Ahead of last week’s key FOMC (Federal Open Market Committee) meeting, Sebastien, our Head Trader, delivered sharp insights into why he anticipated a 0.5% interest rate cut and how that outlook tied into the recent uptrend in Gold. Not only did he break down the underlying fundamentals driving the market before the event, but he also live traded the event with our members, guiding them through the volatility in real time.
Here’s a summary of the key points Sebastien shared before the meeting and how they aligned with market movements:
Why Sebastien Expected a 0.5% Rate Cut
1. Market Sentiment Shifting Toward 0.5%:
Sebastien highlighted how market sentiment had shifted toward expecting a more aggressive cut of 0.5%. This move, in his view, was essential to respecting the initial DOT plot (the Fed’s projections for interest rates).
2. Fundamental Data Signaling USD Weakness:
– Employment Data: The U.S. jobs market had weakened, with job numbers declining from 206K to 142K and unemployment rising from 4.1% to 4.2%. These are typically bearish signals for the USD, setting the stage for a rate cut.
– Inflation (CPI): While core CPI rose slightly from 0.1% to 0.3%, year-on-year CPI dropped from 3.0% to 2.5%. Sebastien saw this as another USD-bearish signal, making it more likely the Fed would intervene with a larger rate cut.
– ISM Data: The ISM Manufacturing Index dropped from 48.5 to 47.2, reflecting contraction, while ISM Services edged up from 48.8 to 51. Although ISM Services pushed above contraction levels (slightly bullish for USD), the broader picture leaned bearish for the dollar.
3. Market Behavior Pre-FOMC:
– US 2-Year Treasury Yield: The yield had fallen from 4.3% to 3.6%, indicating bearish sentiment for USD, as lower yields typically reduce demand for the currency.
– Stock Market Surge: Meanwhile, the stock market had rallied, with the S&P 500 hitting new all-time highs (ATH). This stock market strength, while typically USD bullish, didn’t align with the other indicators signaling a weakening USD.
Why This Meant a Bullish Gold Outlook
Sebastien connected these economic signals to the recent surge in gold prices. The overall bearish sentiment toward the USD and uncertainty around inflation had been fueling demand for gold as a safe-haven asset. The likelihood of a deeper rate cut (0.5%) would weaken the dollar further, driving investors into gold.
Live Trading FOMC with Sebastien
During the FOMC event, Sebastien led our members through the action in real-time. His analysis played out almost exactly as anticipated:
– The Fed’s decision was closely watched, and when the market leaned toward a 0.5% cut, gold surged in response.
In his words: “A 0.5% cut, along with a more dovish tone from the Fed, was the reasonable choice to address the current economic conditions and reassess the DOT plot. The market expected this, so a 0.25% cut would’ve been bullish for USD. But the Fed aligned with expectations, setting up a softer landing scenario that continued to fuel gold’s rally.”
Key Takeaways
Sebastien’s ability to combine fundamental analysis with live trading insights provided incredible value to members during this highly anticipated event. His deep dive into the labor market, inflation, and bond yields all pointed toward a weaker USD and a bullish trend in gold, which he executed on successfully in the live session.
Missed out on this live trading session? Don’t worry—you can still join Sebastien and the team for future events by becoming a Gold Member. Trading with real-time insights, particularly during major economic releases, can make all the difference in navigating volatile markets.