Markets Tank on Fed Rate Cut
The Federal Reserve Bank cut interest rates for the first time in more than a decade. The Fed funds rates were lowered to 2.0%-2.25% on Wednesday. Fed Chair Jerome Powell cautioned that the rate cut was not the start of an easing bias, but merely a mid-cycle adjustment. This was seen to be less dovish than anticipated, pulling down major markets by close of the day. Gold fell 1.31% while the S&P500 and the Dow Jones Index fell 1.23% and 1.09% respectively. The US dollar index rose to a new two-year high, currently at 98.60.
Euro Slips to New Two-Year Low
The common currency extended declines on the back of a stronger greenback. The euro fell to 1.1032 before closing the day at 1.1040. This marked a new two-year low in the currency pair. Earlier in the day, flash GDP estimates for the second quarter showed that the EU economy grew just 0.2%, down from 0.4% in the first quarter.
EURUSD at Risk of Further Declines
The downside breakout in the currency pair has sent the EURUSD to break past the trend line as well. In the near term, we could expect to see some consolidation, but further declines are expected. An unfilled gap from April 2017 near 1.0725 remains the next major support to the downside.
Crude Oil Recovers from Recent Slump
WTI Crude oil prices were seen posting some modest gains, recovering off the lows at 55.50. The modest recovery in oil prices came amid mixed fundamentals. While on one hand oil prices were under pressure due to a stronger USD, the ongoing tensions with Iran have offset the declines. This has kept oil prices flat for the most part over the week.
Will WTI Crude Oil Extend Gains?
With oil prices reclaiming the 57.50 level of resistance, we now expect the upside to prevail. However, this remains the case as long as the resistance level of 57.50 acts as support. The upside resistance now is back at the 60.00 handle. We could expect to see gradual gains. A break down below 57.50 could keep price declines limited to the 54.00 handle.
Gold Slips to a Two-Week Low
The precious metal closed bearish by Wednesday’s close of business. This came amid the Fed’s forward guidance which was less dovish than expected. Gold prices had previously priced in the Fed rate cut and maintained gains in anticipation that further rate cuts could be required down the line.
XAUUSD Could Turn Flat
Following Wednesday’s price action, gold prices have touched down to the lower support at 1404. This could potentially keep the precious metal to move flat in the near term. The upper resistance at 1431–1428 could keep a lid on the gains. A breakout from either of these levels is required to establish further direction.