THE DOLLAR RISES FOLLOWING POWELL’S BULLISH STATEMENT

Today, the dollar was the strongest G10 currency as traders waited for the first testimony by the new Fed chair. The dollar index, which tracks the dollar’s movement against its top global peers rose by 0.20% to currently trade at $89.95. It reached an intraday high of $90.30.

In a written statement released before the testimony, Powell said that the economy was doing well and projected further rate increases this year. He predicted that inflation would continue to rise, potentially above the Fed’s target and become stable early next year. Traders liked the four-page statement, but, saw no change from the past policies. In fact, they pointed to what he failed to say in the statement. For example, he did not talk about the deficits and the impacts that might come with it. This pushed the treasury bonds higher with the 10-year and 5-year rising by almost 1 percentage point each.

At the same time, data from the census bureau showed that core durable goods grew by negative 0.3%. Traders expected them to grow by 0.4%. Durable goods orders of negative 3.4% missed analysts estimates of negative 2.4%.

The New Zealand dollar fell against the US dollar. The fall was partly attributed to the stronger USD as traders waited for the testimony by Powell and partly due to the increasing deficit. The data released earlier today showed that the country exported and imported goods worth NZD 4.31B and NZD 4.8B. The trade balance stood at more than NZD 320M, higher than the expected NZD 271M. The pair is trading at a low of 0.7257, the lowest level since February,14.

EUR/USD

The pair broke the support price of 1.2318 and headed lower as traders waited for the statement from Powell. Yesterday, we predicted that a breach of this level would see the pair test the 1.2279 level. This has already happened as shown below. The pair could also reach 1.2260. The alternative scenario is where the pair starts moving up which could see it reach a high of 1.2334.

NZD/USD

The kiwi fell against the dollar following disappointing trade balance data and the anticipation of the Powell statement. With no major data scheduled for tomorrow from New Zealand, there is a possibility that the pair could continue to go down. The chart pattern shown below further illustrates why. This will be determined by the pricing of the dollar. The short-term target for the pair is 0.7238.

XAUUSD

Gold fell against the dollar, reaching a low of $1324. The fall was attributed to a combination of a stronger dollar and higher treasury yields. The downward pressure on gold could continue during Powell’s testimony if the US dollar continues to rise. The likely target for the pair is $1317. If there is a reversal, the pair could reach the $1340 level.