Title: In-Depth Analysis of the Forex Market Following Powell’s Comments
By: Edward Moya, Senior Market Analyst at OANDA
(Original article source: MarketPulse, https://www.marketpulse.com/markets/a-detailed-look-at-the-fx-market-after-the-powell-speech-technical-levels)
Jerome Powell’s recent speech has sent ripples across global financial markets, especially within the foreign exchange (FX) space. As Federal Reserve Chairman, Powell’s remarks provided insight into the possible direction of U.S. monetary policy over the coming months, impacting major currency pairs and risk sentiment globally. Edward Moya, Senior Market Analyst for OANDA, offers a detailed examination of the FX market’s reaction and pinpoints key technical levels to watch.
This comprehensive overview dissects Powell’s speech, the resultant market sentiment, and technical outlooks for various currency pairs. We also analyze how traders are interpreting policy signals in anticipation of upcoming economic data and FOMC decisions.
Overview of Powell’s Speech and Market Reactions
Jerome Powell maintained a balanced stance, indicating that the Federal Reserve remains data-dependent while acknowledging the mixed signals currently reflected in inflation and labor data.
Key takeaways from Powell’s commentary included:
– The Federal Reserve sees progress in inflation, but not enough to signal immediate rate cuts.
– Stronger-than-expected economic activity in early Q2 has delayed the Fed’s confidence in inflation moving sustainably toward the 2% target.
– The Fed chair reiterated that additional time is needed to evaluate whether inflation is on a consistent downward trajectory.
– Powell emphasized that further economic strength could warrant maintaining current rates longer than previously expected.
The market’s reaction reflected a mixed interpretation of Powell’s message. Traders recognized the Fed’s cautious stance, leading to some recalibration in rate cut expectations. Equities held steady, but the U.S. dollar experienced notable volatility as investors weighed Powell’s comments against recent inflation and labor trends.
Rate Cut Expectations Reassessed
Market participants had been anticipating multiple rate cuts in 2024. However, Powell’s speech introduced an element of caution, prompting traders to reassess the timing and pace of potential policy easing by the Fed.
– Fed fund futures now suggest:
– A roughly 60% chance of a rate cut by September.
– One to two cuts priced in for 2024, compared to a higher number projected earlier in the year.
– Upcoming inflation data (CPI and PCE) and employment reports will heavily influence future policy decisions.
– The Fed continues to stress that inflation must show sustained moderation before rate cuts are considered appropriate.
U.S. Dollar Trends
The U.S. dollar initially strengthened in response to Powell’s speech, supported by stable Treasury yields and expectations that the Fed may keep rates higher for longer. However, as traders digested the full text, the dollar gave back some gains, especially against risk-sensitive currencies.
– DXY Index:
– Held steady around the 104.80-105.00 range.
– Remains within a tight consolidation zone, awaiting a breakout.
– Factors influencing USD movement:
– Resilient U.S. labor market data.
– Persistent core inflation pressures.
– Geopolitical uncertainties fueling safe haven buying.
– Dollar outlook:
– Bullish momentum may resume if incoming data justifies delaying rate cuts.
– Alternatively, soft inflation numbers could prompt a return to risk-on sentiment, pressuring the greenback.
EUR/USD Technical Outlook
The euro initially slipped against the dollar following Powell’s comments but recovered as European Central Bank (ECB) policy divergence came into sharper focus.
– Technical levels:
– Immediate support is near 1.0780, with deeper support around 1.0700.
– Resistance lies at 1.0850, followed by 1.0900.
– Short-term outlook:
– Range-bound trading between 1.0700 and 1.0900 is likely unless macro
Explore this further here: USD/JPY trading.