Intraday Market Thoughts

Powell Corrects Neutral

by Adam Button
Nov 29, 2018 12:43

Metals and FX were all spurred sharply higher against the US dollar after Fed Chairman Jerome Powell delivered a surprise correction on Wednesday, with a dovish turn. Powell said Fed funds rates rates were “just below the vicinity of neutral”, one month after he described them to have been a "long way" from neutral. Powell also emphasized that there was no preset policy path and said officials were paying “very close attention” to economic data. A new USD trade was issued yesterday evening and is already half a cent in the green. US core PCE is up next, expected at 1.9%. Moments earlier, German prelim Nov CPI slipped to 2.3% from 2.5%. 

تداول بعد باول فيديو المشتركين يدخل في صفقة امس

In a more-subtle shift Powell also made fewer mentions of the gradual path of policy hikes and generally used the past tense when mentioning it. The market's take was unmistakable. The S&P 500 rallied 2.3% in the biggest climb in eight months and the US dollar fell 40-100 pips across the board. The market continues to price in an 80% chance of a hike in December but now only sees a 75% chance of another hike through 2019.

Technically, cable showed signs of a double bottom at 1.2730 and may also benefit from polls showing the public warming to Theresa May's Brexit deal. The New Zealand dollar rose above the 200-day moving average for the first time since April.

Perhaps most notably, the euro traced an outside day in a rally to 1.1370 from 1.1270. The tone in Italy is moving towards a painful compromise and it's been badly beaten down. That said, it's been beaten down for a reason and that's poor economic data.

If there is going to be a sustained rally in the euro, it will need to come on better numbers. German inflation fell to 2.3% from 2.5% vs exp 2.4%. The US also reports on PCE figures later in the day but you would have to imagine Powell would have had an inkling that it wouldn't be strong.

Act Exp Prev GMT
Eurozone CPI Flash Estimate (y/y)
2.1% 2.2% Nov 30 10:00

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