Fed chair Yellen will maintain cautious stance on interest rate increases
Washington (Apr 28) Precious metals have encountered a strong resurgence in momentum to begin the week, as traders look to pressure the USD ahead of the FOMC statement on Wednesday evening. The USD is being pressured ahead of Janet Yellen’s economic address because investors are concerned that there is going to be a dovish tone from the Chair of the Federal Reserve. This is playing strongly into the hands of precious metal bulls who have been looking for a catalyst to gain some momentum.
Although Gold has managed to jump from $1178 to $1207, I personally see the $1209 resistance level as a testing point for the bulls and we would need to break through this barrier before we can talk about the possibility of Gold extending its gains.
While there has been a lot of talk about a US interest rate rise in September, recent lacklustre economic data has eased the pressure on the Federal Reserve to maintain a hawkish bias on the US economy. Expectations for the Federal Reserve to begin raising US interest rates remain strong, but the recent weak data is easing pressure on the Federal Reserve and market optimism for the US economy is starting to wane. With optimism about the US economy starting to shift to a lower gear, it’s likely that Yellen will maintain a cautious stance on interest rate rises and reaffirm a more dovish stance on the US economy at this stage.
The USD will be at threat to widespread weakness if suspicions arise that the Federal Reserve will swerve away from its repeated commitment to begin raising interest rates this year; although I am not expecting this and feel that Yellen will keep up the tone on US interest rate rises later in 2015. The Federal Reserve was always going to be cautious and in no hurry to begin raising interest rates, and the recent downturn in economic data has provided it with every reason to maintain cautiousness. Overall, Yellen is likely to play it safe tomorrow and continue to act as the mother figure of the US economy. Saying that, it is possible that she will suggest that the Fed are monitoring global threats such as the ongoing situation in Greece and the China economy losing momentum.
The S&P 500 reached record highs in the US trading session before pulling back to the low 2100’s. The upward surge in momentum suggests the bullish run is set to continue, and the possibility of dovish talk from the conclusion of the FOMC meeting will probably enable it to do so if the statement is indeed dovish. The S&P 500 will be closely watched come FOMC, as it’s likely to be affected by any comments from Yellen. Any indications that the Federal Reserve will leave interest rates unchanged for longer than expected could likely lead to further pushes higher on the charts.
