Metals Down After USD/CNY at New Highs, Fed Divided Decision

In this framework, metals are reluctant to take any direction, and now all eyes are on what Fed boss Jay Powell will say in his scheduled speech in Jackson Hole later this week.
Mauricio Carrillo
Metals Down After USD/CNY at New Highs, Fed Divided Decision
Metals Down After USD/CNY at New Highs, Fed Divided Decision

USD/CNY at 7.0930.

Good day FX Emperors! It is the maximum level that the USD/CNY has reached on Thursday as China warned the United States against imposing new planned tariffs.

Coincidence? We don’t believe it, the only fact is that the Yuan has been devalued 2.90% just in August and it is now trading at its highs since March 2008.

Who to blame? Donald Trump, Xi Jinping, or even the fears of a Tiananmen Square-like crackdown on Hong Kong pro-democracy protesters? Well, the market is undoubtedly complaining against the Trade war between the two countries as the principal catalyst for that price.

So, let’s be clear here. A depreciated Yuan is a problem, but it is not “The Problem.” For markets, the real concern is a further escalation in the trade war between both countries, and the recession it will bring.

Meanwhile, the 1-hour chart is showing a clear new line in the sand for the USD/CNY at 7.080 as support. Will it last?

USDCNY daily chart August 22

The fear is fueling metals, but the market situation is not clear for any direction yet as yesterday’s minutes weren’t able to clarify what the Fed is thinking about further cuts.

Fed undecided

Gold and silver investors are still waiting for clarifications about the Fed’s monetary policy as the latest FOMC minutes published on Wednesday showed a divergence of opinions on the Fed board.

Senior Market Analyst at OANDA Alfonso Esparza highlighted in a recent note to clients that the internal division showed in the minutes increased the uncertainty about the next steps that the Fed will take in regards to monetary policy.

“An important point that the minutes revealed was the insistence that the 25 bp cut is not a part of a cycle.”

On the other hand, Kansas City Fed’s Esther George showed her disagreement with Jay Powell, Fed’s Chairman. George affirmed in a recent interview with CNBC that the July rate cut was not needed.

“With this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed’s target, I think we’re in a good place relative to the mandates that we’re asked to achieve,” George said.

In this framework, metals are reluctant to take any direction, and now all eyes are on what Fed boss Jay Powell will say in his scheduled speech in Jackson Hole later this week.

Meanwhile, bonds performed another inversion with the publication of the minutes, but after George’s remarks, they recovered its natural situation and started to rise.

Gold down for the second day

XAUUSD daily chart August 22

Gold is trading down for the second day in a row as investors are reluctant to take positions as they are waiting for Fed policy clarification. XAU/USD is negative but close to 1,500 yet.

Currently, the metal is trading at 1,496 dollar per ounce, which is 0.40% negative in the day. The unit looks supported by the 1,490 level as it has been in the last week.

According to FX Empire analyst James Hyerczyk, it looks like bond investors still fear the Fed will not be aggressive enough in its rate cutting to save the economy. So after George’s remarks, the price came a bit under pressure.

“The current price of gold reflects the market pricing in a 25-basis point rate cut in September,” Hyerczyk says. “So, Powell is going to have to show that the Fed is willing to cut further in October or December to generate another surge in gold prices.”

Technically, the bearish potential is still there with the 1,480 as significant support. Below there, gold would test the 1,440 area. However, as noted above, it is all about fundamental matters, so resistances are at 1,510, and then 1,525 and multi-year highs at 1,535.

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