Markets Slip Ahead Of Powell’s Testimony

Asian markets flashed red on Tuesday, following the disappointing stimulus from Chinese banks.

A sense of discontent lingered across Asia this morning amid the lack of fresh stimulus from Beijing and smaller than expected cut in China’s key lending benchmarks. European futures are pointing to a negative open with investors adopting a guarded approach ahead of key risk events. In the currency space, the dollar is creeping higher amid the risk-off sentiment while gold remains trapped within a range.

US markets were closed on Monday for the Juneteenth holiday so volumes were lacklustre, but this could be another volatile week for global financial markets. All eyes will be on Fed Chair Jerome Powell’s semi-annual report to Congress, Fed speeches, and the Bank of England meeting among other key events.

Focus on Jerome Powell Testimony

Fed Chair Jerome Powell will be under the spotlight this week as he provides his semi-annual monetary policy report to Congress on Wednesday and Thursday.

Powell is widely expected to repeat comments from his post-Fed meeting press conference, which had a hint of caution but still opened the door to higher rates down the road. As things stand, the latest dot plot indicates two more 25-basis point rate hikes in the coming months. Investors will be closely watching the testimony for any fresh clues on the timing of the rate increases. Should Powell strike a hawkish note, this could boost the dollar. Alternatively, if he is more downbeat and fails to provide fresh clues, this may weaken the dollar. It may also be worth keeping a close eye on speeches from Federal Reserve Bank of St. Louis President James Bullard and New York President John Williams on Tuesday which could offer additional insight ahead of Powell’s testimony.

Commodity Spotlight – Gold

Gold remains trapped within a range on the daily charts with support at $1932 and resistance at $1985. The precious metal needs a fresh fundamental spark to breakout of its current range, and this could come in the form of Powell’s testimony, Fed official’s speeches, or US economic data. Gold bulls could push prices beyond the $1985 resistance on growing expectations around the Fed’s hiking campaign coming to an end. This may be fuelled by cautious remarks from Powell or Fed officials. Alternatively, prices may sink below $1932 if a hawkish Powell boosts the dollar and fuels expectations around US rates remaining higher for longer.

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