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Federal Reserve Chair Jerome Powell said inflation had picked up but should…

Federal Reserve Chair Jerome Powell said inflation had picked up but should move back toward the U.S. central bank’s 2% target once supply imbalances resolve

20210622
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Market Focus

Dow Jones futures, along with S&P 500 futures and Nasdaq 100 futures, were higher late Monday following the Dow Jones-led stock market rally. On Monday, the tech-heavy Nasdaq gained 0.84% (118.5 points), while the S&P 500 rallied 1.4% (59.2 points). The Dow Jones Industrial Average surged 1.8% or 586 points. Among the Dow Jones leaders, Apple (AAPL) advanced 1.4% Monday, while Microsoft (MSFT) moved up 1.2% in today’s stock market; Tesla (TSLA) fell 0.4% Monday, as it battles to retake its long-term 200-day moving average.

Federal Reserve Chair Jerome Powell said inflation had picked up but should move back toward the U.S. central bank’s 2% target once supply imbalances resolve. “Inflation has increased notably in recent months,” Powell said in written remarks prepared for his Tuesday testimony before the House Select Subcommittee on the Coronavirus Crisis, citing increases in oil prices and a “rebound” in spending as the U.S. economy reopens. “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” he said.

However, some Fed officials estimate that the central bank may need to tighten policy sooner than it expects. Dallas Fed President Robert Kaplan said he favors starting the process of tapering the central bank’s ongoing bond purchases “sooner rather than later,” while his counterpart from St. Louis, James Bullard, called it “appropriate” that policymakers last week opened the tapering debate. Neither Bullard nor Kaplan votes on the Federal Open Market Committee this year.

Powell’s remarks reprised his opening comments at his June 16 press conference, following a policy meeting of the central bank. Investors will tune in to the hearing Tuesday for potential questions that shed more light on his view on the pace of the economic rebound and for how much longer the central bank should keep its monetary policy on an emergency footing.

Main Pairs Movement

The dollar underwent a correction due to its extreme overbought conditions, but it remains the strongest currency across the Forex board. It lost most of its gains in the previous day during the North America session amid solid equity rallies.

Euro pair corrected up to 1.1920, holding nearby at the end of the day. ECB’s President Christine Lagarde said that the outlook for the euro area economy is brightening as the pandemic situation improves but warned about the need to remain vigilant, suggesting that tightening would be premature.

Cable surged on the optimistic market mood despite worrisome comments from UK Prime Minister Boris Johnson. Johnson said that cases of the coronavirus Delta variant are still going up, and thus they need to be cautious on easing restrictions. He then added that data is looking good ahead of the July 19 deadline, but traveling will still be “difficult.”

Aussie trades around 0.7540, helped by the better performance of equities. Loonie pair plummeted over 100 pips daily, benefitting from the greenback’s corrective decline and soaring crude oil prices. WTI closed the day at $73.00 a barrel, while Brent climbed 2.20% during the day. Gold posted a modest daily advance. Spot gold settled at $ 1,784 a troy ounce.

Technical Analysis

XAUUSD (Daily Chart)

Gold looks to pick up the recovery after dropping to the monthly low. In the near- term, it is expected to see some bulls on gold as it needs an adjustment from its oversold condition. From the technical indicators, both RSI and Bollinger band show that gold needs a rest from its bearish momentum. The RSI is currently near 30 level, indicating that gold is due to a bounce-back; at the same time, gold has reached the very lower band of the Bollinger band, which also suggests a bounce back from gold. At the moment, gold is clinging at the resistance level, 1780ish; to the upside, if gold can successfully breach the resistance, it will head toward 1811.25.

Resistance: 1786.38, 1811.25, 1836.12

Support: 1755.6, 1705.86

EURUSD (Daily Chart)

EURUSD recovers back to 1.1910 level to start the week as the time of writing, correcting extreme oversold conditions from last week. The pair remains bearish as it declined below the descending channel to a new low last week; despite showing a bounce back on Monday, the outlook remains bearish. After plunging sharply to April’s support level at 1.18760, the pair bounces back a little to its immediate resistance level at 1.1945. At the moment, the RSI is located at a 30ish level, which is close to the oversold territory, giving the pair room to bounce back for an adjustment. Moreover, the MACD seems to turn positive on the four-hour chart, lending supports to bulls. As the time of writing, EURUSD is trading along with the resistance level at 1.1945; if it can successfully breach the level, it will potentially head to the next resistance at 1.2070; otherwise, the pair might consolidate in the range of 1.1945 and 1.18760 in the near- term.

Resistance: 1.1945, 1.207, 1.2175

Support: 1.18760, 1.1695 

GBPUSD (Four-Hour Chart)

GBPUSD advances beyond 1.3900 today, extending the corrective pullback. From the technical perspective, the intraday retreat from the 1.3800 level could be attributed to a correction from the previous oversold condition. On the four-hour chart, GBPUSD remains bearish as it continues to fall below the descending channel; however, the short-term momentum seems to turn bullish as the technical indicator, RSI, is currently in the neutral position, giving the pair rooms to extend further north; in the meantime, the MACD has turned to positive, lending supports to bulls. To the upside, GBPUSD is expected to head toward the next immediate resistance at 1.3963, and 1.3896 will become the immediate support for the pair.

Resistance: 1.3896, 1.3963, 1.4017

Support: 1.3787

20210622
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With economic activities gradually return to pre-pandemic levels, demand for crude oil…

With economic activities gradually return to pre-pandemic levels, demand for crude oil in either industrial or household use may outrun supply in the short term, therefore causing a surge in oil price

20210621
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Market Focus

US equity market declined on four consecutive days. The Dow Jones Industrial Average index suffered the most, dropped 1.58%. Meanwhile, the tech-heavy Nasdaq and the S&P 500 index also fell 0.81% and 1.31% respectively. All sectors within the S&P 500 settled in the red.

The European Central Bank will allow banks to exclude deposits held at the central banks when calculating their leverage ratio until March next year. The ECB’s attitude toward a loose leverage ratio is a strong contrast to the US, which the Fed has ended a similar exemption in March. It further reveals European banks’ dependence on bank loans, rather than capital markets, as a source of corporate financing.

Michael Burry, one that is famous for winning bet against housing bubbles in 2008, has warned retail traders about “losses as the size of countries” in the event of crypto and meme-stock declines. “When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed,” tweeted from Burry. Worth mentioning today is quad-witching day, with tons of stock and index options set to expire, options’ gamma will also deplete. It will take some time for gamma to refill, which leaves room for volatility to kick in.

Main Pairs Movement

The US dollar rally continues on Friday, with the dollar index soared to 92.2 from pre-FOMC’s 90.5, refreshed the largest weekly gain since last March. Non-US currencies are flashing oversold across four-hour and daily timeframes, and we anticipate a cool-off or rebound during next week’s trading.

All other major currencies were dropping against the dollar greenback on Friday except for the Japanese Yen. The 10-year US Treasury yields have been falling on Thursday and Friday, dipped a total of 14 basis points to settle around 1.447%. It seems like investors are pricing in high inflation shortly as observed from a tightening in the 2- and 10-year bond yield spread. Short-dated bonds are less desirable if near-term inflation remains high, the shift in demand from short-dated to longer-term bonds will create downward pressure on long rates. With rates dropping in the long-end of the yields curve, carry trade investors want to undo their position, thus enhance the value of the Japanese Yen.

Oil price continues to advance after a temporary pullback. With economic activities gradually return to pre-pandemic levels, demand for crude oil in either industrial or household use may outrun supply in the short term, therefore causing a surge in oil price. We may see yet accelerating upward momentum in fuel price as of summer approaches. WTI and Brent crude oil gained 0.87% and 0.55% on Friday.

Technical Analysis

XAUUSD (Daily Chart)

Gold looks to end its five-consecutive plunge after finding some support around $1770. The yellow metal rebounded to contest a 50% Fibonacci level of $1798 earlier today, but the upward momentum quickly faded. Nonetheless, the sell-off decelerated around $1770, and has the hope to slowly recover some of its losses as daily RSI breaching oversold threshold, thus will prompt some profit-takings from sellers. The immediate resistance remains to be today’s high of $1798, followed by 1825. We cannot completely rule out a further plummet as current fundamentals are acting against inflation-hedge Gold.

Resistance: 1798, 1825, 1860

Support: 1770, 1734, 1680

USDCHF (Daily Chart)

USDCHF lifted off-post hawkish Fed announcement, appreciation in the last three days completely erased losses in the past two months. Multiple key resistance lines failed to contain the bulls, and the price went straight to challenge the March support line at 0.923, which also marks the 61.8% Fibonacci level. We expect some pullbacks to take place next week towards 0.9154, if breached then 0.908 may lend some support to the continuation of an uptrend. RSI is on the verge of an overbought zone, currently printing 69.3.

Resistance: 0.923, 0.932, 0.947

Support: 0.916, 0.908, 0.9

GBPUSD (Daily Chart)

Cable officially ended its bullish trend which started from July 2020 by breaking a big ascending trendline. Price is currently finding ground at 1.38 handle, and we expect this pair to retrace upward to validate some of the key levels such as 1.389 and 1.396. The selling bias was certainly very strong this week given reopening concerns in the UK and the Fed’s surprise. However, UK remains be top listed country to initiate a full reopening, so investors need to keep a close eye on developments of the mutated virus in Britain. Any positive headline could easily boost Sterling, though it is unlikely to recapture the mentioned upward trendline.

Resistance: 1.4, 1.422, 1.437

Support: 1.382, 1.368, 1.352

20210621
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US equity market dropped as Federal Reserve is more hawkish than the…

US equity market dropped as Federal Reserve is more hawkish than the market expected

20210617
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Market Focus

US equity market dropped as Federal Reserve is more hawkish than the market expected. Though the initiation of tapering talk is widely anticipated, two interest rate hikes by the end of 2023 revealed by the dot plot had investors surprised. The Nasdaq 100 and Dow Jones Industrial Average index lost 0.34% and 0.77% respectively. All sectors closed in the red within the S&P 500 index except for Consumer Discretionary shares. The 10-year US Treasury yield surged 7.5 basis points to 1.57%.

The Federal Reserve kept interest rate unchanged, and here are Bloomberg’s key takeaways from the FOMC statement and Chair Jerome Powell’s press conference:

  • Inflation: Inflation forecasts for this year moved up, with PCE rising to 3.4% from 2.4% and core PCE to 3% from 2.2%. Next year’s forecasts for both edged up just a tenth of a percentage point to 2.1%, signaling Fed participants don’t see this year’s jumps lasting significantly into next year.
  • Dot plot: The 2023 median dot was higher, a lot higher. It showed 13 officials seeing at least one rate hike in 2023 and 11 saw two. Additionally, 7 participants are calling for a rate high as early as 2022. Only five members had rates unchanged, and the median is now 0.625%. Powell tried to calm the market by saying the main takeaway from the dot plot should be that many participants are more comfortable that the economic conditions in the Fed’s forward guidance will be met somewhat sooner than previously thought.
  • Unemployment rate: forecast at 4.5 in 2021, 3.8 in 2022, and 3.5 in 2023 from 4.5, 3.9, and 3.5 respectively. Powell said labor supply and demand are not matching up well, but that it should clear in the coming months.
  • IOER: there was a five basis point hike to 0.15%.
  • Tapering: Fed will begin meeting-by-meeting to assess progress towards the goal and talk about tapering, and emphasize tapering will be “orderly, methodical and transparent”.

Main Pairs Movement

Euro is the second worst-performing currency against the dollar on Wednesday, the first being the Swiss Franc, which plunged 0.97% and 1.11% respectively. The Fed has turned from extreme dovish to slightly hawkish, and will finally start to kick off the long-expected tapering talks in forthcoming meetings. Given ECB’s plan to bulk up monetary and fiscal spending in the second half of 2021, this officially marks the divergence between Federal Reserve and European Central Bank. The outlook for Euro is not so bright in the 2H20.

The cable also fell 0.6% amid the strengthening dollar. Today’s plunge is more likely a temporary shock to the Sterling rather than a long-term bearish trend like the Euro. Speculators are still factoring in the delay of reopening from Britain. However, we don’t think this delay will prolong into the summer given UK’s successful vaccination campaign. Once the delta variant concern is taken off the table, the UK economy will steer at full speed. An optimistic and hawkish BoE will continue to underpin the Pound, ad they may act ahead of the Federal Reserve in easing QE.

Technical Analysis

GBPUSD (Daily Chart)

Cable finally exited its consolidation phase from the downside. After trapped within a tight range between 1.42 and 1.408 for more than a month, the bears are set to seek gains in the south. Price promptly plunged toward the ascending trendline after the FOMC statement release and was finding support around 1.402 as of writing. Further on the downside, immediate horizontal resistance would be the big 1.4 round number, followed by May’s low of 1.38, and 1.367.

Resistance: 1.42, 1.437, 1.464

Support: 1.4, 1.382, 1.369

XAUUSD (Daily Chart)

XAUUSD continues to head south after penetrated the 2-month ascending trendline and DMA20 dynamic support. The yellow metal breached below 61.8% Fibonacci level of $1850, which previously defended bears’ attack. Closing below this level could open doors for sellers to capitalize on large downside space, where we might witness February’s huge plummet in gold price given the lack of inflation-hedge demand post FOMC meeting. On the downside, $1815 will be the next key level to watch for.

Resistance: 1890, 1920, 1960

Support: 1815, 1780, 1743

USDCAD (Daily Chart)

USDCAD is undergoing a U-shape recovery after the price was extremely subdued for the past two months. However, it is not completely out of the woods yet since a big downward trendline still hangs above the current price level, we need to see a solid breakout from the trendline to confirm a bullish reversal in USDCAD. In the near term, this pair looks to contest the 1.23 hurdle and failing to overcome this level could put the bears back into the driver’s seat as the persistent higher oil price always bolsters the Canadian dollar.

Resistance: 1.23, 1.25, 1.264

Support: 1.2, 1.1925, 1.18

20210617
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