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Intermarket:
• SP Futures 4221 (+0.18%)
• EUSTXX 4112 (+0.44%)
• Crude Oil 73.13 (+0.31%)
• US 10YR 1.48% (+2.34%)
• EurUsd 1.1902 (-0.12%)
• UsdJpy 110.45 (+0.14%)
• DAX 15628 (+0.34%)
European equity futures indicate a firmer open after yesterday’s rebound. Bonds are weaker, with US 10-year yield up to 1.49%. US dollar is marginally up. Oil slightly lower. Gold slightly lower. Industrial metals higher. Bitcoin sank as China stepped up efforts to clamp down on cryptocurrencies.
After last week’s hawkish tilt at FOMC, focus shifted to Powell’s prepared remarks ahead of today’s Testimony, noting inflation has increased but also expects it to drop back towards Fed’s longer-run goal. Bullard and Kaplan both struck a hawkish note, seeing inflation pressures persisting into 2022 and importance of tapering asset purchases. NY Fed’s Williams sounded more dovish alongside Powell.
Looking ahead: ECB’s Rehn, Lane and Schnabel to speak today, but nothing substantial is expected after Lagarde’s remarks on Monday. Fed’s Mester and Daly are also speaking today.
Matters that Matter:
• Fed’s Powell sees ‘sustained improvement’ in economy, notable rise in inflation
• Fed officials open debate on bond taper
• NY Fed Williams – Not concerned by higher use of reverse repo facility
Majors 1-Day View:
Comment: USD was offered on Monday, suggesting the post-FOMC move was more due to a short-squeeze. Risk markets perked up and the Pound surged on expectations that the BoE might follow the FED’s hawkish lead. The move may also be due to adjustments ahead of Powell’s testimony later today, although prepared remarks continue to reiterate the “transitory inflation” theme and the “sustained improvement” in the economy.
USDJPY
The corrective move lower from close to 110.72 attracted buyers from the prior week close around 109.66 yesterday, prices rallying nearly ¾ Big Fig. As such, signals have improved and the outlook for today remains bullish. Support is at 110.00 while resistance is at 110.60-70.
EURUSD
Yesterday’s hourly divergence, coupled with the extended momentum readings at the daily level, prompted a corrective recovery that challenged Friday’s resistance zone. Sellers did return in Asia trade, but caution is advised. Despite the trend of lower daily highs remaining intact, the entity of Monday’s recovery suggests a more neutral stance for today, until Friday’s range has been broken.
AUDUSD
Yesterday’s hourly divergence, coupled with the extended momentum readings at the daily level, prompted a corrective recovery that challenged Friday’s resistance zone. Sellers did return in Asia trade, but caution is advised. Despite the trend of lower daily highs remaining intact, the entity of Monday’s recovery suggests a more neutral stance for today, until Friday’s range has been broken.
GBPUSD
Prices posted a 1 ½ Big Fig recovery on Monday, also potentially caused by speculation the BOE on Thursday will follow the more hawkish path paved by the FOMC recently. Despite the trend in lower daily highs remaining intact, the entity of Monday’s recovery suggests a more neutral stance for now, until either Friday’s top or Monday’s bottom are broken.
USDCAD
Yesterday’s hourly divergence, coupled with the extended momentum readings at the daily level, prompted a corrective decline that challenged Friday’s support levels. The over 1 Big Fig decline failed to interrupt the trend of higher daily lows, but still suggests caution. As such, signals for today are more mixed and neutral until Friday’s range is broken.
FX Relative ATR Grid
Comment: weekly volatility levels remain elevated into Tuesday, with extended ranges compared to the recent past. Trading conditions remain favourable pretty much across the board.
FX Relative Strength Grid
Comment: the strongest trends are currently USD (bullish), GBP (bullish), NZD (bearish), AUD (bearish). The strongest momentum was seen yesterday in GBP (bullish), JPY (bearish).