Powell
expressed optimism over the health of the US economy with inflation pushing
towards the 2% target, while downplaying concerns of market volatility. He
deftly maintained a safe distance when quizzed on whether the central bank
would raise rates more than three times this year – ultimately preventing
market fireworks. A key takeaway from the testimony was Powell’s statement that
the US economic outlook “remains strong despite the recent stock market
turbulence”. These hawkish remarks have not only reinforced market expectations
over a rate hike in March, but stimulated speculation that the Fed may raise
interest rates four times this year.
Today’s
main risk event for the Dollar will be the second estimate of the fourth
quarter US GDP, which is expected to show that the US economy expanded 2.5%. A
growth figure matching or exceeding market expectations could support the
prospects of higher rates, consequently boosting the Dollar further.
Focusing
on the technical picture, the Dollar bounced back to life against a basket of
major currencies on Tuesday, with prices venturing towards the 90.40 region. A
decisive breakout and daily close above the 90.55 lower high could signal the
end of the downtrend on the daily charts, ultimately bringing bulls back into
the game. The level of interest above 90.55 will be the 91.00 resistance level.
Equity bears
inspired by Powell
Asian
equities were depressed during early trading on Wednesday following Wall Street’s
steep decline overnight. Hawkish comments from Jerome Powell have rekindled
interest rate hike fears and as such continues to pressure stock markets.
European shares could edge lower as investors adopt a guarded approach with the
caution potentially trickling back down into Wall Street later in the day.
It is becoming increasingly clear that global
stocks still remain highly sensitive to the prospects of rising inflation and
interest rate fears. With Powell’s testimony fuelling market speculation of
higher US interest rates this year, stock markets remain exposed to downside
risks as equity bears lurk in the background.
Gold melts on Fed
hike expectations
Gold
found itself under severe selling pressure on Wednesday thanks to an aggressively
appreciating US Dollar. The yellow metal’s downside was fuelled by hawkish
remarks from Federal Reserve Chairman Jerome Powell, which heightened
speculations of higher US interest rates this year. Gold, which is
zero-yielding, is likely to receive further punishment in a high interest rate
environment. From a technical standpoint, Gold is bearish on the daily charts.
Prices
are trading below the 50 Simple Moving Average while the MACD has crossed to
the downside. Previous support at $1324.15 could transform into a dynamic
resistance that encourages a decline to $1310 and $1300, respectively. For
bulls to jump back into the game, Gold prices need to break back above
$1324.15.
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