COMMENT ON THIS WEEK'S FOMC MEETING and UPDATE ON THE U.S. DOLLAR (2:30 pm EDST)
This month's FOMC meeting is today and tomorrow, and market analysts are generally expecting the Fed to remain hawkish and to announce another 50 basis point (1/2 %) interest rate hike. Curiously, there is even speculation that a 75 basis point hike is possible. This talk of a 75 point hike may be a strategy by the Fed to encourage investor relief if a 50 point hike is given instead to avoid a serious sell-off in equity markets which have been plummeting over the last several days. The Fed's announcement is expected at 2:00 pm Wednesday afternoon. Because we are now entering multiple reversal zones, it would not be surprising to see the broad stock market form a significant bottom and start to reverse back up, at least short-term. But sometimes (not often) a reversal zone will correspond to a breakdown (or a breakout if markets are rising - they are falling here) with the market breaking a support line and falling steeply instead of bouncing back up. The announcement of a 75 basis point interest rate hike could potentially trigger such a move. Even if the market tumbles past Wednesday, there is a strong reversal zone next week that could potentially turn it back up. We shall have to wait and see how all of this plays out. We are still on the sidelines of the broad stock market.
We note that the U.S. Dollar Index has now broken and closed just above its 105 top from May 13. As I've mentioned in previous blogs on the U.S. dollar (see blogs from April 9 and April 27), a clear rise above 104-105 would suggest that the greenback is turning bullish and is bypassing its long-term 15-16 year bottom (expected in 2023-2025 in the 55-60 range). However, we are in a reversal zone time frame now (although not one specifically for currencies), so this could turn out to be a bearish "double-top" formation. But if the dollar can stay above 105 and continue higher, we will have to abandon the idea of a bearish 15-16 year cycle moving to its final bottom. A bullish U.S. dollar would support our idea that gold's long-term 23 year cycle has peaked and is in the process of falling to its final bottom in 2023-2024 in the $1000 area.
This month's FOMC meeting is today and tomorrow, and market analysts are generally expecting the Fed to remain hawkish and to announce another 50 basis point (1/2 %) interest rate hike. Curiously, there is even speculation that a 75 basis point hike is possible. This talk of a 75 point hike may be a strategy by the Fed to encourage investor relief if a 50 point hike is given instead to avoid a serious sell-off in equity markets which have been plummeting over the last several days. The Fed's announcement is expected at 2:00 pm Wednesday afternoon. Because we are now entering multiple reversal zones, it would not be surprising to see the broad stock market form a significant bottom and start to reverse back up, at least short-term. But sometimes (not often) a reversal zone will correspond to a breakdown (or a breakout if markets are rising - they are falling here) with the market breaking a support line and falling steeply instead of bouncing back up. The announcement of a 75 basis point interest rate hike could potentially trigger such a move. Even if the market tumbles past Wednesday, there is a strong reversal zone next week that could potentially turn it back up. We shall have to wait and see how all of this plays out. We are still on the sidelines of the broad stock market.
We note that the U.S. Dollar Index has now broken and closed just above its 105 top from May 13. As I've mentioned in previous blogs on the U.S. dollar (see blogs from April 9 and April 27), a clear rise above 104-105 would suggest that the greenback is turning bullish and is bypassing its long-term 15-16 year bottom (expected in 2023-2025 in the 55-60 range). However, we are in a reversal zone time frame now (although not one specifically for currencies), so this could turn out to be a bearish "double-top" formation. But if the dollar can stay above 105 and continue higher, we will have to abandon the idea of a bearish 15-16 year cycle moving to its final bottom. A bullish U.S. dollar would support our idea that gold's long-term 23 year cycle has peaked and is in the process of falling to its final bottom in 2023-2024 in the $1000 area.
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