2025’s First FOMC Countdown: What You Need to Know

Preparing for the FOMC Decision – January 2025

As the Federal Open Market Committee (FOMC) decision looms next week, market participants are bracing for heightened volatility across key assets, including Gold (XAU/USD), the US Dollar Index (DXY), and Crude Oil.

The balance between inflation control and economic growth expectations will shape the post-FOMC market reaction. Recent price action already reflects positioning for these outcomes, especially in Gold and the Dollar. The FOMC’s policy direction is expected to significantly impact global markets, primarily as traders assess the balance between inflation control and economic growth.

Gold (XAU/USD): Testing Key Resistance

Gold remains on a bullish trajectory, trading near $2,782. The chart shows a series of higher lows, indicative of strong buyer support. The most recent candle has tested resistance near $2,800 but has yet to break above convincingly. Recent price action reflects a strong recovery from pullbacks, with higher highs and higher lows reinforcing upward momentum.

This rally has been fueled by Dollar weakness and persistent risk aversion, as investors hedge against macroeconomic uncertainty. This aligns with the sharp decline in the DXY earlier this week, as a weaker Dollar increases demand for non-yielding assets like Gold. As the FOMC decision approaches, Gold's direction will largely depend on the Federal Reserve's tone and policy stance.

What Could Drive Gold Next?

1. Hold/Pause (Most Likely Outcome):

According to the CME FedWatch Tool, the majority of market participants are pricing in a high probability of the Federal Reserve maintaining current rates in the upcoming FOMC meeting. If the Fed signals a hold, this could support Gold's current bullish momentum by keeping the Dollar under pressure.

In this scenario, Gold is likely to test and possibly break above the $2,800 resistance level, potentially paving the way for a rally toward $2,850 as investors seek safe-haven assets amid ongoing economic uncertainty. A hold would reinforce the view that the Fed is cautiously balancing inflation control with sustaining economic growth.

2. Rate Cut (Unlikely but Impactful):

The probability of a rate cut is currently very low (0.25% as of the latest CME FedWatch data). However, should the Fed unexpectedly cut rates, it could lead to a significant market reaction. A cut would sharply weaken the US Dollar, potentially triggering a surge in Gold prices well above $2,850, as the move would signal increased dovishness and heightened concerns over economic risks.

This scenario would likely lead to a flight to safety, further amplifying Gold's attractiveness as a hedge against Dollar depreciation and financial instability.

US Dollar Index (DXY): Eyeing a Reversal

The DXY is currently trading near 107.48, showing signs of stabilization after a sharp decline earlier this week. On January 23rd BST, the index experienced a steep selloff, but a modest recovery has since emerged as buyers attempt to defend key support levels. Resistance remains firmly at 108.20, a significant threshold marked by the highs of January 22nd, while short-term support has been established around 107.00, where buyers could be stepping in to curb further downside.

After a sharp decline to 107.00 earlier this week, the DXY is stabilizing near 107.48. The chart reveals a sharp selloff on January 23rd, followed by a modest recovery as buyers attempt to defend key support levels.

The upcoming FOMC decision will be pivotal in determining the Dollar's trajectory. A hawkish stance from the Federal Reserve, emphasizing tighter financial conditions, could still provide some support for the DXY. However, the key driver for recent USD appreciation has been the anticipation of Trump's proposed tariffs on China.

If detailed tariffs are announced next week, traders should prepare for heightened volatility in the Dollar. Such an announcement could further boost the DXY as markets price in the economic implications of stricter trade measures. Monitoring trade-sensitive sectors and geopolitical developments will be critical for navigating the impact on the USD.

Conversely, a dovish tone from the Fed, signalling a pause or slowdown in rate hikes, could prolong Dollar weakness. Traders should also keep an eye on US Treasury yields, as a decline in the 10-year yield could exacerbate Dollar weakness, increasing downside pressure. This would increase the likelihood of the DXY breaking below the key 107.00 support level, creating an environment more favourable for Gold and other USD-denominated assets.

As the FOMC decision draws closer, traders should closely monitor the DXY's ability to hold support at 107.00 or break through resistance at 108.20, as these levels will provide crucial insights into the market's response to the Fed's policy direction.

Crude Oil (USOIL): Range-Bound but Vulnerable

Crude Oil prices are trading near $76 per barrel, holding within a narrow range as market participants await clarity from the upcoming FOMC decision. The chart highlights a clear range between $76 and $78, with a recent bounce off the $75.50 support level. However, momentum indicators suggest that the current recovery remains weak. While the Federal Reserve's policy may not directly target the Oil market, its influence on the US Dollar and global economic sentiment could significantly affect demand dynamics.

If the Fed adopts a hawkish stance, leading to a stronger Dollar, Oil prices could come under pressure. Additionally, Crude Oil’s correlation with risk sentiment means it could see further pressure if equities weaken post-FOMC. A stronger Dollar typically makes Oil more expensive for international buyers, reducing demand and weighing on prices. On the other hand, a dovish Fed could weaken the Dollar, providing support for Crude Oil. In this scenario, prices might test the upper end of the range near $78 as optimism over economic growth and affordability improves.

As the FOMC decision approaches, traders should closely watch whether Oil can break out of its current range, with $76 serving as a critical support level and $78 as the key resistance zone. The interplay between Dollar strength and demand expectations will likely dictate the next significant move.

Volatility Ahead: Preparing for the FOMC Decision

The Federal Reserve’s upcoming policy announcement is expected to trigger significant market movements. The sharp price moves visible in recent charts for Gold, DXY, and Crude Oil underline traders’ sensitivity to policy expectations. Traders should prepare for heightened volatility across Gold, the DXY, and Crude Oil, as any shifts in tone or policy direction could sharply impact asset prices. With implied volatility indicators spiking across asset classes, traders should consider hedging strategies to manage risk ahead of the announcement.

Key Levels to Watch:

· Gold (XAU/USD):?$2,750 (support) and $2,800 (resistance) will be pivotal as the upward trend holds.

· DXY:?Stabilization around 107.00 is critical, with potential breakouts toward 108.20 or risks of a deeper decline.

· Crude Oil:?Monitor the $76-$78 range for signs of a breakout driven by Dollar strength or weakness.

Disclaimer:

The information contained in this market commentary is of general nature only and does not take into account your objectives, financial situation or needs. You are strongly recommended to seek independent financial advice before making any investment decisions.

Trading margin forex and CFDs carries a high level of risk and may not be suitable for all investors. Investors could experience losses in excess of total deposits. You do not have ownership of the underlying assets. AC Capital Market (V) Ltd is the product issuer and distributor. Please read and consider our Product Disclosure Statement and Terms and Conditions, and fully understand the risks involved before deciding to acquire any of the financial products provided by us.

The content of this market commentary is owned by AC Capital Market (V) Ltd. Any illegal reproduction of this content will result in immediate legal action.