The Federal Reserve is widely expected to stand pat when it announces its decision at 18:00 GMT. Officials raised interest rates at the March meeting to a range between 0.75% and 1% and pointed to two more rate hikes this year.

Key points to note ahead of the Fed meeting

Q1 economic weakness is seasonal: The first quarter is usually the weakest in the US; hence the policy makers are more likely to look through the recent signs of economic slowdown. Craig Erlam, Senior Market Analyst at Oanda, while talking to Tip TV said the economic slowdown seen in the first quarter is more of an illusion and we are likely to see a rebound in the second quarter… Moreover, this has been a pattern for last five years.

Fed policymakers have made it clear via public appearances. "Something that looks like 1% in the first quarter… it might be actually more like 2% in reality," said New York Fed President William Dudley after a speech in New York on April 7.

Trump slump is gathering pace: This could be a concern for the Fed. Don’t forget it was the Chinese PPI and Trumpflation that paved way for two rates hikes in three months. As Helen Thomas, CEO of Blonde Money & an ex-adviser to former Chancellor of the Exchequer George Osborne said on Tip TV’s Hedge Show… “Chinese PPI remains at the center stage”.

However, there are signs the inflation may have peaked in China and advanced across the World. Furthermore, Trump slump is gathering pace as suggested by the falling US inflation expectations, Treasury yields and the sell-off in iron ore. This is because the market is increasingly worried about Trump’s ability to get things done on the fiscal front.

Equities are still holding up well: French election relief ensured the equities remained well bid in the US and across the globe. There is little to worry on this front for now. But things could change if Le Pen shocks market with a victory in the round two of French elections this Sunday. Moreover, the equity rally in the US is also due to strong earnings. John Eade, President of Argus Research has reiterated often in his appearances on Tip TV that earnings are likely to remain strong.

June rate hike is definitely on the cards:  CME data show June probability stands at 70%. This is well above the 60% mark that Fed usually desires before pushing the rates higher. That makes sense as high probability means markets can digest a rate hike.

The interest rate hike isn’t a story anymore: A rate hike is no longer a story. This is evident from the fact that a very little attention has been paid to the June rate hike probability. As Jeremy Stretch from CIBC said while talking to Tip TV, “The Fed policy has been literally pushed onto the sidelines”.

Markets are under appreciating the possibility of Fed trimming its balance sheet: The minutes of the March meeting showed the policy makers are considering trimming the balance sheet size. The central bank may stop reinvesting the proceeds of the bond holding this year, followed by selling its bond holdings over the next couple of years.

What to expect of Fed?

• Fed more likely to look through the Q1 economic weakness
• May talk about risks from the government’s failure to get things done on the fiscal front
• Talk about risks from overseas factor
• Fed may drop a hint of a June rate hike (moderately bullish for USD)
• Policymakers may talk about reducing the balance sheet (bullish for the USD, bearish for Gold)

Gold - Watch out for breach of the rising trendline

Daily chart

(Click on image to enlarge)

• Failure at the resistance offered by the downward sloping trend line drawn from 2011 high and 2012 high would if followed by a close below the rising trendline support on the daily chart would open doors for a sell-off to $1197.20 (Mar 14 low).
• The rising trend line is seen offering support around $1241.
• The trend line could be breached if the Fed points to June rate hike and/or talks about balance sheet reduction.
• On the other hand, expect a sharp rebound if the Fed kills June rate hike bets. The resulting rally would lead to the golden crossover (bullish 50-DMA & 200-DMA crossover) and open up upside towards $1270.94 (Apr 7 high).