Senior Trader Update - Fed Hikes Rates 15 June

Good morning everyone.
 
The focus overnight was entirely upon the US central bank’s FOMC monetary policy statement which confirmed a widely anticipated interest rate hike by raising the Fed Funds Rate by 0.25%.
 
Volatile trade saw the US Dollar completely erase heavy losses seen in mid-morning New York trading (resulting from both a shooting on Capitol Hill of a US Republican Congressman and some weak economic data), due to the hawkish nature of the MonPol statement from the US Federal Reserve in spite of soft economic data coming out of the US. Precious metals consequently closed the day significantly lower.
 
The FOMC statement noted that, “Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely,” “The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.”
 
In other words, the Fed will rein in its money printing Treasury Reinvestment & Mortgage Backed Securities programs thusly:
 
·         “for payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be USD6bn per month initially and will increase in steps of USD6bn at 3m intervals over 12m until it reaches 30bn per month.
 
·         For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
 
The statement furthermore laid out the following:
 
“Gradually reducing the Federal Reserve's securities holdings will result in a declining supply of reserve balances. The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system's demand for reserve balances and the Committee's decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.
The Committee affirms that changing the target range for the federal funds rate is its primary means of adjusting the stance of monetary policy. However, the Committee would be prepared to resume reinvestment of principal payments received on securities held by the Federal Reserve if a material deterioration in the economic outlook were to warrant a sizable reduction in the Committee's target for the federal funds rate. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”
 
Technically, XAU/AUD continued its move south and the next support levels are seen around a cluster of lows made in early May near AUD 1650 (where the 100 Day moving average is also currently located). The all-important 200 Day moving average is at AUD 1644 today and beneath that, major trendline support near AUD 1631 would likely be the last line of defence for XAU/AUD bulls. In XAU/USD terms, gold sits right at the 55 Day moving average (USD 1260.50), beneath which lies the 100 Day moving average (USD 1247) and the conjunction of the 200 Day moving average and major trendline support at USD 1238.50
 
Good luck.
 
Regards,
Andre