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The US stock market has slumped after regaining all of its losses since the beginning of the banking turmoil, as investors await one of the most challenging Federal Reserve decisions in recent memory. With the collapse of the US dollar, there was a good opportunity for the XAU/USD gold price bulls to move towards the resistance level of $1980 an ounce. The lowest price before the decisions of the US Central Bank was the support level of $1934 an ounce, and prices settled around the $1970 level. The historical resistance is $2000 again.
After the wild volatility of the past few weeks, things calmed down and traders settled for another quarter-point increase from the Fed – a bet that recently outweighed the odds of a pause or even a larger increase. While many market watchers say a 50 basis point increase would come as a shock, many expect the US central bank to raise its rate forecasts this year in an effort to look tough when it comes to the war against inflation.
Commenting on this, Craig Erlam, an analyst from Oanda, said: “This period of calm will undoubtedly be welcomed by the US Federal Reserve and allow it to continue to rise by 25 basis points without much controversy.” The question is whether it will adopt a similar stance to its European counterpart and refrain from commenting directly on future moves or sending any strong signals.
With traders unwilling to make any big bets until they get more clarity from the central bank, the S&P 500 hovered near the 4000 level. A gauge of US financial heavyweights halted a two-day rally amid news that Backwest Bancorp had moved to support liquidity to protect itself after Customers withdraw 20 percent of their deposits since the beginning of the year. The two-year Treasury yields fell to around 4.1 percent, with the US dollar also falling. Bitcoin price approached $29,000 for the first time since June.
Markets were expecting about 85 per cent odds that the Fed would raise US interest rates by a quarter point to a range of 4.75 per cent to 5 per cent – the highest level since 2007 on the eve of the global financial crisis.
The two-year US Treasury yield exceeded the upper band of the federal funds rate target in December for the first time during this rate hike cycle, with the spread widening this month. This crossover has had a stellar track record of leading to at least two central bank pauses, often signaling cuts in the federal funds rate. In fact, the two-year yield under the federal funds rate crossed before each rate-cutting cycle that has been associated with the past three recessions.
Overall, in most of the six cases since 1970 when the Fed raised borrowing costs by more than 100 basis points for a year or more and then halted the increases for at least three months, the pause was accompanied by a rebound in US equities, with the S&P 500 yielding 8.2%. percent on average for those periods.
- The bulls’ control over the direction of the XAU/USD gold price continues amid the continued weakness of the US dollar.
- The bulls’ price movement towards the $1985 resistance level will ensure a quick move to test the historical psychological resistance $2000 again.
- The movement above it may increase if the demand for gold increases as a safe haven in addition to the weakness of the US dollar.
On the other hand, according to the performance on the daily chart, the movement of the gold price towards the support levels 1935 and 1910 dollars, respectively, will be important for stopping the current upward path. The price of gold will continue to be affected by the decisions of global central banks this week.
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