Dovish Fed Statement Hammers Dollar

* Jerome Powell promised Fed rate cuts would remain on track; a dovish stance exerted pressure on the dollar.

* Gold prices, along with Dow Jones and S&P 500, all traded to all-time highs.

* The Japanese Yen strengthened for the first time in 8 days after the BoJ first rate hike since 2007.

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Fundamental Overview

The Federal Reserve’s decision to maintain interest rates within the 5.25% to 5.50% range, aligning with market expectations, was accompanied by a dovish tone from Fed Chair Jerome Powell. Despite signs of inflationary pressure, highlighted by the recent Producer Price Index (PPI) reading, Powell’s remarks suggested a willingness to consider rate cuts later in the year. This dovish stance led to a decline in the dollar index (DXY) by up to 0.6%, while simultaneously driving gold prices to a peak of $2222.90. Heightened geopolitical uncertainties, particularly in regions like Russia and Israel, combined with Japan’s recent rate hike, have increased market risk and boosted demand for gold as a safe-haven asset.

In the commodities market, oil prices saw an increase following the release of the American Petroleum Institute (API) crude inventories data, which indicated a significant decline in stockpiles. This positive data pushed oil prices towards the $84 mark. Additionally, the Japanese Yen strengthened for the first time in eight days as investors evaluated the potential interest rate divergence between Japan and the United States.

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Current rate hike bets on 20th March Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (95%) VS -25 bps (5%)  

Market Overview

(MT4 System Time)

Source: MQL5 

Economic Calendar

(MT4 System Time)

Source: MQL5 

Market Movements

DOLLAR_INDX, H4

The Dollar Index witnessed a significant downturn as the Federal Reserve reaffirmed its commitment to maintaining a dovish monetary policy stance, contrary to market expectations. Fed Chair Jerome Powell’s emphasis on the necessity of further economic data before considering any rate adjustments prompted investors to engage in profit-taking activities. All eyes now turn to forthcoming monetary policy decisions as analysts recalibrate their rate cut projections in response to the Fed’s cautious approach.

The Dollar Index is trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 38, suggesting the index might extend its losses after breakout below the support level. 

Resistance level: 103.70, 104.45

Support level:103.05, 102.55

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XAU/USD, H4

Gold prices surged sharply after the Federal Reserve reiterated its commitment to implementing rate cuts throughout 2024, despite recent inflationary pressures. Fed officials emphasized their view of current inflation levels as manageable and outlined a plan for further rate reductions totaling 100 basis points over the next two years. This dovish stance resulted in a decrease in US Treasury yields, leading to increased demand for gold as investors sought to hedge against potential currency devaluation.

Gold prices are currently trading higher after breaking out above the previous resistance level. However, the MACD indicator has shown diminishing bullish momentum, while the RSI stands at 76, suggesting that the commodity may enter overbought territory.

Resistance level: 2235.00, 2250.00

Support level: 2150.00, 2080.00

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CL OIL, H4

Crude oil prices initially faced downward pressure amidst heightened market uncertainty and risk aversion ahead of the Federal Reserve’s policy announcement. However, a modest recovery ensued during early Asian trading hours following a dovish stance from the Fed and positive inventory data. Notably, Energy Information Administration (EIA) statistics revealed a larger-than-anticipated decline in US crude oil inventories, providing support for oil prices amid ongoing market fluctuations.

Oil prices are currently trading higher after rebounding from the support level. The MACD indicator has shown diminishing bearish momentum, while the RSI stands at 53, suggesting that the commodity may extend its gains towards the resistance level, particularly since the RSI rebounded sharply from oversold territory.

Resistance level: 82.85, 84.10