The US dollar, equity markets and commodities alike reacted to Fed’s Powell testimony. The main US indices recovered the lost ground, and the dollar’s weakness dominated.
Last week the Fed took the markets by surprise as it delivered a hawkish statement. It could very well be that the Fed’s Chair statement at the press conference was undermined by the hawkish dot plot released thirty minutes later.
In any case, yesterday Jerome Powell testified in front of the House Select Subcommittee on the coronavirus crisis and this time there was no dot plot to derail the message. The Fed’s Chair pledged that the central bank would do everything possible to help the economy recover for as long as it takes – so risk-on got a boost.
As such, the US dollar was sold across the board. The EUR/USD, AUD/USD, GBP/USD – they all gained this week after closing at the lows last Friday. However, the gains were not enough to offset last week’s weakness, but nevertheless the bearish sentiment on the US dollar is back with a vengeance this week.
Stocks liked the Fed’s tone. The S&P500 index reached a new high, and the overall equity market indices traded with a bid tone. In Europe, the major indices follow in the US indices footsteps, remaining bid as the Fed still favours dovish talks.
Oil is the only major asset that did not react to last week’s hawkish Fed message. In fact, it stood firm above $70 and now threatens to break above $75.
Today it is all about the PMI data both in Europe and the United States. Next week is the NFP week and the jobs data is critical in light of Fed’s new message, so any improvement in the employment component in the manufacturing or services sectors should move markets.
Markets to Watch
WTI Crude Oil, EUR/USD, EUR/JPY– markets in focus today.
WTI Crude Oil
WTI crude oil price relentless move higher is the one that called for caution on the US dollar bounce from its lows last week. The crude oil price did not blink on the Fed’s message, and in fact, it made a new high for the year. The ascending triangle’s measured move points to $76 and beyond.
The EUR/USD pair made a small triple bottom at the 1.1850 area as the head of an inverse head and shoulders pattern. The market has broken above the neckline and now it is retesting it, as often happens. One should not discount a move back to 1.20 toward the end of the trading week.
The EUR/JPY cross bounced from the lows as well, benefiting from the bid behind both the EUR/USD and the USDJPY. The inverse head and shoulders’ measured move points to 133, while the market is currently breaking out of a continuation pattern.
Winners and Losers
Equity markets have a strong comeback, while the dollar lost ground in the first two trading days of the week.