Three major areas to look out for, in Powell’s testimony at Capitol Hill

Market Analysis /
26 Feb 2019

The info so far and upcoming items...

  • According to the latest FOMC meeting minutes, Federal Reserve officials expressed their concerns over market uncertainties and preferred to take it slow on future rate hikes. This news pushed speculations on the next rate hike to the middle (or) later part of 2019.
  • Federal Reserve Chairman Jerome Powell to testify on the Semi-Annual Monetary Policy Report before the Senate Banking Committee at Capitol Hill, Washing DC on Tuesday.
  • After 28 days of delay, the United States Quarterly advanced GDP for Q4/2018 will be released on Thursday.
  • Monthly Consumer Confidence data is due on Tuesday. Will sentiments remain bullish?

Starting from late 2015, the United States Federal Reserve was on the rate-hike wagon and implemented four rate hikes in 2018 alone. However, the rate hike train came to a screeching halt as Dow Jones industrial index suffered a whopping 5,500 points decline in a span of 2 ½ months during late 2018. This plunge was considered as one of the worst selldown since 2008.

US president Donald Trump also voiced his displeasure on the market meltdown and criticized the Fed’s aggressive policy via twitter. Since then, Powell started to take a dovish stance and hinted that the Fed would be cautious in deciding the next rate hike.

In the upcoming testimony at Capitol Hill, traders will need to pay extra attention to three major areas.  First, they need to find out what is the primary reason for the recent Fed’s dovishness. Secondly, what is the FED’s view on the current market recovery and finally, what is the Fed’s inflation target for 2019? With inflation dropping consecutively in recent months, it will be vital to find out how the Fed is going to tackle this situation.

Another significant data that traders ought to pay attention to is advanced GDP data for Q4/2018. The information is supposed to be released every quarter, but the latest data was delayed by 28 days due to the recent US government shut down.

Advanced GDP as of Q2/2018 and Q3/2018 were 4.2% and 3.4% respectively. The readings were way higher than the already impressive nominal GDP of 3%. This could be the reason why we are witnessing an astounding recovery in US stock markets over the past two months, and this goes to show that the US economy is not as bad as the mainstream media painted it to be. If the upcoming Q4 GDP data manages to stay above 3, it will further affirm that the US economy remains healthy.

We will also be seeing the monthly consumer confidence data in the coming week. With reference to the picture below, consumer confidence was ranging for the whole of 2018. Nonetheless, this data is still on an overall uptrend since 2010, and no major downside is expected as long as the upcoming data manages to stay above 90.

From the technical analysis (TA) perspective, USD/CHF dived quickly for the past five days after hitting the strong resistance region of 1.005 to 1.010.  Please do take note of the bearish looking candle in the weekly timeframe.

The 1.005-1.010 region has been holding off price advancements successfully for more than six times since March 2017. Therefore it could be regarded as a strong resistance region.

At the same time, USD/CHF has been rising with supportive higher-highs and higher-lows pattern since Feb 2018 and bouncing off the ascending trend channel nicely. Hence, should price dip further with USD weakening, 0.980 to 0.985 region might act as a decent support region and halt any further sell-down.

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