Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Hawkish takeaway from Fed Chair Powell’s testimony: US dollar, USD/JPY, Gold and Silver

Comments from Fed Chair Jerome Powell triggered a risk-off session in Wall Street overnight, as his testimony was perceived to be a hawkish takeaway.

Source: Bloomberg

Market Recap

Comments from Federal Reserve (Fed) Chair Jerome Powell triggered a risk-off session in Wall Street overnight, as his testimony was perceived to be a hawkish takeaway, which drove another round of hawkish recalibration in rate expectations. The Fed Chair acknowledged that the latest economic data have come in stronger than expected, which suggests that the “ultimate level of interest rates is likely to be higher than previously anticipated”. He also stated that the Fed “would be prepared to increase the pace of rate hikes” if warranted by the data. That seems to be a shift in tone from his previous acknowledgement of the ‘disinflation process’, which provided the go-ahead for the Fed funds futures market to lean towards a 50 basis-point (bp) hike in March (62% probability) from the previous 25 bp, while also pricing for a higher terminal rate at the 5.5-5.75% range.

With that, US Treasury yields and the US dollar saw a spike higher, with the two-year yields back at its highest level since 2007. For the US dollar, it has moved to challenge its key resistance at the 105.00 level once more, delivering its highest level in two months. Its 100-day moving average (MA) has also been breached for the first time since November last year. That could leave the dollar to set its sight on the 200-day moving average (MA) next, leaving the 106.60 level on watch.

US Dollar Source: IG charts

The US job report this Friday will be in focus next. Any pull-ahead in job gains, in the likes of January’s number, will likely anchor down a 50 bp hike in March and pushed for further de-risking. Current expectations are pointing to 203,000 job gains, while average hourly earnings to remain unchanged at 4.8% year-on-year. Any upside surprise will run the risks of further adjustment in rate expectations towards a higher range, which will not be welcomed by equity bulls.

Asia Open

Asian stocks look set for a flat to negative open, with Nikkei +0.11%, ASX -0.86% and KOSPI -1.10% at the time of writing. Chinese equities have failed to sustain its gains lately, as a significant downside surprise in China’s imports figure yesterday challenged reopening optimism (-10.2% versus -5.5% forecast) by suggesting that recovery may be more gradual. Coupled with the negative handover from Wall Street overnight, further downside pressure could likely remain in place in today’s session.

The AUD/USD has failed to move back above its 200-day MA, witnessing a double-whammy from a ‘dovish hike’ by the Reserve Bank of Australia (RBA) and a more hawkish Fed. A subtle change in policy wording led to expectations of an impending rate pause over the next two meetings. On the other hand, a hawkish boost to the US dollar has brought the USD/JPY (大口) to retest its resistance confluence zone at the 138.00 level. This is where its key 200-day MA stands in coincidence with a 38.2% Fibonacci level. Much will depend on if the 138.00 level could be overcome ahead, which may then pave the way towards the 142.20 level next.

USD/JPY Source: IG charts

On the watchlist: Another round of hawkish recalibration in rate expectations dragged precious metals lower

Another round of hawkish recalibration in market rate expectations did not bode well for rate-sensitive gold and silver prices overnight, which reacted to the downside by 2% and 5% respectively. A spike in Treasury yields and US dollar are headwinds for the precious metals. For gold prices, it has pared all of its previous week’s gains, seemingly heading to retest its February low. A break below that could point to a formation of a new lower low, which reiterates its near-term downward trend. A greater line of support could be presented at the US$1,780 level, where its 200-day MA stands.

Spot Gold Source: IG charts

Similarly for silver, prices have breached a key Fibonacci confluence zone at the US$20.85 level, seemingly setting its sight on the US$19.60 level next. Its 200-day MA has given way yesterday, which supports a bearish bias, along with its ongoing lower high, lower low narrative being intact. Further breach below the US$19.60 level could place its previous triple bottom formation at the US$18.15 level in focus next.

Spot Silver Source: IG charts

Tuesday: DJIA -1.72%; S&P 500 -1.53%; Nasdaq -1.25%, DAX -0.60%, FTSE -0.13%

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on stock opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.