Sample Category Title

Powell confirms rate cut

The world was watching Fed Chair Powells appearance before congress. By all accounts, Powell provided a clear signal for an imminent reduction of the Feds fund rate. The USD reacted by losing value against all G10 currencies. Powell’s reiterated the word “uncertainty” five times to higher the risk of a global slowdown. He went on to say “manufacturing, trade, and investment are all weak all around the world”. In regards to the strong June payroll report, which cause so much doubt into the projected Fed dovishness, was "great" news but would not tip the balance on soft wage growth and declining inflation. Minutes from the prior FOMC meeting all indicate member wants a more accommodating policy. July rate cut is now a near certainty. There are lingering questions over whether the Fed will reduce by 25bp or 50bp.

In our view, a 50bp cut is to larges a step. The US economic data has not decelerated at an alarming pace and judging from solid NFP read still has momentum. In broader strategic terms, the Fed has been cautiously tightening interest rates over 4 years. It unlikely they would panic because of marginally softer economic data. We had predicted that much of the hikes were to recover tools to combat a financial calamity. In our view, this psychology remains a critical part of the monetary policy calculation framework. A 50 bps cut would send the wrong negative message to the market. Bloomberg is now predicting a 23% probability of a 50 bp cut in Fed July meeting, which is too high in our view. There are plenty of signs of slowdown and end-of-cycle is more likely than dip and reacceleration, which we have seen for the last 10 years. Yet, Fed panic in reaction to natural slowdown is inappropriate.

Equity markets rallied on Powell’s testimony with the S&P 500 hitting 3000 record regions. There was less activity in the US bond curves as the short end yields fell by 7bps but the 10 year was unchanged. Moving forward, we are less bearish of the global economic outlook than many of our peers. Easing monetary policy by the world’s central banks should backstop economic weakness and provide a boost to risk appetite. While short term news cycling might provide volatility in the longer-term positive dynamics will dominate.

Fed boosts commodity currencies

Markets have become more confident that the Fed should cut its Funds Rate by a quarter of a percentage at its July meeting, giving commodity currencies a boost for a second straight session. South African rand follows a similar path, as South African President Cyril Ramaphosa is working hard to reassure investors and rating agencies of the credibility of the country’s institutions. In this regard, the reappointment of South African Reserve Bank Governor Lesetja Kganyago for an additional five year came as a positive headline ahead of next week monetary policy meeting, which is likely to put the ZAR under pressure.

Following the release of poor 1Q GDP figures, with quarter-on-quarter at -3.20% (4Q 2018: 1.40%) and year-on-year at 0%, South African authorities are under pressure to stimulate growth. The task is therefore highly challenging as the country faces hurdles relating to heavily indebted state-owned power utility company Eskom that requires restructuring amidst an over $ 30 billion debt and risk of a possible credit rating downgrade from Moody’s at its November assessment. Despite underlying risks and inflation in line with target range, as shown by May year-on-year CPI at 4.50% (m/m: 0.30%), we expect the SARB to cut its Repo Rate by 0.25% to 6.50%, earlier than May forward guidance statement that hinted towards a rate cut for early 2020, thus expecting to add further headwinds on ZAR following the announcement.

USD/ZAR is now trading at 13.9480, a 3-month low, approaching support at 13.9148 (10/04/2019) short-term.

The S&P 500 reached a new milestone high on Wednesday breaking above 3000 for the first time ever as Fed Chair Jerome Powell provided a clear case for cutting interest rates later this month during his testimony before Congress. The robust jobs numbers last Friday were not enough to scale back these bets. The US central bank sees the uncertainty around trade tensions as a key factor to lowering rates. That's because businesses are holding back on new investments, keeping prices low, and are reluctant to increase salaries.

If these factors persist for a longer time, it will seriously risk the current economic expansion by dragging growth and inflation. That's why Powell and his colleagues have made a case for an insurance rate cut.

The markets have clearly priced in an outcome of a 25-basis points rate cut in July. However, bets for a 50-basis points rate cut has increased significantly after Powell's testimony and release of FOMC minutes. Investors now see the chance of 50-basis points rate cut at 29%, up from 7%. Expectations of an aggressive move by the Fed dragged US 2-year treasury bond yields 8 basis points lower, its biggest daily move in three weeks.

While a 50-basis points rate cut may no longer be ruled out, the risk of such a move is that it may send negative signals to markets. This may suggest that the US economic expansion is at a greater risk than what recent data is showing and may also be seen as political influence from the White House.

The U.S. Dollar lost almost all of its recorded gains after the release of Friday's jobs report breaking below 97. If today's US Consumer Price Index surprises to the downside, it will add additional pressure on the

Greenback. Today's US trading session is also heavy with Fed Speak. Chair Powell will give his second day of testimony before the Congress followed by speeches from Williams, Kashkari, Bostic and Barkin.

Gold seems to be the biggest beneficiary of the shift in global monetary policies. The yellow metal has climbed back above $1420 in today's Asian trading session and is just $17 away from its key resistance level. A break above $1438 may lead to further buying orders with $1500 being the next level traders looking to target.

This time, a weaker Dollar did not translate into higher cryptocurrencies. The Bitcoin fell 13% from Wednesday's high after Powell raised concerns on Facebook's Libra. He said the Libra cannot move forward unless the social media group resolves serious concerns about the project. Whether bears will take over control or it's just a minor setback remains to be seen. However, if scrutiny from financial regulators returns strongly, it may lead to further losses in the upcoming days

• Fed Chair Jerome Powell and FOMC minutes bolster case for a July rate reduction
• US dollar slips after Powell’s remarks, reversing NFP-driven gains
• Euro rebounds, eyes ECB minutes; pound and loonie up too
• US stocks hit record highs but Bitcoin plunges

Powell testimony all but confirms rate cut in July

Markets were in buoyant mood on Thursday as Fed Chairman Jerome Powell gave his strongest indication yet that the Federal Reserve will slash interest rates at the July 30-31 meeting. On his first day of testimony before Congress on Wednesday, Powell said that since the June meeting “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook”. Given that many FOMC participants saw a stronger case for monetary easing at the June meeting, the increased uncertainties since then can only be taken as a sign that the Fed will use this month’s meeting to make an insurance cut.

The minute of the June FOMC meeting published a few hours after Powell’s testimony further reinforced the Fed’s dovish tilt. However, there are some doubts as to how far the Fed will go in cutting rates as the minutes highlighted some participants did not yet think there was a “strong case” for a cut, suggesting they may resist aggressive policy easing before they see more evidence of a severe slowdown in the US economy.

Dollar reverses lower, euro up ahead of ECB minutes

But the lack of clarity about Fed policy beyond July did not appear to worry investors as the overall dovish tone of the Fed chief was enough to revive expectations of a sharper 50 basis point cut this month. Odds of a 50bps cut surged to more 25% today from near zero prior to Powell’s speech to Congress.

The move in fed funds futures lifted bond prices off their lows following last week’s robust jobs report, driving yields back down again and pressuring the dollar. The dollar index came off the three-week highs it hit earlier this week to drop below the 97.0 level. Against the yen, the greenback fell around 100 pips and was last trading just above the 108 level.

The dollar’s sell-off came as a relief to the beleaguered euro, which has been struggling to hold onto the $1.12 level on expectations that the European Central Bank could soon ease policy. The ECB will publish the account of its June policy meeting at 11:30 GMT and could signal that Governing Council members are moving closer to approving a new stimulus plan.

There will be more from Powell as well later today as he will be testifying before the Senate Banking Committee at 14:00 GMT. Although he’s unlikely to add anything new to yesterday’s remarks, the dollar will likely remain in the spotlight as the latest CPI report is also due out of the US at 12:30 GMT.

Pound and Loonie turn higher

The pound shot above the $1.25 level as the dollar slid, helping it recoup some of its recent losses. The British currency was earlier boosted from a fairly solid set of data on UK GDP and industrial output. But given the weakening outlook and the Brexit chaos, it will be difficult for the pound to post sustained gains.

The Canadian dollar, meanwhile, headed back towards last week’s 8-month highs versus the greenback despite the Bank of Canada sounding concerned about the risks from the global trade tensions. The BoC also played down the recent improvement in Canada’s economy, attributing it to temporary factors. But the somewhat more downbeat-than-expected tone couldn’t outweigh the effects of the looming rate cuts in the US, putting the loonie on course to challenge fresh highs in the near term.

Stocks rally, Bitcoin slumps

Stocks cheered Powell’s rate cut hint, with the leading indices on Wall Street closing at or near record highs. The S&P 500 briefly crossed above the 3,000 level for the first time before ending the day at 2,993.07. Gold also spiked higher, extending its gains above the $1,400 level as Treasury yields fell back.

But one unexpected casualty of Powell’s remarks was Bitcoin. The Fed chief put a dent in Facebook’s hopes of launching its own digital currency called Libra anytime soon, saying it “cannot go forward” unless Facebook addresses some issues such as money laundering.

Bitcoin tumbled by more than 14% after Powell’s remarks as the launch of Libra was seen as broadening the appeal of other cryptocurrencies like Bitcoin.

The US 500 stock index finally topped slightly above the 3,000 level and at new record highs after being unable to pierce the mark last week. According to the RSI and the MACD, the market could attract some buying in the short-term before turning lower as the former has yet to enter overbought territory and the latter seems to be regaining positive momentum above its red signal line.

On the upside, the price could settle for the 3,100 number which is the 161.8% Fibonacci extension of the downleg from 2,959 to 2,728 if it manages to close decisively above 3,000.

Alternatively, a failure to hold above 3,000 could bring the previous high of 2,959 back into view. Moving lower, the bears could pause around the 2,909 support before heading towards 2,870 which coincides with the 61.8% Fibonacci of 2,870.

In the bigger picture, the outlook remains bullish, with the index trading well above the 50- and the 200-day simple moving averages (SMA) and the ascending line drawn from the 2,332 bottom.

Summing up, the US 500 stock index is currently facing a bullish bias both in the short- and the long-term timeframe.

In a regular press conference, China's Ministry of Commerce Gao Feng urged the US to remove restriction on Huawei and other Chinese companies, to clear the path for healthy and stable development of Sino-US economic and trade relations. He also urged the US to truly implement such commitments

Additionally, he noted that "trade teams from both sides, according to the consensus reached at Osaka by leaders from both countries, will restart economic and trade negotiations on the basis of equality and mutual respect". Also, "China believes that both sides can find a way to resolve the issue if each other's reasonable concerns are taken into consideration through a dialogue of equals, he added.

The EUR/USD has bounced from the 1.1200 zonal support as historical buyers were aligned with now moment buyers. The FED also announced 25 bps rate cut.

Before the FED yesterday, I warned many times that the EUR/USD should turn bullish.

What Powell's testimony did yesterday was just to remind on some expectations regarding rate cut. Weak inflation, no “hot” labour market, dim outlook on the sustained growth etc. Technically, the pair has formed a marubozu candle, breaking above 1.1232 and we should see a continuation. 1.1230-40 is the POC zone. Targets are 1.1285 and 1.1323 if we see a bullish close above 1.1285.

The dollar index fell further after starting trading on Thursday with slight gap lower after losing 0.44% on Wednesday.

The greenback was hurt by dovish tone of Fed Chairman Powell’s testimony to Congress, as he pointed to global growth slowdown and persisting trade conflict with China that could have further negative impact on the US economy.

Market fears about more aggressive rate cut rose after Powell’s comments, with expectations for 0.5% cut being back to play.

Adding to negative signals were minutes of FOMC’s last meeting as many of policymakers support scenario for more stimulus.

Pullback from three-week high at 97.18 generated initial bearish signal on formation of bearish outside day.

Extended dip found footstep at strong supports at 96.48/46 zone (Fibo 38.2% of 95.35/97.18 / 200DMA), keeping bears on hold in early European session trading on Thursday, as pressure from negative sentiment and bearish signals from south-heading stochastic and completion of bearish engulfing pattern were so far offset by rising bullish momentum and strong supports (Fibo / 200DMA), with thinning daily cloud, which will twist on Tuesday, also seen as magnetic.

If fresh bears manage to clearly break 96.48/46 pivots, acceleration towards 96 zone could be expected, with break here to risk extension towards next strong support at 95.75 (top of rising thick weekly cloud).

Conversely, failure to break 200DMA support may push the price higher, with return above 96.80 (100DMA) needed to signal an end corrective pullback from 97.18.

Res: 96.64, 96.80, 97.05, 96.98
Sup: 96.46, 96.37, 96.26, 96.05

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.12069
Open: 1.12507
% chg. over the last day: +0.45
Day's range: 1.12507 – 1.12807
52 wk range: 1.1111 - 1.2009

Yesterday, the US dollar sharply weakened against a basket of world currencies. Quotes rose by more than 70 points and updated the local maximums. The demand for USD declined after comments by Fed Chairman Jerome Powell. The official pointed to the willingness to reduce interest rates due to the growing risks in the global economy. The regulator plans to “act properly” so that the largest economy in the world can sustain a decade of growth. At the moment, the currency pair is testing a key resistance of 1.12800. 1.12350 is already a "mirror" support. Trading instrument can grow further. Open positions from key levels.

The Economic News Feed for 11.07.2019:

CBE Minutes (EU) – 14:30 (GMT+3:00);

Inflation Report (US) – 00:00 (GMT+3:00);

The price has fixed above 100 MA, which indicates the strength of buyers.

The MACD histogram is located in the positive zone and above the signal line, which gives a strong signal to buy EUR/USD.

The Stochastic Oscillator is in the neutral zone, the %K line crossed the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.12350, 1.11950, 1.11600
Resistance levels: 1.12800, 1.13100, 1.13500

If the price consolidates above the resistance level of 1.12800, the quotes can grow to 1.13100-1.13400.

Alternatively, quotes can drop to a round level of 1.12000.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.24577
Open: 1.24974
% chg. over the last day: +0.31
Day's range: 1.24974 - 1.25384
52 wk range: 1.2438 - 1.3631

GBP/USD began to recover and updated local maximums. The USD remains under pressure after the comments of the Fed. At the moment, the GBP is testing the offer zone 1.25350-1.25600. 1.24900 is already a "mirror" support. GBP/USD quotes have can grow further. Participants in financial markets continue to monitor the situation around Brexit. Positions must be opened from key levels.

The Economic News Feed for 11.07.2019 is calm.

The price has fixed above 100 MA, which indicates the strength of the sellers.

The MACD histogram is in the positive zone and above the signal line, which gives a strong signal to buy GBP/USD.

The Stochastic Oscillator is in the overbought zone, the %K line crossed the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.24900, 1.24400, 1.24000
Resistance levels: 1.25350, 1.25600, 1.26000

If the price consolidates above 1.25350, the quotes can grow to 1.25700-1.26000.

Alternatively, the quotes can descend to 1.24700-1.24500.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.31232
Open: 1.30806
% chg. over the last day: -0.40
Day's range: 1.30486 - 1.30809
52 wk range: 1.2727 - 1.3664

Yesterday, high trading activity and volatility were observed on the USD/CAD. The The Bank of Canada, as expected, kept the key interest rate unchanged at 1.75%. The regulator plans to adhere to the current monetary policy. The USD/CAD quotes ended the trading session in the negative zone and reached key minimums. At the moment, CAD is consolidating in the range of 1.30500-1.30750. The Canadian dollar is supported by the positive dynamics of oil prices. We do not exclude a further decrease in the trading instrument. Positions must be opened from key levels.

The Economic News Feed for 11.07.2019 is calm.

The price has fixed below 50 MA and 100 MA, which indicates the strength of the sellers.

The MACD histogram is in the negative zone and continues to decline, which gives a strong signal to sell USD/CAD.

Stochastic Oscillator started to go out of the oversold zone, the %K line is above the %D line, which indicates the growth of the USD/CAD quotes.

Trading recommendations

Support levels: 1.30500, 1.30400, 1.30000
Resistance levels: 1.30750, 1.31150, 1.31400

If the price consolidates below 1.30500, the quotes can decline to 1.30200-1.30000.

Alternatively, the quotes can grow to 1.31000.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 108.856
Open: 108.423
% chg. over the last day: -0.48
Day's range: 107.860 - 108.442
52 wk range: 104.97 - 114.56

There are aggressive sales on the USD/JPY currency pair. During yesterday's and today's trading, the quotes descended by 90 pips. The trading instrument has established new local minimums. At the moment, the safe-haven currency is consolidating in the range of 107.900-108.150. The demand for the US dollar has weakened significantly. We do not exclude a further descend in USD/JPY quotes. Pay attention to the dynamics of US Treasury bonds' yield. Positions must be opened from key levels.

The Economic News Feed for 11.07.2019 is calm.

The price has fixed below 50 MA and 100 MA, which indicates the strength of the sellers.

The MACD histogram is in the negative zone and below the signal line, which gives a strong signal to sell USD/JPY.

Stochastic Oscillator started to go out of the oversold zone, the %K line is above the %D line, which indicates the growth of the USD/JPY quotes.

Trading recommendations

Support levels: 107.900, 107.700, 107.550
Resistance levels: 108.150, 108.300, 108.500

If the price consolidates below 107.900, the quotes can descend toward 107.600-107.400.

Alternatively, the quotes can grow toward 108.400-108.600.

Daily Pivots: (S1) 135.41; (P) 135.73; (R1) 135.97; More...

Breach of 135.17 suggests fall resumption in GBP/JPY. Intraday bias is back on the downside for 131.51 low next. On the upside, above 136.28 minor resistance will turn intraday bias neutral again. But outlook will remain bearish as long as 137.78 resistance holds.

In the bigger picture, current development suggests that GBP/JPY's medium term fall from 156.59 (2018 high) is still in progress. Break of 131.51 will target 122.36 (2016 low). Structure of such decline is corrective looking so far, arguing that it's just the second leg of consolidation from 122.36. Thus, we'd expect strong support from 122.36 to contain downside to bring reversal.

EURUSD price strength builds up on 1.1311 region as it closed higher on reversal on Wednesday. Support comes in at the 1.1200 where a violation will turn risk to the 1.1150 level. A break below here will target the 1.1100 level. Further down, support sits at the 1.1050. Conversely, on the upside, resistance comes in at 1.1300 level with a break through there opening the door for further upside towards the 1.1.1350 level. Further up, resistance comes in at the 1.1400 level where a violation will expose the 1.1450 level. All in all, EURUSD looks for more recovery to occur in the days ahead.