Gold 1 OZ (XAU=X) jumps, stocks slide after Fed’s rate cut
Global equity markets slid on Tuesday and the yield on 10-year U.S. Treasuries fell below 1% for the first time after the Federal Reserve cut interest rates to shield the U.S. economy from the impact of the fast-spreading coronavirus.
Gold prices surged and the dollar sank as markets reacted to the Fed’s surprise cut of the federal funds rate by a half percentage point, to a target range of 1.00% to 1.25%.
Yields on U.S. government debt fell across the board as investors grabbed Treasuries and other safe-have assets, such as gold, amid the uncertainty sparked by the decision to cut rates at an emergency meeting.
Fed Chair Jerome Powell said in a statement that the coronavirus would weigh on the U.S. economy for some time and he believed the central bank’s action would provide “a meaningful boost to the economy.”
The slide in stocks and rise in safe-havens suggested markets found the Fed’s action inadequate to an epidemic that has killed more than 3,000 people worldwide and threatens to significantly slow global growth.
“The Fed’s pre-emptive strike against the coronavirus has backfired,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. “The reaction has signaled to the markets that the coronavirus is on par with things like the Great Depression, the technology-media-telecom bubble bursting or the global financial crisis.”
Demand is falling and supply chains have been disrupted, symptoms that lower interest rates do not cure, Arone said.
The unanimous decision by policymakers to cut rates before their next scheduled policy meeting on March 17-18 reflects the urgency with which the Fed felt it needed to act to prevent a potential global recession.
Stocks on Wall Street initially spiked more than 2% on the Fed’s surprise statement. But the Dow Jones industrial average, Nasdaq composite index and S&P 500 reversed course in afternoon trading and each closed down close to 3%.
Gold surged. U.S. gold futures settled 3.1% higher at $1,644.40 an ounce.
The dollar slid across the board. The dollar index fell 0.4%, with the euro up 0.4% to $1.1177. The Japanese yen strengthened 1.02% versus the greenback at 107.24 per dollar.
Oil prices closed mixed.
Brent crude fell 4 cents a barrel to settle at $51.86, off a session high of $53.90 hit immediately after the rate cut. U.S. West Texas Intermediate (WTI) added 43 cents a barrel to settle at $47.18, after trading as high as $48.66 a barrel.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 1,568.82.
The projected upper bound is: 1,688.35.
The projected lower bound is: 1,598.21.
The projected closing price is: 1,643.28.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 33 white candles and 17 black candles for a net of 16 white candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 61.1933. This is not an overbought or oversold reading. The last signal was a sell 6 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 60.82. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 6 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 60. This is not a topping or bottoming area. The last signal was a sell 5 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 2 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed up 0.976 at 1,640.445. Volume was 54% below average (consolidating) and Bollinger Bands were 90% wider than normal.
Open High Low Close Volume___
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1,629.48 1,573.87 1,488.05
Volatility: 32 18 16
Volume: 8,929 1,786 446
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 10.2% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 10 periods.