Wednesday no doubt had been circled on most trader’s calendars as potentially the most important day of the month. The Federal Reserve interest rate decision day.

Will they cut and if so by how much? And what will be said at the press conference? All gets revealed at 2pm EST.

Before that we have fairly quiet markets with traders looking to lighten up on positions ahead of the FED. GBP, which briefly moved above 1.2520 in late day trading, falls back to 1.2440 and EUR follows a similar path from 1.1070 to 1.1040.

AUDUSD also drops from 0.6865 to 0.6830. USDJPY remains stead at 108.20. XAU rallies to $1,510 as US equities take a leg lower before the Fed.

Wednesday would also be a day for crypto to watch from the sidelines although ETH was happy to consolidate around $212 after the previous day’s rally through $200. BTC was steady at $10,200.

Enough waffle, what happened? As expected, the Fed cut interest rates by 0.25%, but it was not a unanimous decision and when it came to future cuts, there was also a mixed view from the Fed.

As a result the USD rallied with USDJPY jumping from 108.12 to 108.32. EUR drops from 1.1065 to 1.1025 and GBP from 1.2485 to 1.2455.

XAU falls from 1510 down to 1497. Equities were already lower, but the DJ extended those losses from -70 to -170.

Plenty of economists saying the US economy is doing well and there is no need for future rates decreases, but there is an air of disappointment that the Fed wasn’t more dovish. The 10Y yield inches higher from 1.75 to 1.78 but is still lower on the day.

And of course before Chairman Powell gets to speak, a derogatory Tweet from President Trump! Next up – the press conference.

In short what we got was a divided Fed. Future rate cuts appear to be dependent on how the economy performs plus the outcome of events such as trade talks etc. What we got was what you would expect, steady as they go.

In short, nothing to suggest that we were going to see a plethora of rate cuts soon.

For FX, that saw the USD generally continue to rally with USDJPY up to 108.47. AUD slipped as low as 0.6812 while USDCAD moved to a high of 1.3310. Gold dropped as low as 1483.50. All of these moves make intuitive sense when you believe US rates are not going to head much lower.

However the rally back in stocks was far more surprising. By the close the DJ had rallied to +36 points and the S&P back to flat. Why?

Well the US economy is doing pretty well as it is, and the less dovish Fed is just a reflection of that. Of course things can change, and the Fed made it clear they are ready to act if need be. But that’s not for today nor tomorrow.

Back to XAU. And the same chart I showed you last week, but just updated with today’s volatile price action. Once again we bottom out around $1,484 with further support lurking at $1,480. There are a couple of ways to play this, but that support level looks strong for now, although could ultimately be pivotal.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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