Gold Forecast: Dovish Fed and US-China Deal Needed for Topside Breakout

NEW YORK NY- NOVEMBER 30 A man dressed as Santa Claus visits the floor of the New York Stock Exchange ahead of the closing bell

Dow Soars 600 Points as Investors Welcome Fed Retreat Drew Angerer Getty Images28 Nov 2018

"Our path of gradual increases has been created to balance these two risks, both of which we must take seriously" said Powell in prepared remarks at the Economic Club of NY.

Until then, USD/JPY stands at risk of facing range-bound conditions as the exchange rate flops ahead of the 2018-high (114.55), with recent price action raising the risk for a larger pullback as it snaps the string of higher highs & lows from the previous week.

"Stocks are rallying dramatically because Chair Powell took a far more dovish tone than he did just a month ago when he said rates were a long way from neutral", Kristina Hooper, chief global market strategist at Invesco Ltd, said in an email interview.

Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in NY.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy - that is, neither speeding up nor slowing down growth", Powell told the Economic Club of NY. But the likely pace of rate increases next year remains a subject of speculation. He added that the Fed regards no major asset class as significantly inflated, "as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom". Friday's labor-market data will also be important, especially given the US central bank has made clear its actions ahead will depend on how economic data unfolds.

A footnote pointed out the Fed's staff assessed financial stability vulnerabilities as moderate as well. UnitedHealth Group rose 2.6 percent.

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In an appearance earlier this month, Powell cited strong annual economic growth above 3 percent and unemployment at a near five-decade low of 3.7 percent.

A day after President Donald Trump's latest attack on the USA central bank, Federal Reserve chief Jerome Powell hinted Wednesday the key lending rate would move higher but said there was no preset course. Minutes the next day, which covered the Fed's last meeting, signaled policy makers will adopt a more flexible approach in 2019.

For his part, Trump has sought repeatedly to shift blame for any economic troubles to the Fed and its rate increases. He also told The Washington Post that "the Fed is a much bigger problem than China".

Trump argued that the Fed's policies were damaging the economy and pointed to the recent stock market declines and General Motors' announcement Monday that it would cut up to 14,000 workers in North America and put five plants up for possible closure.

The central bank has already hiked rates three times this year and is largely expected to raise the rate again in December.

While the stock market's uneven footing is due to a variety of factors, one of those being the rate hikes, the GM announcement appears to be unrelated. that four USA plants in three states would be idled due to falling demand and from the products made at those factories. Analysts at Barclays Plc and JPMorgan Chase & Co. continue to predict four Fed hikes in 2019 - which is even more than the median projection of Fed officials from September. Traders were looking for an increase of 0.8%.

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