On Thursday (September 19), the US dollar index rebounded to 101.02, gold rose first and then fell to $2,557, and Bitcoin broke through $62,000. The Federal Reserve voted overwhelmingly to cut interest rates by 50 basis points and further cut interest rates on schedule. The sharp rate cut was basically in line with expectations. Fed Chairman Powell called the move "timely", but emphasized that policymakers were not in a hurry to cut interest rates sharply, suppressing precious metal buying. Hezbollah in Lebanon suffered a second round of serious explosions, and the United States denied any connection with the incident.
The Federal Reserve's "high vote" decision to cut interest rates by 50 basis points, Powell boosted dovish sentiment
The Fed voted 11-1 to slash interest rates by 50 basis points and signaled further monetary easing this year, with Fed Governor Michelle Bowman dissenting and voting in favor of a 25 basis point rate cut. The rate cut was the first reduction in the Fed's overnight policy rate since March 2020, bringing the current rate to a target range of 4.75-5.00%.
Such a large rate cut should not attract too much attention as it was largely in line with currency markets' expectations, with around a 60% probability priced in before the event. The initial reaction was a weaker dollar, with the dollar index trading at a new year-to-date low on the daily chart, below range support. U.S. Treasury yields also moved lower, and gold was sought after by buyers.
The accompanying rate statement noted that while inflation pressures remain "modestly elevated," the committee is "more confident" that inflation is moving toward the Fed's 2.0% inflation objective. It added: "The risks to achieving our employment and inflation objectives are roughly balanced."
The statement did not explicitly explain why the Fed chose to cut rates by 50 basis points, but it did add the following sentence: "The committee is firmly committed to supporting maximum employment," which echoes what Fed Chairman Jerome Powell said in his speech at Jackson Hole last month: "We neither seek nor welcome a further cooling of labor market conditions, and we will do everything we can to support a strong labor market."
In addition, the Fed’s Summary of Economic Projections (SEP) shows that the Fed will cut interest rates by another 50 basis points from current levels by the end of the year. However, as of this writing, the money market does not agree with the 50 basis point rate cut expectations; investors still prefer a 75 basis point rate cut by the end of the year.
Fed officials raised the unemployment rate to 4.4% from 4.0% in the last update in June, in their forecasts for 2024. The PCE inflation forecast was lowered to 2.3% from 2.6% (prior), the core PCE inflation forecast was lowered to 2.6% from 2.8% (prior), and the real GDP change is expected to rise to 2.0% from 2.1% (prior).
Markets will also see that Fed officials expect to cut interest rates by 50 basis points to 4.4% this year, while also predicting another 100 basis point cut to 3.4% in 2025 and another 50 basis point cut in 2026 to 2.9%, the current central bank's long-term neutral rate.
Powell said the Fed would not fall behind and called the rate cut "timely." However, he added that the rate cut was "a sign of our commitment not to fall behind" and stressed that the 50 basis point rate cut should not be seen as a new pace.
Powell added that the Fed will continue to make decisions at each meeting based on incoming data, noting that "this is a process of recalibrating the stance of policy from where we were a year ago and one that is more appropriate given where we are now."
He said there was nothing in the SEP that indicated the committee was in a hurry, but he stressed that the Fed could speed up or slow down the pace as needed, depending on how the economy develops.
Powell said: "We are recalibrating our policy stance; there is nothing in our (economic) forecasts that indicate we are in a hurry to act; the Fed's economic forecasts are baseline forecasts; the actual actions we take will depend on how the economy develops; if appropriate, we can speed up or slow down the pace of interest rate cuts, or even choose to pause interest rate cuts; this 50 basis point rate cut does not indicate that we are in a hurry to act."
Looking ahead, the upcoming data will obviously be key for market participants, especially the non-farm payrolls data. Also remember that the American people will vote for the next president when the Fed officials next meet (November 7).
Lebanon's Hezbollah suffered a "second" explosion, and the United States denied any connection with the incident
A Hezbollah device exploded again in Lebanon, raising fears of a wider conflict with Israel, Reuters reported. A handheld walkie-talkie used by Hezbollah exploded in southern Lebanon on Wednesday, the deadliest day in the country since the militants launched cross-border fighting with Israel nearly a year ago.
The Lebanese Ministry of Health said that the explosions in the suburbs of Beirut and the Bekaa Valley on Wednesday killed 20 people and injured more than 450. The death toll from the explosions on Tuesday has risen to 12, including two children, and nearly 3,000 people were injured.
Israeli officials have yet to comment on the blast, but security sources said Israel's spy agency Mossad was responsible. A Hezbollah official said it was the biggest security breach in the group's history.
The operation, which appears to have thrown Hezbollah into disarray, comes as Israel continues its 11-month war in the Gaza Strip, heightening concerns about an escalation along its border with Lebanon and the risk of an all-out regional war.
"We are opening a new phase of the war. This requires courage, determination and perseverance on our part," Israeli Defense Minister Yoav Galant said in a speech at the air base.
Jordanian Foreign Minister Ayman Safadi accused Israel of orchestrating a dangerous escalation on many fronts, pushing the Middle East to the brink of a regional war.
The United States denied any involvement in the bombing and said it was conducting intensive diplomatic activities to avoid an escalation of the conflict. A U.S. official who spoke on condition of anonymity said Israel told Washington on Tuesday that it would take action in Lebanon. But the official said Israel did not provide details and that the action itself took the United States by surprise.
US Dollar Technical Analysis
FXStreet analyst Patricio Martín said that the technical analysis of the US dollar index shows a poor outlook, and the indicator remains in the negative zone. In addition, the decline of the 20-day simple moving average (SMA) shows that buying momentum is weakening. The relative strength index (RSI) points downward and remains below 50, indicating bearish sentiment.
The Moving Average Convergence Divergence (MACD) is printing lower green bars, further supporting the bearish trend. Support levels are located at 100.50, 100.30, and 100.00, while resistance levels are located at 101.00, 101.30, and 101.60.
Gold Technical Analysis
Bruce Powers, an analyst at FXEmpire, said that on Wednesday, gold prices soared to a new high of $2,600 after the Federal Reserve announced that it would cut interest rates by half a percentage point. However, this wave of gains was short-lived because once a new high was set, resistance quickly appeared. Subsequently, gold prices fell sharply, setting a new low of $2,553 for the day, which is a good example of the surge in volatility after the Federal Reserve announced a rate cut.
Instead of making a new high, the price of gold fell to a four-day low. The closing price for the day is expected to be either a three-day low or a four-day low. In any case, it looks like gold is about to see a larger correction, which may test the support around the breakout level of 2532, which is the previous trend high. Slightly lower is the 20-day moving average and the internal rising trend line, which have converged.
The 20-day MA is located at $2522 and has successfully tested support for 8 days before breaking out last Thursday. This means that if higher support is not seen, this line should act as support again as it approaches. However, note that the 20-day MA is approaching the 2532 level and could get even closer when the price area is tested as support.
Resistance lies between the previously identified potential resistance zone of $2,595 and $2,605, with the first price level being the 127.2% extension objective of the ascending ABCD pattern (purple), while higher prices are targets derived from the recent symmetrical triangle pattern.
An upside breakout of the pattern was triggered in mid-August, and on Monday, gold prices came close to hitting the resistance zone but failed. Given the bearish reaction after hitting the resistance zone today, resulting in a one-day bearish reversal pattern, it seems that gold may face a further correction or consolidation before the bull trend is ready to continue.
Nevertheless, a breakout above the current high of $2,600 would trigger a bullish breakout. Gold would then head towards the next higher potential resistance zone of $2,650 to $2,661. It consists of several targets from the Fibonacci analysis and measured moves (ABCD pattern).
Bitcoin Technical Analysis
CryptoPotato said that judging from the daily chart, after the Bitcoin price rebounded from $52,000, it showed its willingness to finally break through the $60,000 resistance level.
The RSI is also showing a value above 50, indicating that the market momentum is bullish again. However, for the cryptocurrency to start a new long-term rise, the price must first break above the 200-day moving average, which is located near the $64,000 resistance level.
The 4-hour chart clearly shows the recent price action as the market has been making higher highs and lower lows since bouncing off the $52,000 support level.
This suggests that it is only a matter of time before the $60,000 resistance level is breached, which would pave the way for Bitcoin to rally towards the important $64,000 resistance area. The RSI also shows bullish momentum on this time frame and has not yet reached the overbought region. Therefore, at least in the short term, the market seems to be about to rise.
