Here are the latest developments in global markets:
FOREX: The dollar index was down by around 0.15% as market attention was firmly on Fed chief Jerome Powell’s testimony before Congress.
STOCKS: The Japanese Nikkei 225 and Topix indices rallied to finish the day higher by 1.1% and 0.9% respectively, pushing Japanese equities to their highest in three weeks. Hong Kong’s Hang Seng, however, traded lower by 0.8%. At 0810 GMT, futures tracking the major European indices were broadly in the green, though not by much. Futures on the Dow, S&P 500 and Nasdaq 100 were all down by around 0.1%, after yesterday’s strong equity performance in the US that saw the Dow, S&P 500 and Nasdaq Composite all rise by more than 1%.
COMMODITIES: WTI and Brent crude were down by 0.25% and 0.2%, at $63.77 and $67.39 per barrel respectively ahead of today’s API weekly report on US crude inventories. Gold was not much changed at $1,334 per ounce.
Major movers: Dollar eases as markets remain cautious ahead of Powell’s remarks; kiwi loses ground on trade numbers
Despite the dollar’s decline, the relevant index that gauges the greenback against the currencies of six major US trading partners still stood at a distance to the three-year low of 88.25 that was recorded around mid-February.
Powell’s testimony could determine the US currency’s short-term direction. Market participants have at the moment priced in less that three quarter percentage point interest rate hikes that the latest Fed dot plot projected. It remains to be seen whether the new Fed chief’s comments will incentivize market participants to revise those expectations. In his comments on Monday, Fed Governor Randal Quarles made it clear that a sustained period of higher growth might justify higher interest rates, but not at such a pace that would act to the detriment of economic activity.
Attention is also on Thursday’s release of the core personal consumption expenditures (PCE) price index for January, this being the Fed’s preferred inflation measure, while revised US Q4 2017 growth figures are due on Wednesday.
Dollar/yen was 0.1% higher at 107.00. This compares to the 15-month low 105.55 from February 16. Euro/dollar was up by 0.2% at 1.2340, ahead of key eurozone data releases as well as Sunday’s Italian elections – the outcome of the German SPD’s vote on whether to seal a coalition deal with Chancellor Merkel’s conservatives will be known on the same day. Pound/dollar traded higher by 0.15% at 1.3984 in a week with increased Brexit-related interest that will culminate with a speech by UK PM Theresa May on Britain’s future relationship with the EU on Friday.
The kiwi eased versus the greenback after the country recorded its biggest monthly trade deficit in more than a decade. Kiwi/dollar was down by 0.2% at 0.7289. Aussie/dollar also traded lower, though by only 0.1% at 0.7848.
Day ahead: Powell’s testimony the highlight, with eurozone business & consumer confidence surveys, German inflation, US durable goods & consumer confidence also on the agenda
The economic calendar has a number of releases that could spur positioning in the markets, however Jerome Powell’s first congressional testimony is viewed as the event having the greatest capacity to lead to sharper movements, not just in currency markets, but also in fixed income and equity markets.
Of most interest out of the eurozone will be numerous surveys gauging business sentiment and consumer confidence during the month of February; all of them will be coming from the European Commission’s Directorate-General for Economic and Financial Affairs and are due at 1000 GMT. Barring no exception, the surveys are anticipated to reflect a decline in February, mirroring the recent easing in the German ZEW and Ifo surveys, as well as the euro area’s PMI readings.
German preliminary inflation figures for the month of February are scheduled for release at 1300 GMT. These come a day ahead of the eurozone’s respective figures, which would constitute the last inflation input ahead of the ECB meeting on March 8 and thus the markets might assign a larger weight on them than would otherwise be the case.
Out of the US, durable goods orders for January are due at 1330 GMT, with a reduction in orders being projected relative to December. At 1400 GMT, the CaseShiller indices gauging house prices during the month of December will be made public, while data on consumer confidence for the month of February will be released at 1500 GMT. The consumer confidence index is expected to rise to 126.6, coming closer to November’s 18-year high of 128.6.
However, the data might lose their spark on the face of Jerome Powell’s first monetary policy testimony before Congress set to take place at 1500 GMT. The hearing comes at a sensitive time following increasing volatility in equity markets. Invariably, the new Fed chief aims at avoiding to say something that would unsettle markets, and it is likely that Powell would not deviate from this. His speech will be release earlier (at 1330 GMT). Another hearing in Congress featuring Powell is on the agenda on Thursday.
Swedish central bank First Deputy Governor Kerstin af Jocknick will be holding an opening speech at the exhibition titled “Sveriges Riksbank 350 years old – from banknote ban to negative interest rates” at 0900 GMT. Fellow Riksbank Deputy Governor Henry Ohlsson will be discussing the Swedish central bank’s tasks and his view of Swedish and international economic developments at 1700 GMT.
Oil traders will be paying attention to the API’s weekly data on crude stocks due at 2130 GMT.
In equities, corporations continue to release quarterly earnings reports, though the markets’ focus is expected to be on what Powell has to say later on Tuesday.
Brexit developments are also gathering attention as UK PM Theresa May prepares to deliver a speech on the nation’s relationship with the EU after Brexit later in the week. In politics, NAFTA negotiations, which have entered their seventh and final round, will also be attracting interest.
Technical Analysis: Gold looking neutral in short-term; bullish signal by stochastics in very short-term
Gold has to a significant extent been moving sideways over the last trading days, with the RSI hovering around the 50-neutral perceived level and projecting a neutral picture in the short-term. However, the stochastics are giving a bullish signal in the very short-term as the %K line has crossed above the slow %D one and both lines are heading higher.
A catalyst driving the US currency higher – for example a comment by new Fed chief J. Powell that is perceived as dollar-supportive by markets – is expected to lead to weakness in the dollar-denominated precious metal, with the area around the current level of the 50-day moving average at 1,322.39 potentially acting as support. This area also encapsulates the 38.2% Fibonacci retracement level of the December 12 to January 25 upleg at 1,316.29.
A weaker greenback on the other hand, could lend support to gold. In this scenario, resistance might come around the 23.6% Fibonacci point at 1,335.25. Price action is at the moment taking place not far below this level; stronger bullish movement would start to increasingly shift attention to late January’s one-and-a-half-year high of 1,365.89.
Lastly, it should be mentioned that there are other risk events throughout the week that could keep the safe-haven perceived yellow metal elevated, even in the face of a stronger dollar; Brexit developments, Italian elections, the German SPD’s decision on whether to re-enter a collation with Chancellor Merkel’s conservative bloc.
