All Eyes on Jerome Powell’s Testimony

Asian shares were mostly up this morning following a rebound on Wall Street overnight.

In written remarks prepared for his testimony before the House Select Subcommittee on the Coronavirus Crises and released yesterday, Powell reiterated his view that the recent jump in inflation would prove transitory. While such comments seem to have soothed concerns over the Fed’s hawkish tilt, the question is for how long? Given how markets remain highly sensitive to comments from Fed officials and inflation expectations, the next few days promise to be quite eventful for markets with numerous Fed speakers on the roster.

Dollar waits for Powell

The dollar was on standby on Tuesday as investors waited for testimony by Jerome Powell.

Despite the weakness witnessed yesterday, the dollar remains in a position of power backed by Fed hawks. With the next few days jampacked with speeches from US central bank officials and key economic data, the greenback could be in store for a wild ride. Focusing on today, market players will closely scrutinise Powell’s Q&A for insight into the health of the US economy and outlook for monetary policy after last week’s Fed fireworks.

Looking at the technical picture, the dollar Index (DXY) remains heavily bullish on the daily charts. After being boosted by the Fed last week, the dollar has smashed through multiple walls of resistance. A strong move back above 92.00 could encourage an advance towards 92.50 and 92.80. Alternatively, sustained weakness under 92.00 may trigger a technical pullback towards the 200-day Simple Moving Average around 91.50.

EURUSD attempts to defend 1.19.

The euro has entered Tuesday’s session on a shaky note against the dollar with prices wobbling around 1.19 as of writing.

After the brutal selloff witnessed last week, the euro experienced a rebound on Monday forming support around 1.1850. Investors may turn their attention towards the Eurozone consumer confidence flash survey for June which is forecast at -3 compared to the -5.1 in May. Speeches from the ECB’s Lane and Schnabel are also on the calendar and any positivity could lend euro bulls a helping hand, pushing EURUSD back towards 1.1950 and possibly higher.

Commodity spotlight – Gold

Gold experienced a small bounce yesterday thanks to a weaker dollar and dovish comments from Federal Reserve officials. However, the precious metal remains shaky and vulnerable to further losses and this continues to be reflected in price action. A stronger dollar and the prospects of higher interest rates are set to offer the zero-yielding metal nothing but more potential pain ahead.

Looking at the technical picture, prices are heavily bearish on the daily charts with sustained weakness below $1800 opening the door to $1750 and $1735. Alternatively, a breakout above $1800 could trigger a move towards $1842, a level found above both the 50-day and 200-day Simple Moving Averages.

By Lukman Otunuga Research Analyst

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