The Fed does it again for US dollar bears and commodity bulls after it unexpectedly abandoned its tilt toward higher borrowing costs. ``Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth,'' the Federal Open Market Committee said. While inflation is the ``predominant'' concern, the statement dropped a reference to ``additional firming,'' giving central bankers more flexibility on the direction of interest rates. Carry trades will flourish now and the US dollar should get further losses, subject to technical factors.
The Fed is following other central banks of trying to keep interest rates at historically low levels to achieve growth. However it’s too early to comment on the June interest rates. Markets are slowly factoring a chance of a cut in June. But all will depend on crude oil prices and US housing sector. If the US housing sector bounces back, the Fed may continue to maintain status quo on interest rates. The US dollar will get a reprieve only when the European central bank and the Bank of England stops raising interest which will be a possibility only after June.
At the moment its just the US dollar and crude oil prices that is driving commodity prices. Geopolitical factors, foreign currency reserve diversification risk still subsist which will result in further gain in commodity prices.
GOLD -- APRIL FUTURE
Gold targets $676 and $676 as long as $653 holds while a consolidated fall below $653 will result in $647.
SILVER -- MAYFUTURE
Silver targets $1369 and $1412 as long as $1312 holds. A consolidated fall below $1312 will result in $1280.
Happy Profitable Trading
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