Markets are taking a big deep breath and regathering their thoughts after the tumultuous Fed shock of last week. With trader’s eyes nervously peering across to the central bank’s favoured measure of inflation released on Friday in the form of the US PCE, we also get a host of Fed speakers and the main man himself, Chair Jay Powell speaking tomorrow.
Fed officials Bullard, Kaplan and Williams speak later today after the former was out on the wires Friday saying his “dot” was for a hike in 2022. He is not a voter at the Fed but predicted faster inflation next year of 2.5% in core PCE versus the 2.1% forecast at the recent FOMC meeting.
There are still question marks over the size of the recent market moves with yields rising at the front end and selling off further out - a flattening yield curve - normally suggesting a lack of confidence in the outlook for the US economy, even as the Fed creeps towards tapering.
Bond yields bounce back
The USD is trading broadly lower to kick off this week in the first real dip in the rally since last week.
Risk sentiment is more positive today which is seeing a bid in high beta commodity dollar currencies while JPY and CHF are little changed. 10-year US bond yields dropped near to 1.35% in Asian trade before rebounding strongly back near to 1.50% at the time of writing.
EUR/USD has found steady support today around 1.1850 which is last week’s low from Friday. Price signals are modestly positive on shorter timeframes possibly suggesting a base, though this is natural after such a violent move lower. The RSI also points to oversold conditions so gains through 1.1925 should push the pair north, with resistance at 1.1950 around the February lows.
Gold regains a footing
After the six per cent selloff last week, its biggest in 15 months, gold is desperately trying to find a foothold and some near-term support. A Fib level of this year’s low to high move sits at $1768 while the RSI is in oversold territory below 30. Resistance above comes in at the 100-day SMA just below $1800.
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