Asia Day Ahead: Gold, USD/JPY on watch in the aftermath of Fed meeting

Asia Open

The Asian session was set for a mixed start, with Nikkei -0.50%, ASX +0.09% and KOSPI -0.31% at the time of writing, following a volatile session in Wall Street. The conclusion of the US Federal Reserve (Fed) meeting overnight was the highlight, which saw policy rate unchanged at 5.25%-5.50% in a widely expected move, but comments seem to offer takeaways for both the bulls and the bears.

For one, the central bank noted a “lack of further progress” towards its inflation objective and wants to seek for greater confidence in the data before considering rate cuts. That very much anchored market rate expectations for potentially having only one 25 basis point (bp) rate cut in 2024.

However, the Fed also reflected a high threshold for additional rate hikes despite the recent run in persistent inflation, seeing rate hike as “unlikely”. That may offer some calm that policy settings will not get more restrictive. It also indicated to slow its quantitative tightening (QT) process to a monthly run-off of $25 billion for Treasury securities from $60 billion.

Overall, the outcome offered somewhat of a middle ground, with the Fed walking back on earlier rate cuts from the previous March meeting, but overall tone still seems less hawkish that what markets were expecting. The announcement for a tapering of its QT process has put a cap on Treasury yields, which dragged the US dollar 0.6% lower overnight.

What to watch: Gold

Gold managed to regain some ground overnight after retracing more than 5% over the past two weeks, with the yellow metal finding comfort from falling Treasury yields and a weaker US dollar. Its daily relative strength index (RSI) is attempting to hold above the key 50 level for now, which will have to see some defending ahead to keep buyers in near-term control. A move above Tuesday’s high at the US$2,347 level may offer some conviction, which could pave the way towards the US$2,400 level next.

On the other hand, if prices failed to stay above the US$2,290 level, where dip-buying was sighted back on 23 April. It may suggest sellers in greater control and price may set its sight on the US$2,223 level where the daily Ichimoku Cloud support stands.

What to watch: USD/JPY

The USD/JPY has plunged as much as 2% in early Asia hours, following a weaker US dollar in the aftermath of the Fed meeting and speculations of another round of yen-buying intervention by Japanese authorities exacerbating the plunge. However, the pair was quick to recover, paring back more than 50% of its initial decline as a less hawkish Fed outcome and intervention efforts failed to dent the appetite for carry traders.

The pair remains in an ascending channel pattern since the start of the year, with any recovery likely to retest the upper channel trendline resistance at the 158.00 level once more. On the downside, the 151.92 level remains a crucial support to hold, where the lower channel support stands.