Powell Paints the Dots

In one breath Fed Chair Powell said he wouldn't prejudge changes to the Fed dot plot but in the next he made it clear it's going higher. The US dollar was the top performer on Tuesday while commodity currencies lagged. All eyes will be on China later, before Eurozone Feb preliminary CPI and US revised Q4 GDP on Wednesday. Below is the Premium video outlining the existing shorts in selected indices. A detailed update/revision has been added to the EURUSD trade.

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Powell spent more than three hours answering questions in the US House of Representatives and will do it again in the US Senate on Thursday, but the most important question in markets was posed to him directly: Will the Fed hike three times this year or more?

He was diplomatically non-committal on the forecast but then added a list of reasons why the outlook improved. That included better data, the tax cut, stronger global growth and consumer sentiment.

The final one on the list was underscored by the Conference Board, whose consumer confidence indicator rose to the best since 2001 at 130.8 versus 126.5 expected.

The headlines came at short time apart and gave the US dollar a lift. In turn, EUR/USD dropped to 1.2222 from 1.2320 at the start of US trading. Cable fell more than 100 pips with Brexit worries also contributing to the decline.

Commodity currencies were particularly hard hit with USD/CAD climbing to a fresh 2018 high and the first close above the 200-day moving average since June.

Looking ahead, top Chinese Communist officials are wrapping up meetings on Wednesday that focus on high-level appointments. One of those is likely to be at the PBOC where governor zhou xiaochuan is expected to announce his retirement. It would be unusual to get a quick announcement on the Zhou's replacement but any leak or other statements from the meeting could move markets. Early headlines include forecasts for growth to stay above 6.5% this year and next.

Other China news includes the official manufacturing and non-manufacturing PMIs. Both are due at 0100 GMT and forecast to edge lower to 51.1 and 55.0, respectively.