Gold through key upside resistance on dovish Fed, despite neutral Powell on U.S. economic outlook

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  • Gold prices are trading between $1,298.80 and $1,316.98, +0.44% on the day so far following a dovish Fed outcome and while Powell hosts the presser.
  • DXY dropped below the 96 handle, hitting a low of 95.76, currently down -.062% at 95.82 at the time of writing. 

Gold prices has been creeping higher this week, moving up from the lows of $1,292oz but struggling much through $1,310.91oz as the dollar firmed from the 96.30 lows and as markets got set for the Fed this week. 

As many economists expected, the event was dovish, with the Fed reiterating its patient stance – however, the outcome was somewhat more dovish than what the markets had been expecting and priced in for, and as a result, we have seen the dollar take a battering and gold flying high, piercing critical technical levels on the upside. 

Key notes from the Fed:

Federal Reserve cuts 2019 GDP forecast to 2.1% vs 2.3% in December.

The latest median Federal Reserve forecasts

  • 2019 GDP2.1%  vs 2.3% in Dec.
  • 2020 GDP 1.9% vs 2.0% in Dec.
  • 2021 GDP 1.8% vs 1.8% in Dec.

From the statement

Federal Reserve issues FOMC statement – March 20 – full text

  • On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent.
  • On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little change.
  • The Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
  • The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. 
  • In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

 – *Overall, that’s all rather dovish!

Fed’s chairman, Powell, is currently hosting a news conference and now taking questions.

Key comments so far:

  • Haven’t ‘convincingly achieved’ inflation target in symmetrical way;
  • – Not meeting inflation target is one of the reasons for being patient.
  • Looks like B/sheet will be ‘a bit above’ $3.5 tln;
  • B/sheet will be around 17% of gdp around end-2019 vs 25% at peak.
  • Banks are better capitalized compared to pre-crisis.
  • Public discussion needs to return to federal debt sustainability.
  • US economy is in a good place, goal is to sustain expansion.
  • Its a ‘great time to be patient’.
  • Data currently not sending signals on which direction rate policy should move.
  • Not dismissing weak retail sales figures.
  • Underlying economic fundamentals are ‘strong’;
  • – Financial conditions are ‘more accommodative’ compared with a couple of months ago.
  •  To make ‘additional adjustments’ to b/sheet plans if necessary.
  •  Reserve balances in sep could still be above what’s needed for efficient policy.
  •  Rate projections in September are not a committee decision.
  •  Patient means there’s no need to rush to judgement;
  • – Could be ‘some time’ before outlook calls for policy change;
  •  Brexit, trade negotiations pose risks.
  • Average monthly job growth appears to have stepped down;
  • – Many other labour market indicators show strength;
  • -Weak retail sales points to slower spending.
  • Overarching goal is to sustain us expansion;
  • – Jobs market is strong;
  • – Fed expects us economy to grow at solid pace in 2019;
  • – Some developments at home and around the world require fed’s attention;
  • – Reiterates patient stance.
  • – Data since September shows slower than expected growth;
  • – Growth has slowed notably in Europe and China;
  • – Limited data for this year has been mixed.

Gold levels

Bulls were targeted 1315 ahead of the Fed, which has been surpassed now, where it meets the trend-line prior support of the rising channel – 1313 was the 50% Fibo target which has now been conquered in this recent bout of demand post dovish Fed. On the next leg up,1332 guards the 2019 highs as being the 19th Feb high of 1345.19. To the downside, 1302 is key ahead of 1298, 1290 while 1280 is a keen target. Below there, 1275 remains the line in the sand to the downside, and a break below it will put the attention back to the towards to 1250, a key confluence area made up of Fibos and prior support and resistance.

 

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