The FX markets witnessed a classic risk-off action in the NY session as fears of faster Fed rate hikes saw Dow take a 380 point drop. The American dollar strengthened against most majors and gold but suffered losses against the Japanese Yen. The Asian equities traded under pressure, however, the risk-off moves in FX markets stalled, possibly because some traders believe Fed chair Powell may change tune during his Senat appearance (due later today).
However, Powell was unambiguously optimistic about the health of the US economy on Tuesday. Further, the Fed is not particularly worried about the flattening yield curve. Hence, Powell will likely reiterate his strong views on the economy and reinforce expectations of three more Fed rate hikes this year. This, in turn, could yield another bout of sell-off in the risky assets.
Also, an above-forecast US Jan core personal consumption expenditure (due at 13:30 GMT) would add credence to Powell's confidence on inflation and open doors for a broad-based rally in the USD.
The anti-risk asset story does not end here. Reports hit the wires in Asia that the White House could announce tariffs on steel and aluminum later today. An official announcement could mark the beginning of a full-blown trade war with China and would only add to the bearish pressure around the risky assets. Amid all this, the European PMI numbers may receive less or no attention from the markets.
What's brewing in the majors?
EUR/USD - Double top bearish reversal has been confirmed. The 5-day moving average (MA) and 10-day MA are trending lower, indicating bearish setup. The relative strength index (RSI) also favors the bears. So, it appears the spot could test support at 1.2092 soon. On the higher side, only a close above 1.2355 would signal bearish invalidation.
GBP/USD - Cable's fall to a three-week low of 1.3743 was at least in part due to EU chief Brexit negotiator Barnier's Brexit warning. Complications on the Brexit front would force investors to price-in a delay in the Bank of England (BOE) rate hike. That said, on the daily chart, the Pound looks weak, courtesy of a bearish symmetrical breakdown and a downside break of the ascending trendline (drawn from the Nov. 14 low and Dec. 21 low). The 5-day MA and 10-day MA are sloping downwards in favor of the bears. The RSI is biased bearish. So, the currency is on the back foot ahead of the UK manufacturing PMI release. A big beat on expectations could yield a corrective rally in the Pound.
USD/JPY - Pair's decline from the Feb. 26 high of 107.68 to 106.54 (Asian session low) is discouraging for the bulls. However, the spot is holding above 106.38 (Feb. 26 low), meaning the pattern of higher lows is intact and the bulls could attack the descending trendline resistance if the risk assets stabilize.
Major news
- The three-month dollar Libor rate hits 10-year high
- Australia seasonally adjusted capex estimate fell by 0.2% in Dec quarter
- Australia: Q4 CAPEX suggests upturn in business investment - Westpac
- Trump likely to announce tariff of 25% on Steel - Bloomberg
- China's Caixin Manufacturing PMI surprises positively in Feb
- BOJ's Kuroda - Wages and Inflation have been somewhat weak
- BOJ's Kataoka calls for more easing to achieve inflation target
- NZ: Fonterra boosts volumes offered at auction - BBG
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
GBP/USD stays weak near 1.2400 after UK Retail Sales data
GBP/USD stays vulnerable near 1.2400 early Friday, sitting at five-month troughs. The UK Retail Sales data came in mixed and added to the weakness in the pair. Risk-aversion on the Middle East escalation keeps the pair on the back foot.
EUR/USD extends its downside below 1.0650 on hawkish Fed remarks
The EUR/USD extends its downside around 1.0640 after retreating from weekly peaks of 1.0690 on Friday. The hawkish comments from Federal Reserve officials provide some support to the US Dollar.
Gold: Middle East war fears spark fresh XAU/USD rally, will it sustain?
Gold price is trading close to $2,400 early Friday, reversing from a fresh five-day high reached at $2,418 earlier in the Asian session. Despite the pullback, Gold price remains on track to book the fifth weekly gain in a row.
Bitcoin Price Outlook: All eyes on BTC as CNN calls halving the ‘World Cup for Bitcoin’
Bitcoin price remains the focus of traders and investors ahead of the halving, which is an important event expected to kick off the next bull market. Amid conflicting forecasts from analysts, an international media site has lauded the halving and what it means for the industry.
Israel vs. Iran: Fear of escalation grips risk markets
Recent reports of an Israeli aerial bombardment targeting a key nuclear facility in central Isfahan have sparked a significant shift out of risk assets and into safe-haven investments.