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Powell pledges to take necessary steps to address high inflation environment, rate hike could increase to 0.50 percentage points

Market Focus

US equities market edged slightly lower on Monday following Federal Reserve Chairman Jerome Powell’s alert on surging inflation and the possibility of a half-point interest rate hike in May. The Dow Jones Industrial Average was down 0.58%, and the S&P 500 finished nearly flat, down 0.04%. The Nasdaq Composite shed 0.4% at the end of the day.

Powell, took on a more hawkish tone in his speech addressing inflation on Monday, triggering a slide in the US treasury. Powell pledged to take necessary steps in response to a high inflation environment. In his speech, he mentioned rate hikes could go from the traditional 0.25 point move to a 0.50 point increase if needed.

Boeing stock slid 3.5% following the news that a Boeing 737 crashed in China with 132 people on board.  Boeing reported an annual loss in January, among which, more than 5.5 billion was tied to manufacturing flaws that have forced the temporary termination of the delivery of its aircraft.

Main Pairs Movement

The Japanese yen dropped to a six-year low against the US dollar following the Fed’s aggressive stance on interest rates. On Monday, USDJPY ended 0.27% higher at 119.47. At the same time, the Bank of Japan continued maintaining its easing stance, leaving its interest rates and asset purchases schedule unchanged.

WTI rallied more than 7% on Monday as the EU discussed sanctions against Russian oil after facilities in Saudi Arabia were attacked by Houthi rebels that declared support for Russia’s invasion. With the move, the EU has started considering joining the US in an oil embargo.

Gold inched higher, finishing at $1936 on Monday over the uncertainty of the US president Biden- NATO talks. In the meantime, the market’s focus has shifted to the Russia-Ukraine conflict. Separately, gold also gained some traction following the news that the scheduled call between Joe Biden and Xi Jinping failed to have any substantial outcomes.

EURUSD faded 0.32%, down to 1.10152, to start the week as the US dollar appreciated on the back of Jerome Powell’s hawkish tone.

Technical Analysis

GBPUSD (4-Hour Chart)

Cable started the week trading higher as demand for the Greenback continues to fade. The most recent interest rate hike by the BoE has provided ample upward momentum to the British Pound. On the economic docket, Britain’s CPI and PMI data are due to release on Wednesday and Thursday, respectively; on the other hand, the U.S.’ initial jobless claims and core durable goods data are scheduled to be released on Thursday.

On the technical side, Cable has broken through our previously estimated resistance level at 1.3185, but upward momentum seems to be slowing down. RSI for Cable was last seen at 60.6. On the four-hour chart, Cable is currently trading above its 50-day SMA but below its 100 and 200-day SMAs.

Resistance:  1.3185

Support: 1.2998, 1.2876

EURUSD (4-Hour Chart)

The euro-dollar pair has continued on our projected upward price trend. However, with no foreseeable end to the Ukraine Russia war and no resolute from the most recent peace talks, market participants should be wary of possible short term trend reversals. During his speech scheduled during the U.S. session, Fed Chairman Jerome Powell indicated that inflation was running higher than the central bank had anticipated and the bank would not put a 50 basis point rate hike out of the picture.

On the technical side, EURUSD has successfully defended our previously estimated support level at 1.0893 and the immediate resistance level at 1.1127 remains unchallenged. RSI for the pair sits at 40.07 as of writing. On the four hour chart, EURUSD is currently trading above its 50-day and 100-day SMAs but below its 200-day SMA.

Resistance: 1.1127

Support: 1.0893, 1.0845

XAUUSD (4-Hour Chart)

Gold started the week trading higher from last week’s close. With no backing down from the Kremlin and Kyiv, market participants continue to observe the evolving situation while using gold as a hedge for geopolitical conflicts. Recent interest rate hikes by global central banks have also provided a tailwind for the precious metals rally. The Russian army has recently resorted to hypersonic weapons, which are capable of carrying nuclear warheads, to disintegrate tactical locations. Such a move has put global defence ministries on alert as such weapons have yet to be deployed since the start of the Ukraine-Russia war.

On the technical side, our previously estimated support level at the $1918 per ounce price level still holds firm. On the other hand, the near term resistance level for XAUUSD has formed around the $1940 per ounce price level. RSI for the pair is at 51.58 as of writing. On the four hour chart, XAUUSD is currently trading above its 50-day SMA but below its 100 and 200-day SMAs.

Resistance: 1961

Support: 1918

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