fed will only cut interest rates once next year and may hit the dollar in the short term.
Powell's Speech Is Expected to Be Ambiguous
Of course, the market will also expect to predict the Fed's future policy based on Powell's speech. However, we are certain that Powell's speech will most likely maintain the earlier tone, emphasizing that "the US economy is strong, the job market shows no problems, but the downward trend of inflation is unclear. Therefore, although the Fed is confident that inflation will return to the policy target level, it will not rush to cut interest rates in future decisions. Instead, it will pay attention to the performance of the latest data in the new round to evaluate the action expectations from January to March next year."
The Fed's decisions often have such a situation: when its statements cannot provide a clear direction for the market, it may not necessarily bring a dominant trend to the dollar. In this case, the direction of the dollar may depend on the new round of overall directions of non-US central banks. It is necessary to wait for the announcements of non-US central banks before the market compares whether there will be policy discrepancies between the Fed and non-US central banks.
The Direction of Funds May Depend on Non-US Central Banks
In the new cycle, whether it is the data to be announced soon or the relevant decisions of the Bank of England and the Bank of Japan, they may not be as dovish as the market originally expected. First, we see that there will be some employment and inflation data in Europe and the UK this week, and these data also reflect that the inflation in these regions, including Japan, has rebounded. When the inflation in these major economies rebounds, their central banks will, to some extent, slow down their pace of interest rate cuts.
There May Be Opportunities for Speculation on the Slowing of Interest Rate Cuts in Non-US Economies
If the inflation data of the newly announced non-US economies rebounds and the employment data does not decline significantly and there is no risk of economic recession, we will see that non-US central banks may indicate in their attitudes that they are not in a hurry to cut interest rates quickly. For the Bank of Japan, it may also indicate that it will take interest rate hike actions in response to the rebound in inflation.
The Adjustment of Non-US Currencies May Not Mean a Real Rebound
That is to say, the view that the market has always held to support the strong dollar, that is, the Fed remains continuously hawkish and non-US central banks are dovish, may change this week.
If the latest Fed policy is not as hawkish as the market expected, and non-US central banks show that they are not in a hurry to cut interest rates, and the Bank of Japan even may further speculate on interest rate hikes, then the market will re-evaluate the previous situation of the continuous sharp decline of non-US currencies and the continuous sharp rise of the dollar, and then a pullback and consolidation may occur. However, this trend does not mean a real rebound of non-US currencies or a real decline of the dollar. It only reflects that the pressure accumulated due to the recent sharp strengthening of the dollar and the sharp decline of non-US currencies has been somewhat relieved, thus presenting a consolidation space.
If the dollar really shows a temporary adjustment and non-US currencies show a temporary rebound, we are certain that gold prices will be affected by these situations and show a small rebound.
There Are Opportunities for Gold Prices to Rebound by Leveraging the Situation
The support for this rebound includes several aspects. On the one hand, considering the past super-strong dollar, now that it is making a strong adjustment, this gives room for gold prices to rebound. At the same time, paying attention to geopolitical risks, combined with the year-end gold market and the Spring Festival gold market, these will also support a small rebound in gold prices. Of course, for the rhythm of this small rebound, we will pay attention to the subsequent newly announced employment and inflation data, as well as whether the Trump-related market situation will once again trigger strong dollar support. If there are extreme views in the market speculation on the Trump situation, it will also cause gold prices to face greater pullback pressure after a new round of rebounds.
Royal Capital once again reminds everyone that operations should focus on short-term trading. Enter the market based on the confirmed signals at that time, strictly abide by discipline, and set stop-losses. This way of operation will be more beneficial.
The Trend of the Strong Dollar Depends on the Actions of Central Banks
Firstly, the market is highly concerned about whether the strong dollar will continue. Currently, whether the strong dollar will further persist is closely related to the resolutions of the three major central banks. If after the Fed's interest rate meeting, the market interprets the Fed's future interest rate policy as hawkish, that is, the number of interest rate cuts is less than originally expected, and at the same time, non-US central banks show dovishness, then funds will flow into the US dollar and out of non-US currencies. Since the yen is an important non-US currency and the share of yen in circulation in the market is extremely large, many funds are borrowed in yen and then invested in other high-yield currencies, and interest rate differential trading will drive the strong dollar to show an even stronger development trend.
May Constitute an Environment for Multiple Attacks on Gold Prices?
Of course, if the Fed's future actions are expected to be hawkish, US bond yields will also rise. Combined with the strong dollar and the weakness of non-US currencies, in this case, gold will suffer triple blows. Besides being hit by the strength of the dollar and bond yields in speculative trading, it will also be hit by the weakness of non-US currencies in physical holdings. Of course, the market will also ferment and upgrade the speculation by leveraging the Trump situation. However, is the chance of such an extreme situation occurring high now?
The Market May Be Over-speculating Expectations
Regarding the impact of the market on the Fed's interest rate meeting, the Royal Capital Research Department believes that there is excessive speculation in the current market. It not only overly speculates on the benefits of the December interest rate cut but also overly imagines the possibility that the Fed's subsequent policy will turn hawkish, leading to a strong dollar. Of course, it also over-speculates on the future interest rate cut pace of non-US central banks and underestimates the Bank of Japan's intervention in the market.
The Fed's Result May Lack Direction
Even if the Fed implements an interest rate cut in December, it is expected to have little impact on the market. On the one hand, the action in December does not represent continued interest rate cuts in the future. On the other hand, the Trump administration's governance is full of uncertainties, and the Fed is also waiting and seeing.
The Dot Plot May Disappoint the Market
It is believed that the dot plot will still show that there will be opportunities for interest rate cuts next year, and the number of interest rate cuts may remain in the market-predicted range of 2 to 3 times. This will first hit the recent expectation that the Fed will only cut interest rates once next year and may hit the dollar in the short term.
Powell's Speech Is Expected to Be Ambiguous
Of course, the market will also expect to predict the Fed's future policy based on Powell's speech. However, we are certain that Powell's speech will most likely maintain the earlier tone, emphasizing that "the US economy is strong, the job market shows no problems, but the downward trend of inflation is unclear. Therefore, although the Fed is confident that inflation will return to the policy target level, it will not rush to cut interest rates in future decisions. Instead, it will pay attention to the performance of the latest data in the new round to evaluate the action expectations from January to March next year."
The Fed's decisions often have such a situation: when its statements cannot provide a clear direction for the market, it may not necessarily bring a dominant trend to the dollar. In this case, the direction of the dollar may depend on the new round of overall directions of non-US central banks. It is necessary to wait for the announcements of non-US central banks before the market compares whether there will be policy discrepancies between the Fed and non-US central banks.
The Direction of Funds May Depend on Non-US Central Banks
In the new cycle, whether it is the data to be announced soon or the relevant decisions of the Bank of England and the Bank of Japan, they may not be as dovish as the market originally expected. First, we see that there will be some employment and inflation data in Europe and the UK this week, and these data also reflect that the inflation in these regions, including Japan, has rebounded. When the inflation in these major economies rebounds, their central banks will, to some extent, slow down their pace of interest rate cuts.
There May Be Opportunities for Speculation on the Slowing of Interest Rate Cuts in Non-US Economies
If the inflation data of the newly announced non-US economies rebounds and the employment data does not decline significantly and there is no risk of economic recession, we will see that non-US central banks may indicate in their attitudes that they are not in a hurry to cut interest rates quickly. For the Bank of Japan, it may also indicate that it will take interest rate hike actions in response to the rebound in inflation.
The Adjustment of Non-US Currencies May Not Mean a Real Rebound
That is to say, the view that the market has always held to support the strong dollar, that is, the Fed remains continuously hawkish and non-US central banks are dovish, may change this week.
If the latest Fed policy is not as hawkish as the market expected, and non-US central banks show that they are not in a hurry to cut interest rates, and the Bank of Japan even may further speculate on interest rate hikes, then the market will re-evaluate the previous situation of the continuous sharp decline of non-US currencies and the continuous sharp rise of the dollar, and then a pullback and consolidation may occur. However, this trend does not mean a real rebound of non-US currencies or a real decline of the dollar. It only reflects that the pressure accumulated due to the recent sharp strengthening of the dollar and the sharp decline of non-US currencies has been somewhat relieved, thus presenting a consolidation space.
If the dollar really shows a temporary adjustment and non-US currencies show a temporary rebound, we are certain that gold prices will be affected by these situations and show a small rebound.
There Are Opportunities for Gold Prices to Rebound by Leveraging the Situation
The support for this rebound includes several aspects. On the one hand, considering the past super-strong dollar, now that it is making a strong adjustment, this gives room for gold prices to rebound. At the same time, paying attention to geopolitical risks, combined with the year-end gold market and the Spring Festival gold market, these will also support a small rebound in gold prices. Of course, for the rhythm of this small rebound, we will pay attention to the subsequent newly announced employment and inflation data, as well as whether the Trump-related market situation will once again trigger strong dollar support. If there are extreme views in the market speculation on the Trump situation, it will also cause gold prices to face greater pullback pressure after a new round of rebounds.
Royal Capital once again reminds everyone that operations should focus on short-term trading. Enter the market based on the confirmed signals at that time, strictly abide by discipline, and set stop-losses. This way of operation will be more beneficial.
