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Gold & USD Whipsaw as Fed Announces Average Inflation Targeting

Gold & USD Whipsaw as Fed Announces Average Inflation Targeting

Rich Dvorak, Analyst

FED CHAIR POWELL JACKSON HOLE SYMPOSIUM SPEECH SENDS GOLD PRICE SNAPPING HIGHER & USD/JPY TUMBLING LOWER ONLY TO REVERSE

  • Fed Chair Jerome Powell outlines revised central bank objectives for inflation targeting
  • Gold price rocketed higher initially in an attempt to resume its bullish trend
  • USD/JPY price action fell sharply then whipsawed with the broader US Dollar

Fed Chair Jerome Powell just took the podium at the annual Jackson Hole Symposium and has outlined changes to the central bank’s monetary policy framework. The Federal Reserve will now manage its monetary policy decisions using an average inflation target rather than a symmetric one. This could allow inflation to ‘run hot’ and overshoot the 2% objective following periods of subdued inflation below 2%.

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News out of Jackson Hole from Fed Chair Powell is fueling market volatility as expected. Gold prices surged and the US Dollar dropped immediately after the shift to average inflation targeting was announced, but the precious metal and world reserve currency have since whipsawed to reverse those moves.

GOLD PRICE CHART: 15-MINUTE TIME FRAME (26 AUG TO 27 AUG 2020)

Gold Price Chart Fed Jackson Hole Symposium Powell Speech Average Inflation Targeting

Chart created by @RichDvorakFX with TradingView

Gold price action was trading in the red prior to comments from Fed Chair Powell at the Jackson Hole Symposium, then spiked sharply higher into positive territory, but has since surrendered those gains and currently trades down about 1% intraday at the time of writing. Gold volatility seems to roughly mirror currency volatility endured by the broader US Dollar.

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Change in Longs Shorts OI
Daily -5% 10% -3%
Weekly 2% 0% 1%
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USD/JPY PRICE CHART: 15-MINUTE TIME FRAME (26 AUG TO 27 AUG 2020)

USD Price Chart Dollar to Yen Fed Chair Powell Speech Jackson Hole Inflation Targeting

USD/JPY price action declined notably as US Dollar weakening gained paced on the back of announced changes to the Federal Reserve’s policy framework. The Dollar-Yen dropped by 50-pips with its immediate reaction, which sent spot prices to the 105.60-level to take out prior session lows.

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On that note, US Treasury Yields slumped in the wake of Fed Chair Powell’s speech delivered just now at the Jackson Hole Symposium, and potentially explains momentary USD downside as the rate on 10-Year Treasuries briefly dipped to 65-basis points. Then again, as with the volatile swings in gold and the broader US Dollar, spot USD/JPY prices and 10-Year Treasury Yields whipsawed also and now looks to clear a zone of technical resistance around the 0.70% level. Additional remarks from the Fed Chair Powell speech like stating how the ‘inflation overshoot will be moderate’ could have catalyzed the round-trip by markets.

Keep Reading: Gold Price Forecast Bright & Volatile as USD, Real Yields Swing

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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