Traders Evaluate Yesterdays Fed Statement and Press Conference

Yesterday the Federal Reserve held its first FOMC meeting for the new year, and the new decade. Following the conclusion and the release of this month’s statement it became immediately clear that there were no major changes to their current monetary policy. In fact, there were only a few words that were changed in this month statement when compared to the last FOMC statement.

As promised the Fed reemphasized that interest rates would be left alone. They also maintained that interest rates most likely will remain unchanged for the entire year.

Possibly one of the most noteworthy details to emerge from yesterday’s meeting came from comments made by Chairman Jerome Powell when he was asked about the accumulation of assets which began in September of last year. This was the first time the Federal Reserve began to enlarge their balance sheet since they ended their quantitative easing program (QE4). Since September the Fed has been purchasing treasury bills to the tune of $60 billion each month. Those purchases have now totaled roughly $200 billion.

The concern was that when the Federal Reserve decides to discontinue the monthly asset purchases that they could create undue volatility which occurred the last time the Fed unwound balance sheet purchases by monthly liquidation. The mistake made then was the predetermined course,was in essence on autopilot. Many analysts including myself believe that this action is very reminiscent of quantitative easing.

Chairman Powell walked a tight rope as he successfully debated the differences between then and now. First, he said that when the U.S. Central Bank ends its current balance sheet expansion it would do so gradually, and most importantly on no predefined course. He emphasized that recent purchases of treasury bills were simply maintaining solid liquidity as we continue our economic expansion.

Today gold closed fractionally higher and as of 4:30 PM EST is currently trading at $1570.30 which is a net increase of $1.90 on the day. April gold futures, which will become the next most active contract month once the February contract expires is currently fixed at $1577.60 which is a net gain of $1.60 on the day.

Even though February gold futures closed well off of the intraday high today ($1585), it has continued to trade above the support trendline which is created from the lows starting at $1532 and connecting them to subsequent higher lows.

Our technical studies continue to indicate resistance at $1594, with major resistance at $1613. Support is a moving target based upon the trendline we spoke about above. This trendline is visible in the attached chart shown as a blue dashed line.

Wishing you as always, good trading,