Daily Commentary | 11/07/2019
Powell’s dovish testimony weakens the USD
USD weakened substantially yesterday across the board, as Fed Chairman Jerome Powell had a clearly dovish tone in his testimony before the US congress yesterday. The Fed’s Chairman underscored his dovishness as in a question he answered, by implying that global growth and trade uncertainties as well as low inflation, outweigh the healthy US labour market. It should be noted that despite a number of Fed members preferring to get more data before making any decisions, a strong case for a rate cut is building and analysts were quick to note that the case for a 50bp rate cut is still present. The Fed meeting minutes released later on showed that there is some support within the Fed for such a scenario, highlighting worries about inflation. In addition to that, the crypto market was hit, as the Fed’s Chairman stated that Facebook’s Libra “cannot go forward” until serious concerns are addressed. We expect the USD to remain weak, as the market still digests Powell’s testimony and could see today’s US CPI releases drawing also the market’s attention. EUR/USD rallied yesterday and during today’s Asian session, breaking the 1.1220 (S2) and the 1.1260 (S1) resistance lines, now turned to support. We could see the pair rising further should the USD continue to weaken during the day. Should the pair find fresh buying orders along its path, we could see the pair breaking the 1.1300 (R1) resistance line and aim for higher grounds. Should the pair come under selling interest, we could see it breaking the 1.1260 (S1) support line and aim for the 1.1220 (S2) support level.
Oil’s tight supply prospect boosted prices
EIA crude oil inventories showed a widened drawdown of -9.5 million barrels, indicating a tight US oil market. The situation could be even tighter next week, as Gulf of Mexico is hit by a storm, production ceases and personnel has being evacuated from the area. On other news, Middle East tensions rose yesterday, as Iranians tried unsuccessfully to seize a British tanker in the Persian Gulf. US President Trump tweeted a new stark warning against Iran, intensifying the situation further. We could see oil prices continue to rise, as the supply side seems to remain tight. WTI prices continued their rise yesterday and during today’s Asian session, breaking the 59.50 (S1) resistance line, now turned to support. We maintain a bullish bias for the commodity’s prices and we would require a clear breaking of the upward trendline incepted since the 9th of July, for it to change. Should the bulls continue to dictate the WTI’s direction we could see it breaking the 61.00 (R1) resistance line and aim for the 62.70 (R2) resistance barrier. Should the commodity come under selling pressure, we could see WTI prices breaking the 59.50 (S1) support line.
Other economic highlights, today and early tomorrow
Today during the European session, we get Germany’s and France’s final HICP rates for June, as well as Sweden’s CPI rate for June. During the American session, we get the US CPI rates (headline and core) for June. During tomorrow’s Asian session, Japan’s final industrial production growth rate for June is to be released, however we expect attention to be turned towards China’s trading data for June. Also please note that during the European session Bank of England’s stability report is due out, while the EUR may expect some volatility during the release of ECB’s account of monetary policy meeting. As for speakers, today Fed’s Chairman Powell is to be testifying for a second day and Atlanta Fed President Bostic, Richmond Fed President Barkin, FOMC’s Quarles and Minneapolis Fed President Kashkari are also scheduled to speak.
• Support: 1.1260 (S1), 1.1220 (S2), 1.1180 (S3)
• Resistance: 1.1300 (R1), 1.1345 (R2), 1.1410 (R3)
• Support: 59.50 (S1), 57.70 (S2), 56.00 (S3)
• Resistance: 61.00 (R1), 62.70 (R2), 64.65 (R3)