The Fed dovish hike is weighing on the USD.
Trump should announce tariffs on China this Thursday.

Gold is trading at around the 1330 mark, virtually unchanged so far on the day. On Wednesday the Fed failed to surprise the market. As a matter of fact, the market was surprised to see only two more rate hikes in 2018 as opposed to three. The market reaction was one-sided across the board: sell USD. 

The Fed did raise the target range for the federal funds rate by 25 basis points to 1.50%-1.75% as it was widely anticipated. Although the Fed was optimistic about the economic outlook by adding one more rate hike for 2019-2020, the Fed remained dovishly cautious by only announcing two rates hike in 2018 as already mentioned above. 

Adding pressure to the US dollar is Donald Trump which said he is getting ready to impose tariffs on Chinese products worth around $60 billion. The protectionists’ measures are broadly seen as US dollar negative. The Chinese tariffs should be officialized this Thursday. Mr. Trump says the objective is to “curb theft of US technology”. China said they would respond by implementing tariffs as well, therefore increasing the odds of a global trade war. 

Earlier in the US session Continuing jobless claim came a little better than expected while initial jobless claims in March disappointed.

Gold daily chart 

Gold had a bull breakout on the FOMC announcement and since then it is consolidating around the 1330 psychological mark. As mentioned yesterday, the bull trend is still intact as market participants are likely digesting the events of yesterday with the FOMC. 

Gold 4-hour chart

The bulls broke above both the 100 and 200-period simple moving averages. The market is having a small pullback to the 200-period SMA coiling around the 23% Fibonacci retracement from the last bull leg. So far the pullback looks healthy for bulls as bears are not displaying aggressive attacks so far. However, traders have to keep in mind that the DXY has found some support in the EU session and is grinding higher on the day. Intraday support on Gold is seen at 1325 with the 100 SMA and at 1319 which is the 61.8% Fibo. To the upside, resistance is seen at 1337 high of the day. If that level is taken out, it would likely open the gates to higher prices seen in the 1360.00 region, the previous high for the year.It looks like Gold prices are mainly dictated by what the USD does.

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The pair keeps the negative territory above the 1.2300 handle so far.
The greenback is now bid and looing to regain the 89.80 area.
US 10-year yields extend the drop to 2.81% zone.

The selling pressure stays unabated around the European currency during the second half of the week and is now prompting EUR/USD to navigate the 1.2320/15 band.

EUR/USD faltered ahead of 1.2400, looks to EU Summit

Spot is prolonging the choppy trade so far this week, coming down to the low-1.2300s after the earlier bullish attempt run out of legs ahead of the key resistance line off 2018 tops, today in the 1.2380/85 band.

Adding to the weak note surrounding EUR, advanced PMIs in core Euroland for the current month came in below initial estimates along with weaker results from the German IFO for the month of March.

It is worth mentioning that spot gained traction as of late as market participants perceived yesterday’s move on rates by the Federal Reserve as dovish, disappointing expectations of a more aggressive rate path for the current year.

In the US docket, Initial Claims rose 229K WoW, taking the 4-Week Average to 223.75K from 221.50K. Additionally, Markit’s Manufacturing PMI came in at 55.7, a tad below consensus albeit higher than February’s 55.3.

EUR/USD levels to watch

At the moment, the pair is losing 0.16% at 1.2318 facing immediate contention at 1.2241 (low Mar.21) seconded by 1.2206 (low Feb.9) and finally 1.2165 (low Jan.18). On the flip side, a break above 1.2388 (high Mar.22) would aim for 1.2414 (high Mar.14) and then 1.2448 (high Mar.8).

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Major US equity indices opened sharply lower on Thursday amid renewed concerns over the US President Donald Trump’s protectionist stance. 

Trump’s proposed trade duties on China imports stoked fresh fears about a full-blown trade war between the world’s two largest economies and is expected to negatively impact economic growth.

Also collaborating to the downbeat sentiment was the ongoing weakness in technology stocks, led by Facebook’s data privacy issue. Investors also digested the latest Fed monetary policy update, wherein the central bank delivered a 25 basis points hike but failed to offer a clear signal over its policy path going forward.

During the opening hour of trade, the Dow Jones Industrial Average lost over 250-points to 24,432 and the broader S&P 500 Index slipped around 25-points to 2,687. Meanwhile, tech-heavy Nasdaq Composite Index dropped nearly 70-points and retreated farther below the 7,300 mark.

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The Bank of England left its policy settings unchanged at today’s meeting, but the vote to maintain the Bank rate at 0.50% was only a 7-2 vote, which could be perceived as hawkish, but the two dissenters – Saunders and McCafferty – are not new to this game, explains the research team at Rabobank.

Key Quotes

“There wasn’t much new in the policy statement. Given the market’s strong beliefs about a rate hike in May, we would argue that the Bank’s silence gives consent.”

“Given the reduced tolerance for above-target inflation, we expect the Bank of England to aim for a second hike in November. This call is – however – on the premise that there will be relatively smooth trade talks between the EU and the UK and a sustained pick-up in wage inflation.”

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FX Strategists at UOB Group shifted their outlook to neutral from bearish, while further consolidation is expected in the near term.

Key Quotes

24-hour view: “While we highlighted the weak downward momentum yesterday and were of the view that a break of 0.7650 is unlikely, the subsequent sharp and swift rally from a low of 0.7672 was unexpected. Upward momentum remains strong and a move above the overnight high of 0.7780 could lead to another up-leg towards 0.7810. At this stage, we do not anticipate a sustained move above this level. Support is at 0.7745 followed by 0.7710”.

Next 1-3 week: “The shift to a bearish stance yesterday was ill-timed as AUD staged a surprisingly strong rally and took out the ‘stop-loss’ level at 0.7770. The 0.7672 low yesterday is likely a short-term bottom and the current movement is viewed as the start of consolidation phase. In other words, AUD is expected to trade sideways for now, likely within a broad 0.7680/0.7860 range”.

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