Federal Reserve policy statement surprised market with a dovish tone and led to a broad based USD sell-off.
Heading into the event, a significant majority was expecting Fed to come out hawkish. Fed was expected to back track from its December view of four rate hikes this year, but what came through was more dovish than expected. Fed now sees only two rates hikes this year (compared to four rate hikes seen in Dec) and Yellen’s tone indicates Fed five up on tightening this year if situation warrants.
Consequently, not only USD longs initiated in anticipation of hawkish Fed were squared off, but fresh shorts were initiated as well. The result was rally in majors against USD, EM currencies, commodities (energy, precious metals).
However, Gold has underperformed
- Most majors clocked more than 2% gains against the US dollar
- EM currencies rallied as well to fresh multi-week/multi-month highs against the USD
- Moreover, most majors chewed through cyclical highs (set before Fed) amid dollar selling frenzy, except EUR/USD which rallied, but fell just short of taking out 1.1376. The post Fed high stands at 1.1342.
Compared to other currencies, Gold has underperformed. The metal spiked after Fed from around $1230 to $1270, but has trimmed gains to trade around $1250 levels.
Prices did not even near the latest cyclical high of $1283.
The price action/underperformance of gold is quite surprising, since the metal is extremely sensitive to policy tightening/policy easing.
Similar underperformance was noted last Friday via the post “Gold bearish development on charts ahead of Fed†despite ECB’s bazooka.
Overall, the price action/underperformance may be an indication a corrective move is due. One reason for underperformance may be central banks stating the negative rates cannot fall beyond certain limit. Still, failure to even test latest cyclical high on dovish Fed could be a strong indication of a correction in the coming week.
Technicals- Bearish price-RSI divergence intact
- Daily chart shows the negative price-RSI divergence established last week remains intact
- Prices have failed to sustain above $1263 (monthly 100-MA hurdle) despite USD sell-off
- Daily RSI stays in downtrend
Outlook - Hence, odds of prices breaching $1226 (23.6% of Dec low-Mar high) support and testing bids around $1200 are high in next few days. On the other hand, a reversal from here if followed by a break above $1270 would open doors for a rise to $1290 levels (divergence trend line). Only a daily close above $1290 would signal scope for extension of bullish move that began from December low.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to gains near 1.0700, awaits key US data
EUR/USD clings to gains near the 1.0700 level in early Europe on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
USD/JPY keeps pushing higher, eyes 156.00 ahead of US GDP data
USD/JPY keeps breaking into its highest chart territory since June of 1990 early Thursday, recapturing 155.50 for the first time in 34 years as the Japanese Yen remains vulnerable, despite looming intervention risks. The focus shifts to Thursday's US GDP report and the BoJ decision on Friday.
Gold closes below key $2,318 support, US GDP holds the key
Gold price is breathing a sigh of relief early Thursday after testing offers near $2,315 once again. Broad risk-aversion seems to be helping Gold find a floor, as traders refrain from placing any fresh directional bets on the bright metal ahead of the preliminary reading of the US first-quarter GDP due later on Thursday.
Injective price weakness persists despite over 5.9 million INJ tokens burned
Injective price is trading with a bearish bias, stuck in the lower section of the market range. The bearish outlook abounds despite the network's deflationary efforts to pump the price.
Meta takes a guidance slide amidst the battle between yields and earnings
Meta's disappointing outlook cast doubt on whether the market's enthusiasm for artificial intelligence. Investors now brace for significant macroeconomic challenges ahead, particularly with the release of first-quarter GDP data.