Powell comments bring USD bulls back

28 February, 2018

The US dollar lifted today on the back of Powell's first address to congress in relation to his new appointment to the head of the Federal Reserve and also to hear his thoughts on the economy and monetary policy. From an overall point of view it was quite well balanced and with a hawkish tone as well which boded well for USD bulls which have been missing for some time. The market will take away his first speech as on the hawkish side of things, and I like most of the markets are expecting to see the hawkish sentiment shine through in the long run, especially if the labour market and inflation continue to produce good figures. One of the key metrics will of course be wage pressure which many are expected to focus on though, as this has been lagging which shows there is still room in the labour market - once this takes off expect the FED to step into gear and look to push rates. The only downside may be for equity markets though as they'll likely not do so well with a hawkish FED.

For me the key mover for dollar bulls will be of course the USDJPY which continues to be quite volatile as traders have hedged themselves strongly on the USD weakness. There has been a lot of talk about buying the dip on this one, but the dip is still something that no one is quite sure on. Certainly we've seen a lot of stabilization over the previous week and this is a positive, so it could be the platform that the bulls need in order to climb higher. Right now though the USDJPY is currently above resistance at 107.287 and we would need to see it sustained above this level in order for the bulls to look stronger. Further extensions could extend higher to 108.281 before finding resistance around that level. If we do see further USD weakness, which would be a surprise at present, then 106.063 and 105.298 are likely to be the next two support levels markets look to target.

The other big move today to focus on will be of course the AUD, with a heavy week due out of Australian data and the potential for a stronger USD it could be a case of the bears looking to strike further.

For the moment the market is looking bearish after a big swing on Mondays open, before finding support at the 0.7780 level and with the 200 day moving average offering further support as well. Any falls lower are likely to hit 0.7719 and 0.7635 as layers of support in the market. If we do see the bulls come back into the market then I would expect to see the 20 day moving average treated as early dynamic resistance. Levels above this can be found at 0.7864 and 0.7926, however the bears are starting to look very much like they're trending so it may be hard for movements lower.


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