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Daily Pivots: (S1) 106.48; (P) 106.83; (R1) 107.28; More...

USD/JPY is still bounded in consolidation from 105.54 and intraday bias remains neutral for the moment. Also, with 108.27 resistance intact, outlook remains mildly bearish and deeper fall is expected. On the downside, break of 105.54 will extend the larger decline from 118.65 and target 100% projection of 118.65 to 108.12 from 114.73 at 104.20 next. However, break of 108.27 will be the first sign of near term reversal and will target 110.47 resistance for confirmation.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. The solid break of 61.8% retracement of 98.97 to 118.65 at 106.48 now suggests that the pattern from 125.85 high is possibly extending. Deeper fall could be seen through 98.97 key support (2016 low). This bearish case will now be favored as long as 110.47 resistance holds.

Chairman Hensarling, Ranking Member Waters, and members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress.

On the occasion of my first appearance before this Committee as Chairman of the Federal Reserve, I want to express my appreciation for my predecessor, Chair Janet Yellen, and her important contributions. During her term as Chair, the economy continued to strengthen and Federal Reserve policymakers began to normalize both the level of interest rates and the size of the balance sheet. Together, Chair Yellen and I have worked to ensure a smooth leadership transition and provide for continuity in monetary policy. I also want to express my appreciation for my colleagues on the Federal Open Market Committee (FOMC). Finally, I want to affirm my continued support for the objectives assigned to us by the Congress--maximum employment and price stability--and for transparency about the Federal Reserve's policies and programs. Transparency is the foundation for our accountability, and I am committed to clearly explaining what we are doing and why we are doing it. Today I will briefly discuss the current economic situation and outlook before turning to monetary policy.

Current Economic Situation and Outlook

The U.S. economy grew at a solid pace over the second half of 2017 and into this year. Monthly job gains averaged 179,000 from July through December, and payrolls rose an additional 200,000 in January. This pace of job growth was sufficient to push the unemployment rate down to 4.1 percent, about 3/4 percentage point lower than a year earlier and the lowest level since December 2000. In addition, the labor force participation rate remained roughly unchanged, on net, as it has for the past several years--that is a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate. Strong job gains in recent years have led to widespread reductions in unemployment across the income spectrum and for all major demographic groups. For example, the unemployment rate for adults without a high school education has fallen from about 15 percent in 2009 to 5-1/2 percent in January of this year, while the jobless rate for those with a college degree has moved down from 5 percent to 2 percent over the same period. In addition, unemployment rates for African Americans and Hispanics are now at or below rates seen before the recession, although they are still significantly above the rate for whites. Wages have continued to grow moderately, with a modest acceleration in some measures, although the extent of the pickup likely has been damped in part by the weak pace of productivity growth in recent years.

Turning from the labor market to production, inflation-adjusted gross domestic product rose at an annual rate of about 3 percent in the second half of 2017, 1 percentage point faster than its pace in the first half of the year. Economic growth in the second half was led by solid gains in consumer spending, supported by rising household incomes and wealth, and upbeat sentiment. In addition, growth in business investment stepped up sharply last year, which should support higher productivity growth in time. The housing market has continued to improve slowly. Economic activity abroad also has been solid in recent quarters, and the associated strengthening in the demand for U.S. exports has provided considerable support to our manufacturing industry.

Against this backdrop of solid growth and a strong labor market, inflation has been low and stable. In fact, inflation has continued to run below the 2 percent rate that the FOMC judges to be most consistent over the longer run with our congressional mandate. Overall consumer prices, as measured by the price index for personal consumption expenditures (PCE), increased 1.7 percent in the 12 months ending in December, about the same as in 2016. The core PCE price index, which excludes the prices of energy and food items and is a better indicator of future inflation, rose 1.5 percent over the same period, somewhat less than in the previous year. We continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat; consistent with this view, the monthly readings were a little higher toward the end of the year than in earlier months.

After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation. Indeed, the economic outlook remains strong. The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC's 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely.

Monetary Policy

I will now turn to monetary policy. The Congress has assigned us the goals of promoting maximum employment and stable prices. Over the second half of 2017, the FOMC continued to gradually reduce monetary policy accommodation. Specifically, we raised the target range for the federal funds rate by 1/4 percentage point at our December meeting, bringing the target to a range of 1-1/4 to 1-1/2 percent. In addition, in October we initiated a balance sheet normalization program to gradually reduce the Federal Reserve's securities holdings. That program has been proceeding smoothly. These interest rate and balance sheet actions reflect the Committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent.

In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis. While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory. Despite the recent volatility, financial conditions remain accommodative. At the same time, inflation remains below our 2 percent longer-run objective. In the FOMC's view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data.

In evaluating the stance of monetary policy, the FOMC routinely consults monetary policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. Personally, I find these rule prescriptions helpful. Careful judgments are required about the measurement of the variables used, as well as about the implications of the many issues these rules do not take into account. I would like to note that this Monetary Policy Report provides further discussion of monetary policy rules and their role in the Federal Reserve's policy process, extending the analysis we introduced in July.

Thank you. I would be pleased to take your questions.

The Canadian dollar has recorded small gains in the Tuesday session. Currently, USD/CAD is trading at 1.2703, up 0.13% on the day. On the release front, the sole Canadian event is the annual budget. In the US, it's a busy day. Core Durable Goods Orders are forecast to dip to 0.4%, and Durable Goods Orders are expected to decline 2.4%. Another key release is CB Consumer Confidence, which is expected to climb to 126.2 points. As well, Jerome Powell will testify before a congressional committee.

It's budget day for Ottawa, and the markets are not expecting any bombshells from finance minister Bill Morneau. In October, the Trudeau government revised downwards the deficit for the 2017-2018 fiscal year to C$19.9 billion. The Canadian economy was steady in the fourth quarter, so the deficit could be even lower. The budget is not expected to show any major spending, so it's likely that the release will not shake up the Canadian dollar. The Canadian currency lost ground last week, and touched its lowest level since late December.

All eyes are on Federal Reserve Chair Jerome Powell, who took over from Janet Yellen earlier this month. Powell will testify before the House Financial Services Committee, his first major appearance as head of the central bank. Powell received a rude welcome from the markets just after moving into his new office, as the global stock market correction erased some $4 trillion in valuations. The volatility forced Powell to make a public statement, reassuring the markets that the Fed was closely monitoring the situation.

How will the US dollar react to Powell's testimony before the House Finance Services Committee? After the recent turmoil in the stock markets, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.

Here are the latest developments in global markets:

FOREX: Major currencies were trading flat during early European afternoon as investors were waiting for the new Fed chair, Jerome Powell, to make his first major appearance before the US Congress later today. Market watchers were cautious as any language twinkles could spur noise not only in forex markets but also in bond and stock markets as well. The dollar index which gauges the dollar's strength against a basket of major currencies was last seen at 89.81 (-0.04%), while dollar/yen stood a shy below 107 key level (+0.04%). Euro/dollar gave up some gains despite Eurozone's consumer and business composite survey delivering slightly better results in February than forecasted as concerns linked to political conditions in Italy and Germany loomed in the background. Pound/dollar changed hands at 1.3961( -0.02%), pressured by uncertainties around the future EU-UK trade relations, while trade issues were also weighing on the Canadian dollar as NAFTA talks which hold the seventh round of negotiations this week have so far led nowhere. Aussie/dollar was trading weak at 0.7840 (-0.18%), while kiwi/dollar was the worst performer, extending losses towards 0.7277 (-0.33%). The Swedish krona tumbled versus the greenback after the Swedish central bank said that weak inflation developments are a concern and any adjustments in inflation readings the upcoming months would be crucial to determine any change in the central bank's plans to start raising interest rates. Note that forecasts are for the first rate hikes to come in the second half of the year. Dollar/ Swedish krona surged to a fresh one-month high of 8.1895 (+0.48%).

STOCKS: European stocks were heading lower in early European trading. The pan-European STOXX 600 was down by 0.14% at 1100 GMT as gains in financials and consumer cyclicals were unable to offset losses in telecommunications. The blue-chip Euro STOXX retreated by 0.29%. The Spanish IBEX 35 and the French CAC 40 fell by 0.10%, while the German DAX 30 was down by 0.18%. The British FTSE 100 and the Italian FTSE MIB were steady. US future stocks were in the green, pointing to a positive open.

COMMODITIES: Oil prices stretched lower on fears that the US production could hamper OPEC's efforts to curb global supply. On Tuesday, the International Energy Agency Executive director Fatih Birol said that the US would likely overtake Russia as the world's biggest crude oil producer "definitely next year". WTI crude lost 0.41% on the day to drop to $63.65/barrel, while Brent declined by 0.19% to $67.37/barrel. Gold was steady at $1332.60/ounce.

Day Ahead: Fed new Chief Jerome Powell testimony takes the stage; durable goods & consumer confidence pending in US

The calendar will be busy in terms of economic data for the remainder of the day, however, the focus would turn to Jerome Powell and his first major speech before the House Financial Market Committee as a head of the Federal Reserve where he will address the Fed's semi-annual monetary report.

In times of stock market volatility, Powell who will testify on behalf of the FOMC committee at 1500 GMT (the prepared statements will be published at 1330 GMT) is expected to emphasize the bullish outlook of the economy as expressed at January's FOMC meeting minutes, but probably he will avoid any reference on how fast should interest rates rise in order to keep markets calm, deterring another round of turbulence in equity markets.

Meanwhile, the former Fed Governor, Janet Yellen, will be interviewed by her predecessor, Ben Bernanke at the Brookings institution, discussing her career, the current state of the economy and the challenges the US economy faces.

Data on durable goods for the month of January will also attract attention at 1330 GMT, with analysts expecting the headline and the core measures to slow down on a monthly basis. 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.

In Eurozone, Germany will deliver flash estimates on consumer prices for the month of February at 1300 GMT. Forecasts are for the headline CPI to inch down to 1.5% y/y, however, in monthly terms, the index is projected to jump by 0.5% after experiencing the biggest drop of 0.7% in almost two years. In Sweden, 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.

The DAX index is down considerably in the Tuesday session. Currently, the index is trading at 12,478.50 down 0.38% since the Monday close. On the release front, German Preliminary CPI is expected to rebound with a gain of 0.5%. In the US, Jerome Powell will testify before a congressional committee.

German president Angela Merkel received an overwhelming vote of confidence from her conservative CDU party on Monday. Delegates voted to in favor of the coalition with the socialist SPD party. Merkel's party did poorly in the September election, and has paid the price, as the SPD will receive the financial and foreign affairs posts in the new government. This will allow the SPD to set a more liberal policy regarding Germany's role in the eurozone, and that could mean a shift away from its conservative and rigorous stance towards budgetary issues, such as support for weaker members of the eurozone. The coalition agreement must still be approved by SPD members, who will vote on the measure on March 4.

All eyes are on Federal Reserve Chair Jerome Powell, who took over from Janet Yellen earlier this month. Powell will testify before the House Financial Services Committee, his first major appearance as head of the central bank. Powell received a rude welcome from the markets just after moving into his new office, as the global stock market correction erased some $4 trillion in valuations. The volatility forced Powell to make a public statement, reassuring the markets that the Fed was closely monitoring the situation.

How will the dollar react to Powell's testimony before the House Banking Committee? After the recent turmoil in the stock markets, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.

WTI crude oil futures are edging marginally lower today, following the pullback from the 3-week high of 64.20 resistance level. When looking at the bigger picture, price action maintains a bullish tone, however, a small downside retracement is possible. In the short-term timeframe, the technical indicators seem to be slightly negative.

In the 4-hour chart, from the technical point of view, the MACD oscillator is falling – though it remains in the positive zone – and is looking ready to post a bearish cross with its trigger line, while the Relative Strength Index (RSI) is falling in bullish territory.

Should prices reverse lower, immediate support could come at the 63.00 handle, which is near the 20-period simple moving average and the 23.6% Fibonacci retracement level at 62.75 of the upleg from 58.00 to 64.20. A drop below this area could take oil prices closer to the lower Bollinger band and near the 38.2% Fibonacci mark at 61.85.

To the upside, there is immediate resistance at 64.20, while in case of a climb above the next major level to watch is at 65.40.

There is a huge sense of anticipation across financial markets today,as investors brace for Federal Reserve Chairman Jerome Powell's first congressional testimony later in the day.

Powell's debut appearance is a big deal and could offer investors a rare opportunity to carefully assess the Federal Reserve's monetary policy approach under the new chair. Markets will scrutinize Powell's every word, especially his views on inflation and where he sees interest rates this year. Expectations are that he will express optimism over the economic outlook and as such, this could support the Dollar.

With global equity markets still highly sensitive to fears of rising inflationary pressures and higher interest rates, there is a strong suspicion that Powell will choosehis words very carefully. If he succeeds in striking an overall balanced view to Congress, market players, who were expecting fireworks, may be left empty-handed. There still remains a possibility of equity bears making an unwelcome appearance if the testimony results in stimulating expectations of four US interest rates hikes this year.

Taking a look at the technical picture, the Dollar Index struggled for direction during Tuesday's trading session with prices steady around 89.80 as of writing. The Index still remains pressured below the 90.55 lower high. Sustained weakness below 90.20 could encourage a decline back towards 89.60 and 89.00, respectively. Alternatively, a breakout above 90.20 may invite an incline higher towards the 90.55 level.

Currency spotlight – GBPUSD

Sterling's explosively volatile price action continues to highlight how increasingly sensitive the currency has become to monetary policy speculation.

It's remarkable how Pound bulls initially entered the trading week with a renewed sense of confidence to attack, following hawkish comments from Bank of England (BOE) deputy governor Sir Dave Ramsden. The lack of inspiration to push prices higher on Monday afternoon was an invitation for bears to re-enter the scene. With the Dollar finding support from expectations of higher US interest rates, the GBPUSD could be exposed to downside losses. From a technical standpoint, the GBPUSD remains pressured below the 1.4000 resistance level. A failure for prices to break above 1.4000 could result in a decline back towards 1.3900 and 1.3850, respectively.

Commodity spotlight – Gold

Gold was on standby during Tuesday's trading session with prices trading around $1333 ahead of Jerome Powell's debut address to Congress.

It seems that the heightened expectations of higher US interest rates have left the yellow metal vulnerable to heavy to losses. Investors should keep in mind that Gold is a zero-yielding asset, and is likely to remain depressed and unloved in a high interest rate environment. Bears could drag Gold prices lower today, if markets interpret Jerome Powell's first congressional testimony as hawkish. From a technical standpoint, technical traders will continue closely observing how prices react around the pivotal $1340 level. Repeated weakness below $1340 could encourage a decline back towards $1324.15. A situation where bulls are able to push Gold above $1340 may invite an incline higher towards $1360.

Extension of Monday's strong rally stalled at 0.8839 on Tuesday, capped by falling daily Tenkan-sen, just ahead of daily cloud base (0.8844).

Daily cloud is descending and thickening after twisting on Monday and providing significant barrier, reinforced by plethora of daily MA's between 0.8834/52 zone.

Daily studies are in negative setup and keep in play overall bearish bias, as recovery stall added on existing pressure.

Today's spike to 0.8839 cracked important barrier at 0.8828 (Fibo 38.2% of 0.8919/0.8771), but failure to close above it would increase downside risk of revisiting key near-term support at 0.8771 (26 Feb low).

Bullish scenario requires close above 0.8852/63 (daily cloud top / Fibo 61.8% of 0.8919/0.8771) to neutralize bearish threats and turn near-term focus higher.

Res: 0.8828, 0.8839, 0.8852, 0.8863
Sup: 0.8815, 0.8800, 0.8771, 0.8732

The British pound has continued to trade on the backfoot against the U.S dollar during Tuesday’s European trading session, as sterling traders remain cautious ahead FED Chair Jerome Powell’s testimony to U.S Congress. The GBPUSD has so far found strong intraday support from the key 1.3938 level, with price-action currently holding around the 1.3960 region. Traders are increasingly watching the pairs fifty-day moving average, which the GBPUSD has remained above since November 20th, 2017.

The GBPUSD pair remains bearish whilst trading below the 1.3938 level, further downside towards 1.3870 and 1.3792 seems possible.

Should GBPUSD price-action move back above the 1.4008 level, buyers are likely to test towards the 1.4070 and 1.4144 resistance levels.

The U.S dollar continues to trade around the 107.00 handle against the Japanese yen, as price-action consolidates ahead of new Federal Reserve Chair Powell’s testimony to U.S Congress. The USDJPY pair has remained largely range-bound between the 106.60 to 107.30 technical levels, with traders awaiting a clear directional trend to emerge. An upbeat assessment of U.S inflation and the global economy from Chair Powell today, may lead to a strengthening of the U.S dollar index.

The USDJPY is only bullish above the key 107.30 level, the pair may then see a further advancement towards the 107.61 and 108.16 levels.

Should price-action on the USDJPY pair move below the key 106.60 level, further weakness towards the 106.18 and 105.90 levels would then appear likely.