Although markets were expecting a more hawkish stance from the Fed due to recent economic releases that showed higher inflation and lower growth, the Federal Reserve (Fed) surprised them with a dovish tone.

The Fed has decided to keep the current policy unchanged. However, it has also resolved to taper quantitative tightening from $60 billion to $25 billion, starting in June.

It has acknowledged that there has been little progress in inflation over the past few months. However, Fed Chairman Jerome Powell has stated that the current policy is well-positioned to address different paths. This eliminates any possibility of an additional rate hike, and the Fed still believes that the next move will be a cut.

BoJ intervenes again

It seems that immediately after the NYSE closing bell, the Bank of Japan decided to intervene in the market again, causing USDJPY to drop by almost 3%. This marks the second intervention in less than a week, and both times, the intervention took place during a period of low liquidity, which suggests that it was done deliberately.

During the last trading hour yesterday, a total of $4 billion in Yen-related futures contracts were exchanged. This is the highest number of contracts exchanged since February and could be a possible indication of an intervention. However, the Bank of Japan did not release any statement regarding this matter, and Japan’s top currency official declined to comment on the Yen’s movement.

DXY below 106 again

Following the decision made by the Fed, the US Dollar declined in value against all other currencies. This is due to the belief that the Fed may cut interest rates sooner than expected. Currently, the Fed Fund Futures shows that there is a 70% probability of a 25-basis-point rate cut in September, and over 100% likelihood in November and December.

After the Fed’s decision, the Dollar lost all the gains it had made during the week. However, the upcoming economic releases will be crucial in determining its future direction. If tomorrow’s NFP data shows significant weakness, it could be the catalyst for another drop. By the end of the week, technical indicators will be in a better position to determine the next trend.

Gold bounced off support

Gold bounced off its $2385 support area and reclaimed its $2300 resistance ahead of the Fed’s decision. It continued to rise as high as $2326 before declining back towards $2300 earlier this morning.

Traders should remain vigilant of the $2300 support area. If the support is breached once again, it could result in a greater decline and revisit yesterday’s low. This level should be monitored attentively, as breaking the support would indicate a more significant downside correction towards $2270.

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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