Powell allows markets a sigh of relief

  • Fed Chair Powell sticks to his line: There was something for everyone. The “disinflationary process has begun” but the Fed will continue to watch the data on jobs and inflation.
  • USD rally stalls: The USD rebound since Friday on major forex pairs has eased off.
  • Risk appetite improves: The big moves come on equity markets with a rebound on Wall Street. This is allowing indices to be positive this morning, although watch US futures which are just easing back slightly.
  • Gold and silver picking up: Commodities are also finding support.

Chair Powell settles the nerves 

Nonfarm Payrolls came in hot on Friday. Jobs growth of 517,000 smashed expectations of a continued slowdown out of the water.

The key issue was how the Fed would react. Markets had been looking towards a speech by Fed Chair Powell at the Economic Club of Washington to shed some new light on the FOMC outlook.

Powell pretty much just stuck to the lines of what he talked about in the FOMC press conference last Wednesday (i.e. before the payrolls report).

Here are a few highlights:

  • Powell reiterated that the “disinflationary process” has begun
  • Asked if he regretted using the word “disinflation” 11 times, Powell was adamant that he would do it all over again.
  • However, he also balanced this by saying that if the labour market reports remain strong or inflation increases, they may still need to hike rates further. 

No hawkish bias from Powell

So markets can take this as a balanced view from the Fed. There has been a sense of relief. The fears of a hawkish lean following the jobs report have been averted, at least for now.

It leaves a March hike of +25bps as a given. Much beyond there, monetary policy tightening is still up in the air and data-dependent. The Fed will be looking at the data for the prospect of a May hike.

This has not driven rate hike expectations for May any higher. According to the CME Group FedWatch Tool, the probability stands at around 70%.


Markets will though be watching for the data in the weeks ahead:

  • US CPI will be key on Tuesday 14th February.
  • The next Nonfarm Payrolls report is on Friday 10th March
  • However, on the economic calendar, Fed speakers will also be a key gauge for markets too.

USD rebound stalls, risk appetite supported

The USD rally in the wake of the Nonfarm Payrolls report has stalled and is threatening to move into reverse again.


The Dollar Index spiked higher around the weekend but has started to pull lower again.

We are also seeing:

  • Equity markets have picked up, with Wall Street closing strongly and NASDAQ leading the move higher. This is helping European indices higher early today.
  • However, US futures have just tailed off into the European session. This may suggest that traders are still unsure whether to back renewed buying.
  • Precious metals are picking up. With the USD weakness and a risk-positive bias, we are seeing Gold and especially silver moving higher again today.

EUR/USD finding support, US equities a shade cautious still


There has been a significant correction in EUR/USD in the past few sessions. A pullback of over -260 pips from 1.1032 is the largest since November. However, the move is finding support.

  • A doji candle signals uncertainty with the continuation of the correction.
  • Support has formed at 1.0766.
  • It is also holding on to the rising 55-day moving average (c. 1.0665) which has been an excellent medium-term gauge in the past 12 months.

A move above 1.0765/1.0800 resistance would improve the outlook for the rally again.


S&P 500 futures

The futures have once more rebounded from a near-term correction. Weakness continues to look to be a chance to buy.

  • A “bullish engulfing” candle has swung the market higher again
  • Support of another higher low has been left at 4098 
  • Daily RSI momentum remains bullishly configured. 
  • The near-term uptrend channel continues to imply a rally towards a test of the August high at 4327.


Support and resistance levels for major markets


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