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Fed Leaves Rates, QE Unchanged, FOMC Sees 2 Rate Hikes in 2023

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  • Fed's Powell: - We expect the current high inflation readings will begin to decline - In inflation expectations increase, contrary to our base case, we will take steps to reduce them
  • rally started about 15 mins into the presser but stocks are really liking what Powell has been saying $NQ hasn't quite clawed back the entirety of the move but, its been a one way train past half hour $NAS $QQQ https://t.co/npB1zLrDyr https://t.co/MWOGdfXsTi
  • If you're watching the Dollar, keep an eye on $USDBRL with the Brazilian central bank rate decision due in a little with an expected 75bp rate hike
  • I think Powell is right about a stronger labor market coming down the pipeline: - UI ends - schools reopened fully - vaccination rates increase - lockdown/distancing measures lifted
  • Fed's Powell: We are working on a supplementary leverage ratio, but there is nothing specific to share at this time
  • $ES +25 from the lows https://t.co/eOczEOlBXu https://t.co/DkocBjcOVS
  • Fed's Powell: - We are seeing wage increases, but nothing to be concerned about - In the coming months, we believe supply and demand in the labor market can match
  • Fed's Powell: - There is no single number or metric that can be used to evaluate the labor market - We have to be cautious when determining "full jobs"
  • USD Next Major Resistance Nearby - #DXY chart https://t.co/59wf7hkM2r
  • It's fairly evident that Powell cares deeply about the labor market mandate. There is still a great deal of slack. According to the Atlanta Fed's Jobs Calculator, for the economy to get back to its January 2020 state (63.4% LFPR, 3.5% U3) it will take ~+740K NFP/month. https://t.co/vGcC7BNEre
Gold Price Drops as US Treasury Yields Push Higher

Gold Price Drops as US Treasury Yields Push Higher

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- A stronger US Dollar on the back of higher US Treasury yields (both nominal and real) has paved the way for lower Gold prices.

- Gold’s symmetrical triangle, previously eying topside resolution, has failed and broken to the downside.

- Sentiment for the US Dollarhas started to turn contrarian bullishmidway though Q2’18.

For longer-term technical and fundamental analysis, and to view DailyFX analysts’ top trading ideas for 2018, check out the DailyFX Trading Guides page.

Gold prices broke below their March 1 swing low at 1302.68 today, setting up a break to fresh 2018 lows and a break of the symmetrical triangle in place since mid-January all in one fell swoop.

Concurrently, the break of the uptrend from the December 2016, July 2017, and March 2018 has now definitely broken to the downside, after the failed return to the trendline last week. Now, bearish momentum is accelerating, with Gold prices below their daily 8-, 13-, and 21-EMAs, and both MACD and Slow Stochastics trending lower in bearish territory.

Gold Price: Daily Timeframe (September 2016 to April 2018) (Chart 1)

Gold Price Drops as US Treasury Yields Push Higher

What has been the catalyst to this break lower by bullion? A stronger US Dollar on the back of higher US Treasury yields (both nominal and real) has paved the way for lower Gold prices.

Gold Price versus US Real 10-year Yield: Daily Timeframe (May 2017 to May 2018) (Chart 2)

Gold Price Drops as US Treasury Yields Push Higher

Presently, rising US real yields means that the spread between Treasury yields and inflation rates are increasing. If Gold yields nothing, has an estimated cost of carry of -2.4%, and only can return capital appreciation, it faces a difficult situation when US real yields rise.

That is, gold’s appeal as an inflation hedge relative to the US Dollar increases not in an environment when inflation is just rising, but when inflation is rising and nominal interest rates are not rising at the same pace; or in sum when US real interest rates are dropping. This has not been the case.

Currently, the 50-day correlation between Gold prices and the US real 10-year yield has reached its strongest negative correlation since the end of November 2017. That’s to say that as US Treasury yields continue to push higher, assuming inflation stays at its same rate or drops, then US real yields will continue to rise, undercutting Gold’s price even further.

Read more: US Dollar Pacing to Fresh Yearly Highs as US Yields Jump

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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