Forex Today: Powell Triggers Bullish Sentiment

The Federal Reserve raised rates as expected by 0.25% and maintained tight policy language in statement, but Powell talked down the Dollar in his later presser, boosting stocks.

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1. Yesterday’s FOMC Statement and Federal Funds Rate release saw the Fed hike rates as expected by 0.25% to 4.75%, the highest rate of any major currency. This was their eighth consecutive rate hike. The FOMC Statement maintained its existing language signalling “ongoing” rate hikes over the near term. The US Dollar and stocks initially barely reacted, but when Jerome Powell began his press conference, his words had the effect of triggering a firm bullish move in stocks and a selloff in the US Dollar, even though he said nothing notably dovish. Despite the indication of further rate hikes, markets are pricing in no more hikes and in fact are expecting 0.50% worth of cuts during the second half of 2023.
2. Stock markets have rallied. Notably, the S&P 500 Index came very close to making a golden cross at close last night, with its 50-day SMA just a few points off moving above its 200-day SMA for the first time in almost a year, since 11^th March 2022. This is typically a strong long-term buy signal. Notably, the price ended the day with a close right on the former key resistance level at 4121, strengthening the bullish case. If the price rises today to close above 4121, that will be a bullish sign.
3. In the Forex market, the US Dollar is the weakest major currency while the Euro and the Australian Dollar are the strongest. The Dollar has sold off since the Fed’s release yesterday, with the US Dollar Index finally breaking below its former support level at 101.07. The EUR/USD currency pair made a bullish breakout continuing its long-term bullish trend, trading as high as $1.1020, its highest price since April 2022. The USD/JPY currency pair is also falling but has not broken down to new long-term lows.
4. Many commodities are performing strongly and are reaching, or have recently reached, new long-term highs, such as Gold, Copper, Steel, and Sugar. Trend traders may be interested in being long of these assets, especially Gold which has just reached a new 10-month high at $1,959 per ounce.
5. The European Central Bank and the Bank of England will be making their major policy releases today. Both are expected to hike rates by 0.50%.
6. The US ADP Non-Farm Employment Change forecast came in well below the expected 176k new jobs, predicting only 106k will be added by the release due Friday.
7. The US JOLTS Job Openings and US ISM Manufacturing PMI data yesterday showed slightly stronger jobs growth but a weaker than expected manufacturing sector.
8. Daily confirmed new global coronavirus cases decreased last week for the sixth consecutive week, but there are serious doubts over the veracity of China’s official statistics, which almost certainly dramatically understate new coronavirus cases.
9. Total confirmed new coronavirus cases worldwide stand at over 675.4 million with an average case fatality rate of 1.00%. Daily new confirmed cases have fallen to a low level not seen since the summer of 2020. New cases are rising notably in Taiwan.