It is all about the Fed today and nothing else matters too much up until then.

As such, expect European trading to be more tense and on edge if anything else. The market will only commit to any real moves once we get to the Fed decision, so don't read much into what is transpiring at the moment.

The dollar is keeping relatively steady as it has done since the start of the week. But expect potentially more volatile movement to follow later in the day.

There will be a couple of key spots to watch when digesting the Fed decision. Omicron fears aren't likely to derail the Fed, so the important thing is whether they will step up the taper timeline. Besides that, the dot plots for next year will also offer some insight to the outlook among policymakers.

Sure, omicron may turn out to be more severe than feared at the end of the day. However, a quicker taper isn't going to put a stop to the recovery and the most pivotal thing is that it offers the Fed flexibility - in case omicron is milder than anticipated.

Given all the things in focus above, here are some key trade potentials:

  • Gold: Quite the obvious given the circumstances involving the dollar and yields. A more hawkish Fed is arguably going to weigh on the yellow metal, with the technicals already pinning it down. A push back towards the September lows around $1,721-22 may be on the cards in the above scenario. On the flip side, a more cowering Fed could provide an impetus for a push above $1,800. Add that technical move to favourable year-end seasonals, gold could really shine.
  • Stocks: Naturally, a quicker taper offers the option of quicker rate hikes. As such, a hawkish Fed will only serve to weigh on equities sentiment. That said, dip buyers have been quick to look past all of this in recent weeks and it wouldn't surprise me to see any major dips this week be bought up in the final two weeks.
  • Dollar: A bit more of a straightforward one here. A more hawkish Fed will allow the dollar to maintain its good form in the run up to the FOMC meeting. Considering stocks are likely to be hit in such a scenario, the dollar play is likely more attractive against commodity currencies; vice versa of course.

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