Macro economics

Analytics on 10/07/2019. All eye on the Fed

European stocks are trading lower on Wednesday as investors await a testimony from U.S. Federal Reserve Chairman Jerome Powell in front of the House Financial Services Committee later today. Market participants expect the Fed governor will shed the light on the prospects for the monetary policy after a stronger-than-expected jobs report somehow dampened expectations of a decisive action on interest rates. Also, investors are eagerly waiting for trade talks resumption after White House economic adviser Larry Kudlow said officials from the economies had held a “constructive” phone conversation on Tuesday. As for individual stocks, Deutsche Bank shares have finally switches to a recovery mode and gained over 2.5% today, trimming losses on the announcement of a mass restructuring plan. On the data front, the UK economy returned to growth in May as car production increases following April shutdowns. The GDP grew by 0.3% after contracting by 0.4% in April, exceeding expectations of a 0.1% rise. Trade deficit narrowed, primarily due to narrowing gap between exports and imports of goods

Against this backdrop, the UK’s FTSE 100 declines by 0.12 per cent to 7527, Italy’s FTSE MIB adds 0.89 per cent to 22,081, France’s CAC 40 gains just 0.02 percent to 5,573, while German DAX 30 is 0.48 per cent lower to 12,377. US stock index futures are edging lower as investors await Powell's testimony and FOMC meeting minutes.

After a three-day rally, the dollar turned marginally negative against the European currencies as traders are preparing for Powell’s comments on the economy and monetary policy. The sentiment ahead of the key events looks mixed in the context of the latest strong jobs data. At the same time, the market has fully priced in a rate cut later this month. Depending on the tone of the Federal Reserve, the dollar pairs could jump or see a steep decline. The latter will be the case should the Powell’s rhetoric come not as dovish as expected.

EURUSD managed to recover towards the 1.1230 area after a brief dip below the 1.12 critical support yesterday. However, the upside potential remains limited as the greenback holds relatively steady after the recent rally. Technically, the pair needs to overcome the 100-DMA around 1.1255 in order to target the 1.13 handle. Once above, the euro will likely encounter a local resistance in the form of the 200-DMA at 1.1325. But such a scenario is unlikely in the short term, unless the dollar will see a massive sell-off if the Federal Reserve disappoints. In a wider picture the pair remains under the selling pressure, with the risk of a break below 1.12 persists.

Oil prices are trending north on Wednesday, accelerating the recovery from recent lows around the $62 handle. Brent registered a ten-day high at $65.76 and remains elevated. The local bullish driver is the API report that showed the US crude oil inventories declined by over 8 million barrels last week. The lingering geopolitical tensions continue to support the market as well. The current upside correction could be derailed if the greenback rallies across the board o Powell’s testimony. In general, the short-term picture favors the upside.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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