Powell responds to market volatility

David Morrison  |  January / 2. Week
Powell Hears What Markets Saying, Finally!
 
Friday’s US employment report came in much better than expected. US companies added 312,000 workers to their payrolls in December - well above the 184,000 expected. In addition, the two prior releases were revised up by 54,000. Equity markets which were already bouncing sharply on news that US/China trade talks would take place this week surged on the news. Meanwhile, FX markets were relatively subdued until they heard comments from Federal Reserve Chair Jerome Powell. As far as investors were concerned these were decidedly dovish. Mr Powell said: ‘’the Fed wouldn’t hesitate to change balance sheet policy if needed’’ and this could be a key point for the fate of US dollar in short to mid term. Mr Powell now appears to be pivoting away from last month’s hawkish Fed statement and upbeat FOMC quarterly summary and this could take away some of the recent support for the greenback. We may learn more from the FOMC minutes this Wednesday. 
 
By the end of last week the dollar/yen had recouped much of Thursday’s losses while the Aussie dollar rallied almost 5% from that week’s lows. Going forward, Brexit will be a hot topic once again. Over the weekend UK Prime Minister Theresa May insisted that a ‘meaningful vote’ will take place in January, but she wouldn’t be drawn on a precise date. So once again noves in sterling dollar will be headline-driven for now. It’s worth noting that Fed chair Powell is due to speak on Thursday and the US consumer price index will be released on Friday.
 
During last week’s turmoil the sterling dollar pair tested long-term trend support and managed a decent bounce. Cable has started the week positively with traders eyeing 1.2800 on the upside.  But any negative Brexit headlines could see bullishness evaporate quickly. The weekly chart suggests that the pound could recover against the US Dollar in the coming weeks. But we’ll need to see a break and consolidation above the 1.2850-1.2900 area for a more substantial rally. Bulls will also want the pair to hold above the 1.2600-1.2650 area.

GBPUSD Weekly
 
The EURO-USD has bounced off support at 1.1300 and is now testing resistance around  1.1430/50. The next level of resistance comes in around 1.1500
 
Early on Friday gold pushed up towards $1300 to trade at its highest level since last June. Gold is now up around 8% since mid-November while the Dollar Index has only lost 2% over the same period. In the short term support comes in around 1275-1280 and below there sellers will target 1250 or even 1240. There’s some solid resistance around 1295-1300 but this could be broken if we see another slump in global equities and a big risk-off move.
 
Hope you all have a great week!
 

 

Other Weekly Views

  • Sterling steady ahead of vote
    David Morrison  |  January / 3. Week

    Sterling has managed to hold on to last week's gains ahead of Tuesday's key Brexit vote. Meanwhile, gold is back in favour with investors

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    David Morrison  |  December / 2. Week

    On Saturday we heard that the US and China had managed to reach a tentative agreement over trade. As a result, President Trump has said that tariffs on Chinese imports to the US will stay at 10% for the next 90 days instead of being raised to 25% on January 1st as previously threatened

  • Fed Speaks Markets React
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    European and US equities were sharply higher early Monday. Investors were cheered by an apparent thaw in EU-Italian relations, a recovery in oil and hopes of a US/China trade breakthrough

  • Stock indices bounce back
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    European and US equities were sharply higher early Monday. Investors were cheered by an apparent thaw in EU-Italian relations, a recovery in oil and hopes of a US/China trade breakthrough

  • Trump administration will struggle to push through further tax reductions
    David Morrison  |  November / 3. Week

    Early last week the dollar came under selling pressure as traders expressed their uncertainty ahead of the US midterm elections. It continued to weaken after the Republicans increased their majority in the Senate, but lost control of the House of Representatives.

  • US dollar lost ground as November began
    David Morrison  |  November / 2. Week

    After a dismal performance in October, last week saw gobal equity markets rally sharply into the month-end.

  • Economic Calendar
    David Morrison  |  October / 5. Week

    On Wednesday the Bank of Japan kept its key interest rate unchanged at minus 10 basis points and its target for 10-year JGBs unchanged at zero. The Nikkei closed 2% higher while the yen was pretty much unchanged in the session.

  • ECB Takes Centre Stage
    David Morrison  |  October / 4. Week

    The US dollar continues to be in demand as investors look for safe-havens amid the carnage in global equity markets.

Show More Other Weekly Views

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