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Can Powell be hawkish enough?

  • Bonds rally, puts pressure on Powell. Can he be hawkish enough to push yields higher?
  • The price of oil slides due to China’s covid troubles 
  • OPEC+ is expected to keep the output policy unchanged
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The US T-Bond market has been rallying lately. This has pushed the benchmark 10-yr. yield lower making the Fed’s job to cool down the US economy harder. This creates pressure for Powell to be hawkish in his speech today. The markets (bonds and equities), however, are already pricing in the expectation that the Fed will start to cut rates some time next year. So the question is: Can Powell be hawkish enough to push the yields lower?

Oil prices have been under pressure as China’s economy keeps on slowing down due to the challenges related to Covid-19. The country doesn’t have a decent vaccination program in place and the lockdowns, the only tool the government has are threatening to turn against it. Another factor pressuring oil prices has been the expectation that OPEC+ isn’t likely to change its current output policy. Today’s main risk events are the EU CPI estimate and Fed Chair Powell’s speeches.

EURUSD chart 11 30

EU CPI expected to come in lower

EURUSD – Now that the market’s not trending lower anymore in the weekly or the daily charts the market structure for the pair is bullish. In the 8h chart, the market is ranging sideways and remains bullish above the 1.0222 support level. If the 1.0222 support level is broken decisively EURUSD probably trades down to the 1.0010 – 1.0015 range. If however, the recent resistance at 1.0481 is taken out the 1.0615 level is likely to come into play. Today’s CPI estimate is expected to come in lower than the previous reading (10.4% vs. 10.6 previous). If the CPI deviates strongly from the forecasts the pair probably breaks out of the range with more force.  A higher-than-expected number is bullish for EUR while a lower-than-expected number is bearish. Click here to start trading EURUSD with tight spreads and super fast trade execution!

GBPUSD chart 11 30

GBPUSD hit my target but remains bullish

GBPUSD rallied to my upside target of 1.2150 before sliding a bit. Cable is trending higher in the 8h chart and remains bullish above 1.1940. Below the 1.1940 level, the market is likely to trade down to 1.1780 or so. Above 1.1940 my targets are 1.2149 (T1) and 1.2240 (T2).

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USDCAD chart 11 22 1

Powell’s speech and OPEC meeting are likely market-movers

USDCAD reversed the downtrend as I expected and has since hit a descending trendline resistance. The market rallied to my 1.3510 – 1.3520 target range as oil remained weak. Now the pair looks like it’s going to retrace a bit and test the 1.3495 support level. If the bulls start buying at this level I’m interested in long trades but let’s see first how the market reacts to the level. Below 1.3495 the market probably trades down to the 1.3450 – 1.3460 range. Powell’s speech today and the upcoming OPEC+ meeting on Sunday are very likely market-mover events for USDCAD.

 The Next Main Risk Events

  • EUR Core CPI Flash Estimate 
  • USD ADP Non-Farm Employment Change
  • USD Prelim GDP q/q
  • USD JOLTS Job Openings
  • USD Pending Home Sales m/m
  • USD Fed Chair Powell Speaks
  • CHF CPI m/m
  • USD Core PCE Price Index

For more information and details see the TIOmarkets economic calendar 

Trade Safe!

Janne Muta
Chief Market Analyst

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