USD Soars on Fed, Gold Price Cleared Support on Less Dovish Powell

Asia Pacific Market Open Talking Points

• US Dollar, bond yields soar as Federal Reserve surprises less dovish and S&P 500 sinks

• Anti-fiat gold prices fell, increasing risk of a top after rising support from June gave way

• Asia Pacific markets may follow Wall Street lower as USD gains extend, AUD weakens

Not sure where gold is heading next？ Check out the third quarter fundamental and technical forecast!

Fed Disappoints as Financial Markets Succumb to Risk Aversion

For the first time since 2008, the Federal Reserve has reduced benchmark lending rates in the worlds largest economy. Yet the US Dollar and government bond yields rallied, picking up pace as Chair Jerome Powell held his press conference after the 25 basis point rate cut. Based on his commentary and voting by policy setters, it was clear that the markets were left wanting more on a less-dovish central bank.

The most notable point that Mr Powell arguably made was that Wednesdays action was not the beginning of a lengthy cutting cycle. This is even as the central bank pauses the unwinding of its balance sheet two months early on August 1. Rather, their actions had more to do with being preventative maintenance to sustain growth that is at risk to global uncertainties, trade wars and inflation undershooting estimates.

Equities took a hit, with the S&P 500 clearing a near-term rising support channel. This is also despite US-China trade talks concluding in Shanghai. Markets were unimpressed, as anticipated, when earlier today the two nations reported discussed topics such as agricultural trade and the US reported negotiations as “constructive”. Meanwhile, anti-fiat gold prices sunk as the appeal of non-interest-bearing assets faded.

Gold Technical Analysis

Taking a closer look at XAU/USD, the precious metal once again finds itself under the near-term rising support line from June. As mentioned in this weeks gold technical forecast, confirming further closes below this trend line opens the door to a top that has been in the making since the Bearish Engulfing candlestick earlier in July. The next area of support from here appears to be 1381.91, just under March 2014 highs.

To add to this bearish argument, the latest readings from IG Client Sentiment are offering a gold-bearish contrarian trading bias. To learn more about how to use sentiment in your own trading strategy, join me each week on Wednesdays at 00:00 GMT as I uncover what IG Client Sentiment has to say about the prevailing trends in financial markets and follow me on Twitter here @ddubrovskyFX for timely updates!

XAU/USD – Chart of the Day

Thursdays Asia Pacific Trading Session

With that in mind, S&P 500 futures are pointing notably lower heading into Thursdays Asia Pacific trading session. This may translate into further risk aversion which may benefit the anti-risk Japanese Yen and highly-liquid US Dollar. The pro-risk Australian Dollar is thus left vulnerable as it also eyes upcoming Caixin Chinese Manufacturing PMI data given the RBAs data-dependent approach.