Labor market and Testimony
Federal Reserve president and Treasury secretary Mr. Powell and Mrs. Yellen will have their Testimony today and tomorrow before the Senate Banking Committee. In the prepared text of Mr. Powell's speech, we found some key points that need to point out.
While increasing inflation on both consumer's and producers sides, and earlier today Reserve Bank of New Zealand said it would stop buying bonds later this month on July 23, investors were waiting for Hawkish tone from Mr. Powell's speech strictly. So far, Mr. Powell has disappointed Hawkish hopes. Let's review some key points of Mr. Powell's speech and then check the market reaction.
"Job market is still a ways off from progress needed to begin the bond-buying taper."
"Inflation is likely to remain elevated in coming months before easing; expectations are broadly consistent with the Fed target."
"Household and business balance sheets are quite strong; core financial institutions are resilient."
"Strong job gains expected to continue in coming months as health crisis continues easing."
"Household spending is rising at a rapid pace; housing demand is strong, business investment is solid."
Market Reaction.
As the US dollar increased in the past two days with higher inflation and market pricing on Hawkish policies, this statement pushed it back to 100 HMA at 92.40. This statement emphasizing that stimulus and bond purchasing will continue, and FED is not currently planning to follow the RBNZ way to reduce or cut the bond purchasing amount, even the Mortgage-Backed bonds.
Giving the published data and Mr. Powell's comment pushed the DXY down to 100 HMA, which is second support as well; however, it could not breach and stay under that, which means as long as it is trading above this level, the market sentiment still pessimistic about the data and investors can not buy Powell's comments. A combination of technical and fundamental analysis can show the market feeling and doubts. Currently, about DXY, we can say the second support and 100 HMA is the psychological level; when crossing under this level, we can send the MACD's histogram also under 0-level so that it can be a sign for following market movements.
