Senior Trader Daily Update 4th May 2017

Good morning everyone,
 
The Federal Open Market Committee left US interest rates unchanged in its current range between 0.75% and 1.00% but it was the hawkish tone of the MonPol statement suggesting that a June hike is a lay down misere, that drove precious metals values lower overnight.
 
Far Eastern and European trading had seen XAU/AUD rally strictly on the back of corresponding AUD weakness (XAU/USD flatlining).
 
Prior to the release of the FOMC statement, the private US ADP employment survey (Apr) came in +177K (vs +185K expected & vs negative revised +255k for March (initial +263K).
 
Onto the FOMC announcement:
 
*FED SAYS GROWTH SLOWDOWN IN 1Q LIKELY TO BE TRANSITORY
*FED SAYS 12-MONTH INFLATION RUNNING CLOSE TO ITS 2% GOAL
*FED: JOB GAINS SOLID, HOUSEHOLD SPENDING ROSE ONLY MODESTLY
*FED: LABOR MKT CONTINUED TO STRENGTHEN EVEN AS GROWTH SLOWED
*FED REPEATS IT MAINTAINING BALANCE-SHEET REINVESTMENT STRATEGY
*FED SAYS FOMC VOTE WAS UNANIMOUS
 
The part of the statement that investors zeroed in on was; “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term”.
 
The markets viewed the announcement as ‘hawkish’ with interest rate futures pricing in a 94% probability of a June hike.
 
There was the usual algo-driven ‘head fake’ spike higher as soon as the statement was released but this was immediately reversed as XAU/AUD & XAU/USD gravitated towards some of the downside technical levels we have highlighted over recent days. XAU/AUD posted a low of 1665.00/oz prior to the close and XAU/USD posted a low of 1236.00/oz.
 
Focus now turns to Friday’s US Non-Farm Payrolls and Employment data (April) from the US with market consensus of a +190K additional jobs and an Unemployment Rate of 4.6%
 
Technically XAU/AUD posted a ‘long legged Doji’ candlestick yesterday (a wide intraday range but with a close back at the day’s open, reflecting market indecision) and hovers just above the first potential area of support of the Fibonacci retracements of the AUD 1578 to 1712.75 move. Respectively those are; AUD 1661.25 (38.2%), 1645.30 (50.0%) & 1629.40 (61.8%). The 200 Day Moving Average at AUD 1655.00 will also be a closely watched - a potentially critical inflexion point.
 
Entrenched speculative longs are undoubtedly sucking wind now with XAU/USD plummeting below the 200 Day moving average at USD 1251/oz as well as through the bottom of the triangular congestion trendline support at USD 1242.00. The nearest downside supports now present at the 100 Day moving average (USD 1222.00/oz and the March 10th low at USD 1195.00/oz).
 
The Gold / Silver ratio continued its textbook uptrend (higher highs and higher lows) reaching a peak of 75.57 overnight as silver continued to take it in the neck relative to gold.
 
Since topping out on April 17th, silver has been in a textbook downtrend (lower highs and lower lows) and whilst the market to all intents and purposes may be oversold, trying to pick a bottom at present would be akin to trying to catch a falling knife. The next critical level of technical support appears at the 20/12/2016 low at USD 15.63/oz.
 
Silver and platinum hit multi-month lows (silver’s lowest since Jan 6th and platinum’s lowest since Jan 3rd at USD 896/oz) with the gold/platinum spread blowing out to USD $340 presently. Remarkably, palladium remains buoyant in the face of weak US car sales data.  With US auto sales growth driven by cheap credit any future rate hikes have the potential to slam the brakes on the industrial metal’s ascent.
 
Finally, on the French election front, the two candidates debated overnight with Mme Le Pen quipping that come Monday “in any case, France will be run by a woman: Me or Madame Merkel,”
 
Good luck and May the 4th Be With You!
 
Regards,
Andre