Precious Metals Tumble After Powell's Speech | Daily Market Analysis

Key events:                                                    

• Eurozone - ECB President Lagarde Speaks                     
• USA - ADP Nonfarm Employment Change (Feb)
• USA - Fed Chair Powell Testifies                     
• USA - JOLTs Job Openings (Jan)    
• Canada - BoC Interest Rate Decision
• USA - Crude Oil Inventories

Precious metals seem to be losing their luster after U.S. Federal Reserve Chairman Jerome Powell stepped up the rhetoric about rate hikes in his semi-annual testimony before lawmakers Tuesday.

Powell said the final peak in rates is likely to be higher than expected, and the central bank is willing to increase the pace of rate hikes if necessary. In his previous speech a month ago, Powell emphasized the topic of "disinflation" and did not take an aggressive tone after the strong U.S. jobs report. The increased aggressiveness on Tuesday pushed the 2-year U.S. Treasury bond yield to its highest level since 2007, putting pressure on precious metals.

The odds of a 50 basis point hike at the March 21-22 FOMC meeting have increased as U.S. rate futures are now priced in a terminal federal funds rate of 5.63% by September from 5.48% before

Powell's speech and 5% in late. January, nearly 100 bps above the current Fed discount rate of 4.50%-4.75%.

The main focus now is on the U.S. jobs data due March 10 and the U.S. Consumer Price Index due March 14.

Non-Farm Payrolls rose 224,000 in February, slower than the 443,000 in January, while unemployment is expected to remain at 3.4, close to a fifty-year low.

Consumer price inflation slowed to 6.0% year-over-year in February from 6.4% in January, but the core CPI remained steady at 0.4% month-over-month. Stronger-than-expected U.S. data may continue to put pressure on precious metals.

In recent days, the XAU/USD pair has failed decisively to cross the upper boundary of the convergence on the horizontal trend line from late February near 1847 and the early February low of 1860. This follows a rebound from near-strong support at the late February 1804 low, coinciding with the 89-day Moving Average.

Unless XAU/USD falls into the vital 1774-1786 buffer zone, the technical outlook remains neutral. The convergence area includes the mid-November low of 1774 the 50% pullback of the November-February rise, and the 200-day Moving Average. Any drop below that would derail the rally from late 2022.

At the same time, the dollar index is continuing to rise after the recent testimony by Chair Powell and is currently trading close to the 106.00 level. The U.S. dollar has also gained momentum, as Powell suggested that there may be a half percentage point increase in interest rates at the Federal Reserve's next meeting on March 22. Additionally, Powell hinted that the final interest rate may be higher than previously anticipated.

CME Group's FedWatch Tool indicates that there is now a 75% chance of a 50 basis points rate hike, compared to the 9% probability one month ago. The U.S. 2-year yields are also above 5%, a level not seen since June 2007, due to the broader upward trend in the market.

As for U.S. economic data, MBA Mortgage Applications will be released first, followed by February's ADP report, Balance of Trade, JOLTs Job Openings, and the second semiannual testimony by Chief Powell. This time, Powell will testify before the House Financial Services Committee.