Hawkish bias from Fed weighs on Gold

  • Gold prices had a drop in Asia due to the hawkish bias from Fed.
  • Favorable ADP Employment report favors US dollar and raises expectation for the non-farm payrolls numbers.
  • Covid woes due to the new variant founded by France also weighs on the market sentiment and underpins bearish trend for XAU/USD.

 

The yellow metal prices fell in Asian session Thursday. Gold saw a fall after the Federal Open Market Committee (FOMC) Meeting Minutes conveyed the hawkish bias of the policymakers which suggested a faster rate-hike and plans to discuss balance-sheet normalization.

The minutes stated that ”participants remarked FOMC should continue to be prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

Additionally, the minutes said ”most participants judged conditions for a rate hike could be met relatively soon if the recent pace of labour market improvements continued”, also added, ”given outlooks for the economy, labour market, inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”

After the FOMC meeting, the US bond yields rallied and the Fed interest rate futures point at the 80% chance of a hike in March 2022.

Stephen Innes, managing partner at SPI Asset Management said “What the market has to be concerned with the end goal is how much the Fed is going to surprise going forward,” “If it surprises with one more rate hike, that would be really negative for gold.”

Elsewhere, Upbeat ADP report also favored the US Dollar. The ADP National Employment report showed U.S. payrolls had a surge last month with reading of 807k more than 505k prior and exceeding by 646k from the 161k forecast and thus potentially raising expectations for the non-farm payrolls numbers which is due today.

Amid market reacting to Fed hawks, fears of the South African covid variant Omicron, also weighed on the market’s risk appetite and impact the gold prices. Although the Market tries to not to react to the rising cases of covid as scientific studies termed Omicron as a mild covid strain, the recent findings of another virus variant and strain on multiple medical systems highlights the COVID-19 woes. It has to be noted that the Omicron is spreading faster and the new variant founded by France is said to spread rapidly than Omicron.

XAU/USD 4 Hour Chart:

Support: 1802.3 (S1), 1794.5 (S2), 1780.8 (S3).

Resistance: 1823.8 (R1), 1837.5 (R2), 1845.3 (R3).

The hawkish bias from Fed and the Covid woes underpins the downtrend for the Precious metal. We expect a bearish trend for XAU/USD.

Fed rate hike hopes favors USD

The yen fell to a near five-year low against the U.S. currency on Wednesday and saw losses on other crosses. The rationale behind the move can be linked to investors bet that the Bank of Japan (BOJ) would fall behind its counterparts in tightening monetary policy to curb high inflation.

Market’s receding fears of the South African covid variant, Omicron, gives hope of faster rate hike by the US Federal Reserve (Fed).

Elsewhere, Japan’s consumer confidence fell slightly in December, the government said on Wednesday, as domestic COVID-19 cases started rising towards the end of the month. A Cabinet Office survey showed the sentiment index for general households, which includes views on incomes and jobs, was at 39.1 in December, compared with 39.2 in November.

On the other hand, Fed Funds futures show traders see rates lifting off by May. Analysts at Standard Chartered now expect 25-basis point hikes in March and June rather than one hike in September. U.S. two-year and five-year yields stand near pandemic highs and benchmark 10-year yields are up more than 14 basis points this week.

Minneapolis Federal Reserve Bank President Neel Kashkari, also known as a dove, said he expects the U.S. central bank to need to raise interest rates two times this year to address persistently high inflation, by reversing his long-held view that rates will need to stay at zero until at least 2024.

It is clear that Investors have come to a view that Omicron is less disruptive to the global economy than previous variants of the coronavirus since studies have indicated the risk of hospitalization is lower.

On Economic data front, Softer-than-expected figures of Japan’s Monetary Base for December which came at 8.3% versus 8.6% forecast and 9.3% prior also favors the move. However, The US economics also has eased during the latest releases as the ISM Manufacturing PMI dropped to the lowest in 11 months in December which came as 58.7 versus 60.0 forecast and 61.1 prior whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M which can challenge the bulls.

USD/JPY 4 Hour Chart:

Support: 115.48 (S1), 114.84 (S2), 114.40 (S3).

Resistance: 116.55 (R1), 116.99 (R2), 117.63 (R3).

Traders will be keen to watch the ADP report to direct the move further. Meanwhile, Amid all the catalysts favoring the yen against the greenback. We expect bullish trend for USD/JPY.

Look back of crypto in 2021

Cryptocurrencies had a wonderful year in 2021. Bitcoin, Ether and other coins had a wide jump and reached a new high higher than the previous ones. Many institutions started offering research and services for the sector. Also, nonfungible tokens (NFTs) and decentralized finance (DeFi) joined the Crypto currency segment.

it’s a hot topic not only among investors but in popular culture too, Thanks to the of long-standing investors like Elon Musk to that kid from your high school on Facebook.

Dave Abner, head of global development at Gemini, a popular cryptocurrency exchange said “In many ways, 2021 has been a “breakthrough,” “There’s tremendous focus and attention being paid to the crypto industry.”

Now Let’s have a quick look at the top milestones of cryptos in 2021.

Bitcoin added in Balance Sheet of Tesla :

Elon Musk announced that Tesla (electric-car company)  bought coins worth $1.5 billion. This helped the cryptocurrency go through the roof, making it reach historical highs soon afterwards and also set all sorts of discussion on whether other companies might follow suit.

NFT Sale :

Mike Winkelmann — the digital artist known as Beeple went up for auction.On March 11 2021, an NFT of his work was sold for $69 million at Christie’s. The sale positions him “among the top three most valuable living artists,” according to the auction house.

The record-smashing NFT sale came months of increasingly valuable auctions. In October, Winkelmann sold his first series of NFTs, with a pair going for $66,666.66 each. In December, he sold a series of works for $3.5 million total. And last month, one of the NFTs that originally sold for $66,666.66 was resold for $6.6 million. This auction sent a shock to the traditional art world.

NFTs (basically, digital certificates of authenticity) had already started succeeding, and has attracted the concept to fame and encouraged artists, creatives and celebrities of all types to look into creating them.

Memecoins gained popularity

Dogecoin which was started as a joke in 2013 as a joke gained wide popularity in 2021. Dogecoin and Shiba Inu are at the center, 2021 observed an incredible memecoin mania. Both DOGE and SHIB saw rallies that were unprecedented even in the crypto world. It all began when, soon after Tesla had made its purchase of Bitcoin, Elon Musk began to make frequent tweets about Dogecoin. 

This would become the spark for several incredible runs that the coin would have shortly after. Elon “Doge father” Musk’s tweets, the memecoin went on an absurd run. Many other new coins were inspired by it, including Shiba Inu.

Listing of Coinbase in Nasdaq

The nation’s largest Crypto exchange Coinbase Global Inc.’s direct listing on the Nasdaq stock exchange April 14 was a major event in the crypto arena. Shares of Coinbase skyrocketed nearly 60% within minutes of their public-market debut, propelling the nine-year-old company’s market capitalization to more than 12 times its last private valuation of $8 billion in 2018 and marking another instance of booming demand lifting the still-nascent cryptocurrency space to meteoric highs. At one point, Coinbase’s valuation reached up to $112 billion, However it subsequently fell back in volatile trading.

Crypto Crackdown by China

In June 2021, China’s central bank said it would crack down on cryptocurrency trading, banning overseas exchanges from providing services to mainland investors. This move dipped the Bitcoin. Other cryptocurrencies faced similar drop as billions of dollars of crypto longs were liquidated quickly, while exchanges from Coinbase to Binance experienced outages. It took Bitcoin about two months to recover.

Bitcoin made as Legal Tender by El Salvador

El Salvador became the first country in the world to adopt bitcoin as legal tender after the country’s Congress on, June 9, 2021, approved President Nayib Bukele’s proposal to embrace the cryptocurrency, a move that delighted the currency’s supporters. With 62 out of 84 possible votes, lawmakers voted in favour of the move to create a law to adopt bitcoin, despite concern about the potential impact on El Salvador’s programme with the International Monetary Fund.

Mr. Bukele touted the use of bitcoin for its potential to help Salvadorans living abroad to send remittances back home, while saying the U.S. dollar will also continue as legal tender. In practice, El Salvador does not have its own currency.

Ethereum’s ‘London Upgrade

The Ethereum London Hard Fork upgrade is a set of five improvement proposals. One of them is called EIP-1559.That aims at giving speed to Ether mining and also incentivizing it. It is aimed at giving speed to Ether mining and also incentivising it. Unlike Bitcoin, there is no limit to mining Ether coins, which makes it an inflationary cryptocurrency. Miners need to pay new coins for validating each block of information. They are compensated with transaction fees that are paid by users.

One of the biggest benefits of the London upgrade is that it has enabled the Ethereum network to handle many more transactions per second. It will help with scalability and tackle the high transaction fees one of the biggest complaints of small investors or those who make frequent transactions.

US Bitcoin ETF

The market was enthusiastic when the first U.S. bitcoin exchange-traded fund – a bitcoin futures ETF, was launched in the fourth quarter of 2021. Bitcoin climbed from $40,000 toward $65,000 in October, and spurred the visions of $100,000 by the end of the year. U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler made an announcement in August about his preference for a bitcoin futures-based ETF. Traders became hopeful that the SEC would approve a bitcoin-linked ETF in October.

This made the cryptocurrency more accessible to retail investors and institutions. 

Metaverse and Defi

Facebook said in late October that it was changing its name to Meta Platforms Inc., portraying how much the idea of the metaverse has attracted and penetrated the thinking of companies and consumers. DeFi which does not have intermediary and counterparties interact directly through smart contracts made $100 billion in market value in October. 

Regulations:

Regulators globally are cracking down on cryptocurrencies. Global regulators worry the rise in privately operated currencies could undermine their control of the financial and monetary systems, increase systemic risks, promote financial crime and hurt investors.

China, the world’s largest crypto market, banned all transactions in September. Meanwhile, the U.S. authorities cracked down on certain aspects of the crypto market. Elsewhere, In India, the government has worked on a legislation to regulate use and trading of cryptocurrencies.

Also Bank of England policymakers led by Andrew Bailey have warned of the dangers of investing in such assets. 

Jump in US T- Yields pressurizes Cable

Pound trades low against the greenback during the Tuesday morning Asian session. A jump in Treasury yields overnight as traders bet on an early Federal Reserve interest rate hike despite of the surging COVID-19 cases, favored the US dollar. The coronavirus fears in the UK and Brexit woes also underpins the bearish trend of the pair.

Yields on U.S. two-year notes that are sensitive to rate hike expectations, along with 5-year notes reached to their highest levels since March 2020. Benchmark U.S. 10-year and 5-year yields rose to six-week peaks. The U.S. central bank is likely to begin hiking interest rates by mid-2022 is the rationale behind the jump.

In UK, Corona virus cases has recently rose by around 158,000 infections. Despite a huge increase in coronavirus cases, the prime minister said the UK is in a better position than most other countries due to the “very, very high level of vaccination”. However, He also said “Omicron being “plainly milder” than other variants, the NHS is under pressure due to its high transmissibility.”

Elsewhere, Reuters’ tally mentioned, “COVID worries have been front and center once again for investors since the start of the holiday season. The number of new COVID-19 cases has doubled in the last seven days to an average of 418,000 a day, mostly attributed to the highly transmissible but milder Omicron variant.”

On the other hand, On Monday, the U.S. Food and Drug Administration authorized the use of a third dose of the Pfizer and BioNTech COVID-19 vaccine for children aged between 12 and 15 years, and narrowed the time for all booster shots to five months from six months after primary doses.

About Brexit woes, few of the new Brexit rules are active from the 2022 start and thus will challenge the movement of goods, which in turn tests the strained supply chain. And the Financial Times (FT) said, “Brexit customs checks later this year risk undermining the commercial ‘level playing field’ for UK regional ports, the body representing some of the country’s largest port operators has warned.”

GBP/USD 4 Hour Chart:

Support: 1.3426 (S1), 1.3377 (S2), 1.3324 (S3).

Resistance: 1.3529 (R1), 1.3582 (R2), 1.3631 (R3).

A jump in US Treasury yields along with the coronavirus fears in the UK and Brexit worries exerts downward pressure on GBP/USD. We expect a bearish for GBP/USD.