Risk aversion… or appetite
Hi FX Emperors, here we go again. Risk aversion dominated the market as investors were digesting the news coming from China regarding tariffs. But then, Fed’s Powell hinted a rate cut in September and equities and gold went up.
The news pushed gold, silver, and other metals to fresh highs in the day, and it also helps to revert loses from the previous days.
The news from China came as a great disappointment as risk appetite was working well in the investment markets with the Fed’s chairman Jerome Powell speech on Jackson Hole in the radar.
Then, Jay Powell talked… and hinted a rate cut in September.
But Trump tweeted.
China strikes back; USD/CNY at 7.100
After days of expectations, China finally hit back at the United States with more tariffs. According to news, the Asian country will impose additional tariffs on $75 Billion of US goods in two phases: September and December.
China will tariff 15% on soybeans and crude-oil imports from the US starting in September, and it will resume 25% tariffs on US autos from December 15.
Meanwhile, the yuan devaluation and, for instance, USD/CNY advance continues as the pair jumped to 7.100 earlier in the day, a new high since March 2003. However, the cross is now trading back to a more temperate number just above the 7.0800 area.
China’s announcement was delivered right before Powell speech in the economic symposium. So, experts were wondering how the Fed’s boss would react. Multi-asset investor at Robeco Jeroen Blokland even said sarcastically, “Jackson Hole speeches to be rewritten.
In the same line, US President Donald Trump tweeted, “now the Fed can show their stuff!”
Powell backs Fed role to sustain economic expansion
In his speech at the Jackson Hole Symposium, Powell said that the Fed is working to sustain an economy that faces ‘significant risks,’ however, there is ‘no recent precedents’ to guide policy response to trade uncertainty.
The Federal Reserve has worries about the economy, especially with the drums of the trade war and its impact on the domestic economy in the United States as well as global growth.
The trade war between the United States and China, also the economic slowdown in Germany and China, the prospect of a hard Brexit and the unrest in Hong Kong seems to be too much uncertainty for the current economy.
Fedwatch tool for September on August 23
Powell didn’t mention the “mid-cycle adjustment” emphasis in his speech and said the Fed would act to sustain economic expansion, hinting a new rate cut in September.
However, no matter what Jay Powell did, President Trump wasn’t not happy and he tweeted after the speech: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
Then, US Dollar intensified its decline, pushing gold higher.
Trump tweets ‘Who is our bigger enemy,’ Fed Chairman Powell or Chinese President Xi_
Gold rallies on Friday, easing most weekly drops
XAUUSD 1-hour chart August 23
Gold is trading positive on Friday after two negative sessions as metal’s buyers welcomed risk aversion due to China tariffs news first, and then, Powell hints for a September rate cut that sends the Dollar index down.
Friday’s rally is vital as the unit is recovering almost all the previous suffered losses and gold is now on track to close its fourth straight week with gains.
The cocktail of news fueled XAU/USD to initially break above the 1,500 level that was a resistance a few hours ago, but now the unit is recovering its mojo, and it is rallying as investors are taking positions on the speculation for more rate cuts as soon as September.
Currently, XAU/USD is trading 1.70% positive on the day at 1,520. Technical conditions are turning strongly positive in the 1-hour chart with that level acting as short term resistance.
Above there, gold would extend its rally towards 1,530, and finally 1,535. However, be aware of profit-taking closings after the dust settles down ahead of the European close.
This article was originally posted on FX Empire
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