Fed Chairman Powell’s testimony in focus

The USD edged higher against its counterparts yesterday amidst a rather quiet start for the week. No major financial releases are expected today, so we shift our attention towards USD’s fundamentals. We still view the Fed’s intentions and monetary policy as the key driver behind USD’s direction and we highlight the testimony of Fed Chairman Powell before Congress later today. Powell will have to perform a balancing act pressured by stubborn inflation and expectations for the bank to start cutting rates. Should the Fed Chairman maintain a hawkish stance, show hesitation towards starting cutting rates and be prepared to keep rates high for longer we may see the USD getting some support, while any signs that the bank may start cutting rates and verify the market’s expectations for two rate cuts by the end of the year could weigh on the greenback.

USD/JPY seems to have stabilised somewhat over the past few days just over the 160.35 (S1) support line. Given that the pair’s price action last Thursday broke the upward trendline guiding it since the 12^th of June we switch our bullish outlook in favour of a sideways movement bias. Yet we have to note that the RSI indicator remains just below the reading of 70, which tends to imply the presence of a strong bullish sentiment among market participants. For a renewal of the bullish outlook we would require the pair to break the 163.00 (R1) resistance line and set the next possible target for the bulls at the 166.00 (R2) resistance level, yet note that the pair practically enters waters not navigated for the past 34 years. For a bearish outlook, we would require the pair to break the 160.35 (S1) support line clearly and take aim of the 157.75 (S2) support base.           

During tomorrow’s Asian session, we note the release from New Zealand of RBNZ’s interest rate decision. The market is widely expecting the bank to remain on hold, keeping the official cash rate at 5.50%, and it’s characteristic that currently NZD OIS imply a probability of 96% for such a scenario to materialise. It should be noted that the market also seems to be pricing in the possibility of two rate cuts by the bank by the end of the year. Should the bank remain on hold as expected, then we expect the market to turn its attention towards the bank’s intentions as described by the bank’s accompanying statement. We expect the bank to maintain a hawkish stance given that inflation is above the bank’s 1-3% target, which in turn may provide support for the NZD. On the flip side, given the easing of New Zealand’s employment market, we may see the bank easing its hawkishness and in such a scenario we may see the Kiwi tumbling.  

NZD/USD seems to have halted its ascent just short of the 0.6160 (R1) resistance line and now seems to stabilise between the R1 and the 0.6095 (S1) support line. We note that the RSI indicator below our chart is currently running along the reading of 50 implying a rather indecisive market, while the 20, 100 and 200 moving averages have flattened out also implying the continuance of the sideways motion. Yet RBNZ’s interest rate decision could alter the pair’s direction and should the bulls take over ,we may see the pair breaking the 0.6160 (R1) resistance line and aiming for the 0.6220 (R2) resistance level. Should the bears take over, we may see the pair breaking the 0.6095 (S1) support line and aiming for the 0.6045 (S2) support level.         

Other highlights for the day:

Today we get in the European session the Czech Republic’s unemployment rate while ECB’s Cipollone is scheduled to speak. In the American session, besides the testimony of the Fed Chairman Powell, we also note that Fed Board Governor Barr, US Treasury Secretary Yellen and Fed Board Governor Bowman are scheduled to speak, while oil traders may be more interested in the release of the US API weekly crude oil inventories figure. During tomorrow’s Asian session, we note the release of Japan’s Corporate Goods Price and China’s inflation metrics, all for June, while RBA’s Simons speaks.

USD/JPY Daily Chart

• Support: 160.35 (S1), 157.75 (S2), 154.60 (S3)
• Resistance: 163.00 (R1), 166.00 (R2), 169.00 (R3)

NZD/USD Daily Chart

• Support: 0.6095 (S1), 0.6045 (S2), 0.5985 (S3)
• Resistance: 0.6160 (R1), 0.6220 (R2), 0.6285 (R3)

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