Markets are responding to FED Chair Powell’s dovish testimony before the House Financial Services Committee yesterday. The FED Chair reaffirmed to markets the potential for a rate cut at the end of this month and possibly more to follow as they focus on weaker global data. He was asked if the strong jobs number on Friday changed the view on cutting rate, and he responded by stating “no”. He cited the US debt ceiling as a cause for concern, along with Brexit and Trade. He also cited slowing global momentum and that the incoming data since their June meeting had dimmed and disappointed. He said that low inflation may prove more persistent going forward and this coupled with the other factors meant a rate cut was on the cards, regardless of stronger jobs data. Equities moved higher on the back of these comments as the markets switched to a risk on mode. US Indices reached all time highs with the US 500 Index reengaging the 3000.00 level. Asian equities have also followed their US counterparts’ higher and European futures pointing to a positive open. The USD moved lower in conjunction with Treasury yields. USDCAD fell to 1.3050 over night while Gold has moved higher to trade around 1420.00.
FED Chair Powell will testify before the Senate Banking Committee today. The Bank of England will release its Financial Stability Report this morning, along with its FPC Statement. The ECB will be releasing their Monetary Policy Meeting Accounts early this afternoon. US CPI and Core CPI data will be published before the US open.
The USDJPY pair has moved lower since testing resistance around 109.000 yesterday, and is now trading around the 108.000 level after FED Chair Powell’s testimony. A loss of this area may create a test on the 107.550 level followed by the 107.000 level and the recent low for June around 106.780. A failure to find support at this low would create another in a series of lower lows, continuing the retracement of the January flash crash. Support may also be found around 106.000 followed by the 105.000/104.840 support.
Resistance around the 109.000 area has created a test on this previous level of support. A push past this area potentially opens the path towards the 110.000 area, followed by the 110.213 area. The lower high at 110.675 might present an opportunity to evaluate the strength of the move, but a continued push higher may open the way towards the 111.000 area and a close of the gap from early May. Beyond this the 112.000/112.400 area marked the highs of 2019.
The EURGBP pair has tried to push above the 0.9000 level but has instead stalled in the area of resistance as the price consolidates. Brexit headlines and economic data, coupled with the tone from the ECB and BOE have created the rise in the pair since the May low of 0.8500. A continued move higher may push towards the 0.9100/0.9110 area of previous resistance. This is the area where rallies in the pair have stalled in the past. However a breakout may push towards the 0.9200 level.
Support for the pair has formed along the rising trend line at 0.8955. A loss of this line sets the stage for a pullback but this may find support at 0.8920 or 0.8900. Below these levels the 0.8872 failed break down in June might result in a push towards the 0.8800 area. The 0.8744 level has been used as support and resistance on the chart, forming a key high and low. The 0.8700/0.8683 area has also been used as resistance and might form an area of interest in the event of a selloff to seek and test support.