ActivTrades’ Market Analysts have prepared for LeapRate their daily commentary on traditional markets for July 10, 2019. See details below:
The US Dollar Index is trading flat on Wednesday, hovering just above 97.00, as investors await the testimony of the Federal Reserve’s chairman, Jerome Powell, to the Financial Services committee of the US congress. Also keenly awaited, is the publication of the June’s FOMC meeting minutes. Depending on the tone of Powell’s comments to the house and the content of the FOMC minutes, the markets will have a better feel about the real stance of the North American central bank and the near term degree of dovishness it is likely to adopt.
Ricardo Evangelista – Senior Analyst, ActivTrades
John Goldie, FX Dealer at Argentex Group PLC, also commented on the potential upside for the sterling:
A lot is made about the notion that Boris Johnson – the very short-odds favourite to become next PM – is the No Deal candidate and this fear is being used to justify sterling’s weakness, and risk of further losses. However it is very easy to take the extreme view as an outsider but once he is in the hot-seat, and realises that to get anything through parliament will involve compromise when the Tories command such a slim, DUP-dependent, majority and there are also such differing view within his own party. His charge towards No Deal will be softened and the market will realise that the pound is oversold at these levels.
The Bank of England will continue to highlight the potential for the need to take action (cutting interest rates) in the event of a disorderly Brexit but similarly this risk is perhaps overdone. Arguably, medium-term inflation pressures warrant higher interest rates but the market is focused on the bad news and has priced accordingly. From sterling’s recent year-to-date lows again the US dollar – and most of its major counterparts – perhaps the outlook is now skewed towards the upside.
The dollar has also strengthened recently as the prospect of 50 basis point cut from the Fed has ebbed away. Powell takes the stand this afternoon in Washington and it’d be extremely surprising if he brought a 0.5% cut back onto the table.
Investors eyes are focused on Jerome Powell today, as traders wait for words confirming the dovish monetary policy now expected by the markets. It seems the Fed should cut rates in July – this is already in current prices in the equity, FX and gold markets. The real question seems to be related to the longer term, as markets are now pricing as “likely” a second rate cut by the end of the year. If Powell does confirm a second cut, we could expect some further recovery on gold, after the price was hit by the solid US job figures last week and by the strength of the greenback.
In this scenario there are couple of prices levels to be monitored: the first support area is placed at $1,370/1,380, while $1,400 is now the first resistance. If bullion could recover this level (and hold above it), we could expect further attacks to the resistance area of $1,440, where the peaks of the last two weeks are placed.
Carlo Alberto De Casa – Chief analyst, ActivTrades
European shares drifted lower on Wednesday as the market volatility remain low. Despite good French industrial output data early in the morning (2.1% vs Exp. 0.2%), investors remain steady prior to the semi-annual testimony from Jerome Powell before Congress. This intervention from the Fed chairman is likely to bring a bit of a storm on financial markets as many investors are unsure on the next monetary policy given the US economy is still sound and may not need any further stimulus. Powell will have to carefully choose his words and the tone he will use as investors will be trying to assess whether the Fed will continue its easing policy or not.
Meantime, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin confirmed they having resumed talks with their Chinese counterparts, which could also bring a bit of volatility on stocks as the trade war remains one of the biggest concerns of the Fed. In Europe, the FTSE-100 is one of the only indexes to register a slightly positive performance after the UK Parliament backed a measure making it harder to force a no-deal Brexit. Tory members continue to vote for the next PM and Boris Johnson remains the front runner after yesterday’s TV debate.
The market is trading around 7,475 pts after having registered a sharp rebound over 7,455 pts. European stock traders will also pay attention to the Portuguese and Irish CPI prior to Powell’s testimony.
Pierre Veyret– Technical analyst, ActivTrades