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Europe called higher post Powell, US CPI in focus

European equity markets saw low volatility yesterday as many traders were waiting for Jerome Powell, the Federal Reserve chief, to testify in front of the US House Committee on Financial Services. 

The central banker issued some comments in advance of his speech in front of US law makers, and it was a little on the dovish side.

The Fed kept rates on hold at the June meeting, and yesterday Mr Powell said there was a case for somewhat easier monetary policy at the June meeting, and uncertainties have continued since then. Even though the comments suggested he was edging towards loser monetary policy, European equity markers finished a little lower.

In Washington DC, Jerome Powell was reasonably balanced in his testimony. The central banker said the economy was in good shape even though ‘crosscurrents have re-emerged’. Trade tensions have been a factor in relation to global growth, and the Fed chief welcomed the US-China talks, but said that the negotiations don’t ‘fully remove uncertainty’. The US unemployment rate is near a 50-day low, and wage growth in outpacing inflation, but Jerome Powell said that wages were not high enough to put upward pressure on prices. The June non-farm payrolls report was solid, but it didn’t change the policy outlook.  

The S&P 500 briefly traded above 3,000 before Mr Powell began his testimony, and pulled back a little as he was a little neutral in his update, he wasn’t as dovish as some dealers were predicting going into the meeting, but at the same time he left the door open to looser monetary policy.      

The minutes from the June Fed meeting were released after the Powell’s testimony, and to an extent it was already old news, but the update showed that central bankers believed the case for lower rates had strengthened.

Equity markets in the Far East traded higher overnight as the feelgood factor spread to Asia.

Yesterday, the greenback sold-off in the wake of the remarks from Mr Powell. The US dollar index rebounded between late June and early July, and some of the upward move was undone as dealers are still divided about the future direction of US interest rates.

Gold surged past the $1,400 mark thanks to the softer the US as the inverse relationship between the two markets continues to be strong. Gold remains in its bullish trend, and it might look to retest the $1,439 region.   

Oil surged yesterday as weather concerns in the Gulf of Mexico drove up the energy market over supply concerns. The plunge in US oil and gasoline inventories added to the major upward move in oil. According to the Energy Information Administration, US oil inventories dropped by 9.49 million barrels, and that triggered buying in the oil market.

At 7am (UK time) German CPI will be released and economists are expecting it to hold steady at 1.3%. The French CPI report will be revealed at 7.45am (UK time), the CPI update is tipped to remain at 1.4%.

US CPI and core CPI will be posted at 1.30pm (UK time), and the consensus estimate is 1.6% and 2% respectively. The jobless claims repot will be announced at the same time, and traders are expecting 223,000.

Jerome Powell will be testifying before the Senate Banking Committee at 3pm (UK time).        

EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2365 region. The 1.2800 area might act as resistance.

EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9060 into play. A move to the downside might bring the 200-day moving average at 0.8784 into play. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.02.

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