This morning’s Wall Street open has been a tough one for equities bulls, with the U.S. indices trading in the red. Negative sentiment is on display as traders brace themselves for the pending release of the FOMC Minutes. Commodities are also in limbo as gold and WTI crude oil are showing weakness.

It is always a guessing game concerning the commentary of central bankers as they tend to speak in vague terms. Nonetheless, the stated FED policy is one of “tightening.” The only question that remains is just how aggressive the tightening will be and if “hawkish” becomes the word of the day.

Gold Technicals

In a trade recommendation from Tuesday, a short setup was outlined for June gold futures. The play was a resounding success, with price posting an exact test and rejection of the defined 38% Fibonacci retracement (1298.4).

As you can see by the blue arrows on the chart, we have a definitive “L” formation set up on the daily time frame. An “L” pattern occurs when a strong downtrend gives way to sideways consolidation. This is a fairly common occurrence in the forex and futures markets.

For now, there are only two technical levels that I will be looking at ahead of the FOMC:

• Resistance(1): 38% Retracement of Current Wave, 1298.4
• Support(1): Swing Low, 1281.2

Overview: Typically, L patterns are best traded using a strategy designed with rotational price action in mind. Fading the extremes of the daily range back toward the value area of 1290.0 is a solid plan. However, with the FOMC Minutes coming up shortly, a “safety first” policy may be best.

Markets that become compressed eventually break out — fundamentals such as today’s FOMC release are often the reason why. Observing the FOMC and game-planning for the Thursday/Friday sessions in gold is a positive approach for the next 48 hours.