Forex, Commodity Markets Rangebound Ahead of Fed Minutes

Forex and commodity markets traded in narrow ranges on Wednesday as investors stood on the sidelines waiting for the release of the U.S. Federal Reserve minutes later today at 2:00 p.m. ET. The light volume and low volatility reflected the uncertainty of the minutes. Investors will be looking for clues on when the central bank will start to raise interest rates.

If the minutes show the Fed discussed an exit strategy and timetable for its first interest rate hike in years then look for the U.S. Dollar to rally, pressuring foreign currencies and commodities.

If the Fed offers no clarity on the future of interest rates then currencies and commodities should firm with the U.S. Dollar taking a hit.

The minutes are based on the Fed’s June 17 – 18 meeting. Since then the U.S. has added more jobs according to last week’s Non-Farm Payrolls report. Because of this, some traders feel the minutes will be a non-event because the information is stale.

The EUR/USD was under pressure on Wednesday as investors awaited a keynote speech from European Central Bank President Mario Draghi. He is expected to try to talk down the Euro. Many economists believe the higher priced Euro is curtailing economic activity which is putting pressure on Euro Zone inflation.

The GBP/USD also traded lower today. According to Goldman Sachs, the rapid rise in the British Pound could hurt the economy. Recently, a gauge of inflation expectations dropped to a three-month low while the currency was surging to a 6 year high. This could be a sign that the high priced Sterling is weighing on economic growth.

Today, a report from the British Retail Consortium showed that U.K. shop prices declined 1.8 percent in June from a year earlier.  Yesterday, a report showed manufacturing unexpectedly declined 1.3 percent in May. This was the biggest drop in 16 months.

August Comex Gold futures found support today because of the uncertainty over the Fed minutes. As the dollar weakened, foreign demand for gold rose. Gold could get stronger if the Fed minutes reveal it has no timetable for hiking rates. If the minutes reveal the Fed discussed when it was likely to raise rates, gold could plunge. The key support is $1316.00. This level must hold or the market could collapse down to $1296.00.

August crude oil was under pressure because the oilfields in southern Iraq remained untouched by the military activity taking place in the country. News that Libya would increase exports also weighed on the market.

Last night, the American Petroleum Institute said that oil inventories fell by 1.7 million barrels. Analysts were looking for a drawdown of 876,000 barrels. Today, the Energy Information Administration supply and demand data is expected to reveal that inventories dropped by 2.15 million barrels the week-ended July 4.