The USDIndex witnessed a modest decline on Wednesday of -0.59%. Lower T-note yields on Wednesday weakened the US Dollar. Also, the lack of clarity regarding the US debt ceiling weighed on the dollar after Treasury Secretary Yellen said the Treasury may run out of cash to pay its bills as soon as 1 June, unless the debt ceiling is raised. The dollar maintained a modest decline on Wednesday despite the Fed raising rates by 25 bp in line with forecasts, as well as economic data that tended to favour the dollar.
April ADP employment change rose +296,000, stronger than expectations of +150,000 and the largest gain in 9 months. April ISM services index rose +0.7 to 51.9, stronger than expectations of 51.8.
Although the FOMC raised the Fed funds target range by +25 bp from 5.00% to 5.25% as expected, the post meeting statement tended to be dovish and bearish for the dollar. The FOMC dropped previous language that signalled more rate hikes ahead and instead said that the Fed’s assessment of monetary policy and its effects would be ongoing and that for any move forward it would look at accumulating data.
Powell said that banking conditions have improved broadly since March. He projected for moderate economic growth, rather than a recession, although a mild recession might be possible. He added that the FOMC views inflation as falling “not very fast.” And it is not yet possible to cut interest rates.
Meanwhile, the US 10-year T-Note yield fell back below the 3.4% level, just below the one-month high of 3.6% touched on 19 April after the Federal Reserve raised interest rates by 25 bps as expected and signalled a potential pause in its 14-month tightening cycle.
Precious metals on Wednesday closed slightly higher, with gold posting a 2-week high. A weaker US Dollar on Wednesday supported metals prices. In addition, yesterday’s decline in global bond yields was bullish for metals. There was safe-haven support amid concerns about the health of the US banking system and as the US government moves closer to default without a debt ceiling extension. But opening the Asian morning session, XAUUSD surged by 2% creating a fresh YTD at 2079.28, before reverting back to the 2050 range ahead of the Tokyo open.
Technical Review
Gold printed a fresh YTD of 2079.28. XAUUSD has conquered the March 2020 resistance at 2070.24 and August 2020 resistance at 2075.08 thus forming a triple top. Medium-term support is currently at 1969.14 and for the short-term the 2012.31 price zone is still considered support. The RSI technical indicator is oscillating in the bullish range of 66, indicating saturation is yet to be found, moreover the MACD is again giving a signal crossover to the buy area.
Further upside movement is still projected for the FE100 at 2147.69 for the long term, drawn from 1616.55–1959.68 and 1804.56 prices. Meanwhile a drop below 1969.14 will signal the upside is complete, and the price will enter a corrective wave.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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