Intraday Market Thoughts

Fed Hits Gold in Matter of Minutes

by Ashraf Laidi
Feb 20, 2013 23:48

Dollar Jumps After FOMC Minutes, Gold Sinks

A less-dovish tilt in the FOMC minutes led to a US dollar rally and a drop in gold. On the day the US dollar was the top performer while cable fell to a two-and-a-half year low. The Asia-Pacific calendar is light but includes Chinese leading indicators. Ashraf has opened FULL ACCCESS to the latest Premium Insights for a limited period of time. see link below at the FINAL PARAGRAPH of this IMT.

Several FOMC members argued the Fed should be ready to alter the $85 billion monthly pace of QE, according to the minutes of the Jan 30-31 meeting. The comment certainly wasn't a smoking gun but it emphasized that QE has peaked.

The US dollar made broad gains following the minutes, particularly against the euro and pound. EUR/USD dropped 75 pips to 1.3275 while sterling plummeted below the 2012 low of 1.5235 to the lowest since 2010.

Earlier in the day, Ashraf argued for continued to cable shorts based on relatively neutral positioning in the CFTC data.

Gold was the other big story of the day as it fell more than $40 to $1564. There were rumors about a commodity fund liquidating but it was more-likely a short squeeze after several days of declines. The mid-2012 lows near $1525 are now in focus.

Despite the improved tone from the Fed, there are reasons for concern. Heavy equipment maker and global economic barometer Caterpillar warned of a 4% y/y drop in business and US housing starts fell 8.5% in January. Canadian house prices also declined for the fifth consecutive month.

Another look at the health of the global economy comes with the Conference Board's January leading index for China at 0200 GMT. The release isn't typically a market mover but with nothing else on the calendar, it will attract extra attention.  TEMPORARY FULL ACCESS TO LATEST PREMIUM INSIGHTS

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