Fed Chairman Powell gave a dovish-biased comment in a speck last night, highlighting heightened global growth risk and weaker business confidence due to trade uncertainties.
An interest rate cut in July seems imminent, but what the markets are really concerned about is the magnitude of the cut. The President of the St Louis Fed, James Bullard said in a TV interview that a rate cut of 50 bps in July “would be overdone”. This led to a quick unwinding of a deep cut expectation, sending equities lower and the dollar higher.
Following his comment, the CME’s implied probability of a 50bps cut in July slumped to 25% from 42.6% a day ago, while the likelihood of a 25bps cut increased to 75% from 57.4%.
A much weaker-than-expected US consumer confidence reading also weighed on market sentiment.
The S&P 500 index lost 0.95% on Tuesday, dragged by Information Technology (-1.84%, communication service (-1.60%) and real estate (-1.35%). All 11 major sectors ended lower. Technically, the S&P 500 index has hit a resistance at 2,950 points, forming a ‘double top’ pattern during April – June period. If the 10-Day SMA 2,920 is broken, its trend is likely to turn bearish from here.
A strengthening of US dollar overnight will likely exert negative pressure over precious metal prices like gold. Technically, gold price has entered into deep, overbought territory and needed a pullback. Immediate support and resistance level can be found at US$1,387 and US$1,438 respectively.
EUR/USD has retraced to 1.1359 this morning from a recent peak of 1.141, as market quickly unwind an expectation of a deep, 50bps rate cut in July. Fibonacci extension shows that EUR/USD may find some support at 1.136 followed by 1.132, both of which are key Fibonacci levels.
A big event for currency traders today is RBNZ’s interest rate decision. The central bank cut its benchmark rate by 25bps last month, leading to a sharp decline in Kiwi currency. Although consensus forecast doesn’t suggest another cut this month, data show asset managers are holding record net short positions in NZD currency before the interest rate meeting. It seems that the market has priced-in a dovish monetary policy outlook and that rendered the kiwi currency exposed to more upside risk should there be a short squeeze.
US Dollar Index – Sep 2019
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