Powell disappoints market hawks, dollar braces for Fed Minutes surprise
Risk-free rates in the US have decreased by 5-10 basis points, and gold prices have risen after Powell's speech on Friday. The head of the central bank avoided the hawkish "chorus" of other top Fed managers and chose a more cautious tone:
Key highlights from Powell's speech:
- Financial markets have been trying to price in a slightly different (i.e., more hawkish) trajectory of the central bank's interest rate for some time.
- Incoming data confirms the FOMC's position that it will take some time to reduce inflation.
- There is still time to monitor the incoming data.
- There is no consensus on whether the policy tightening conducted so far is sufficient.
- Credit market shocks may limit the scope for policy tightening.
Compared to the statements of other officials last week, Powell's comments are much less definitive and seem like an attempt to restrain the rapid reassessment of the chances of a June hike while not completely ruling out tightening in June.
European currencies have moderately risen against the dollar, and the yen is consolidating near a multi-month resistance level (138 yen per dollar). Analyzing the technical chart of EURUSD, we can generally speak of an equilibrium: the price broke the bullish trendline, thus delaying the euro's rally against the dollar this year, which was widely advertised in April. However, upon reaching horizontal support at 1.08, it found sufficient buyers, while sellers tempered their enthusiasm after Powell's speech:
This week, there are two potential catalysts for a potential bearish breakthrough: the Fed minutes (Wednesday) and Core PCE on Friday. The inflation forecast is 4.6% YoY, but it should be noted that the market has underestimated inflation as measured by Core PCE in recent months. Even in the case of a downward movement, strong support should emerge near 1.07 with the formation of a double bottom. The rationale is simple: the ECB has no intention of backing down on rate hikes. Earlier last week, one of the ECB officials admitted that a strong tourist season may boost inflation.
The technical chart for USDJPY resembles a true resistance breakout: the price above 138 met some bearish pressure in anticipation of a rebound, but the movement quickly run out of steam and draw buying interest:
With the scheduled reports for this week, the risk is increasing that the price will move towards the 140 area, where profit-taking bearish momentum emerge, and a correction will ensue.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Risk-free rates in the US have decreased by 5-10 basis points, and gold prices have risen after Powell's speech on Friday. The head of the central bank avoided the hawkish "chorus" of other top Fed managers and chose a more cautious tone:
Key highlights from Powell's speech:
- Financial markets have been trying to price in a slightly different (i.e., more hawkish) trajectory of the central bank's interest rate for some time.
- Incoming data confirms the FOMC's position that it will take some time to reduce inflation.
- There is still time to monitor the incoming data.
- There is no consensus on whether the policy tightening conducted so far is sufficient.
- Credit market shocks may limit the scope for policy tightening.
Compared to the statements of other officials last week, Powell's comments are much less definitive and seem like an attempt to restrain the rapid reassessment of the chances of a June hike while not completely ruling out tightening in June.
European currencies have moderately risen against the dollar, and the yen is consolidating near a multi-month resistance level (138 yen per dollar). Analyzing the technical chart of EURUSD, we can generally speak of an equilibrium: the price broke the bullish trendline, thus delaying the euro's rally against the dollar this year, which was widely advertised in April. However, upon reaching horizontal support at 1.08, it found sufficient buyers, while sellers tempered their enthusiasm after Powell's speech:
This week, there are two potential catalysts for a potential bearish breakthrough: the Fed minutes (Wednesday) and Core PCE on Friday. The inflation forecast is 4.6% YoY, but it should be noted that the market has underestimated inflation as measured by Core PCE in recent months. Even in the case of a downward movement, strong support should emerge near 1.07 with the formation of a double bottom. The rationale is simple: the ECB has no intention of backing down on rate hikes. Earlier last week, one of the ECB officials admitted that a strong tourist season may boost inflation.
The technical chart for USDJPY resembles a true resistance breakout: the price above 138 met some bearish pressure in anticipation of a rebound, but the movement quickly run out of steam and draw buying interest:
With the scheduled reports for this week, the risk is increasing that the price will move towards the 140 area, where profit-taking bearish momentum emerge, and a correction will ensue.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.