USD advances as Powell’s testimony expected

The USD tended to gain against a number of its counterparts yesterday as the US markets reopened after a long weekend, with maybe the most characteristic move being against the JPY as USD/JPY reached new twenty four year highs. It should be noted that the rise of US yields tended to provide additional support for the greenback, while at the same time the monetary outlook differentials of BoJ tended to weigh on the Japanese currency. On the monetary front we also note that Richmond Fed President Barkin add to the hawkish rhetoric of the Fed by reaffirming Fed Chairman Powell’s forward guidance for a 50 or 75 basis points rate hike in the next meeting, characterising it as reasonable. Today we highlight Fed Chairman Powell’s first testimony before Congress which is to be followed by a second one tomorrow, and should the Fed Chairman sound hawkish, given also his past forward guidance we may see the USD getting some support. At the same time US stockmarkets tended to rise as they tried to recover from a deep sell off last week yet all the main indexes for the US stockmarkets, Dow Jones, S&P 500 and Nasdaq started correcting lower during today’s Asian session. Also yesterday, Elon Musk stated that a recession in the near term is “more likely than not” while at the same time also stated that there are a few issues to be resolved for the Twitter deal, yet the statements did not seem to adversely affect the markets. No high impact financial releases are expected from the US today, yet we have a high number of Fed policymakers which are about to make statements and overall, we may see fundamentals leading the markets today. North of the US border though we get Canada’s CPI rates for May and a possible acceleration could provide some support for the Loonie as it could intensify the resolve of BoC to curb inflationary pressures with further rate hikes. CAD traders on the other hand may also pay close attention to BoC Deputy Governor Roger’s speech later today for any clues about the bank’s intentions. Similarly, across the pond, we also expect the release of UK’s CPI rates for May and a possible acceleration may induce BoE to widen its rate hikes instead the usual 25 basis points rate hikes it performs, which may provide some support for the pound today. We would also like to note from the Czech Republic CNB’s interest rate decision. The bank has been hiking rates and characteristically in the May meeting proceeded with a 75-basis points rate hike. Yet the CPI rate accelerated further in May reaching 16% yoy, a level not seen for over twenty-five years handling probably a shock to CNB policymakers. Today we would expect the bank to hike rates once again probably with a 100-basis points rate hike and at the same time remain substantially hawkish foreshadowing more rate hikes to come. Moving to the commodities front oil traders may keep an eye out for the API crude oil inventories figure and should the release show that US oil reserves rose substantially in the past week we may see oil prices slipping and vice versa.

USD/JPY rose yesterday breaking the 135.20 (S1) resistance line, now turned to support and continued higher to test the 136.70 (R1) resistance line yet was not able to break it. We tend to maintain a bullish outlook for the pair and we note that the RSI indicator below our 4-hour chart remains near the reading of 70, which tends to underscore the presence of the bulls for the pair. Yet we would note that the pair has reached a new 24 year high, which may cause the bulls to hesitate. Should the bulls maintain control over the pair we may see USD/JPY breaking the 136.70 (R1) which capped yesterday’s upward movement with the next possible target being the 138.00 (R2) level. Should the bears take over, we may see USD/JPY breaking the 135.20 (S1) support line and aim for the 133.50 (S2) support level.

GBP/USD failed to clearly break the 1.2300 (R1) resistance line yesterday which tended to reaffirm our bias for a sideways movement of Cable. We note that the RSI indicator remains near the reading of 50 implying a rather indecisive market, for the time being. Should the pair find fresh buying orders along its path we may see it breaking the 1.2300 (R1) line and aim for the 1.2425 (R2) level. On the flip side should a selling interest be present we may see the pair breaking the 1.2160 (S1) support line aiming for lower grounds.   

USD/JPY H4 Chart

Support: 135.20 (S1), 133.50 (S2), 132.30 (S3)

Resistance: 136.70 (R1), 138.00 (R2), 139.50 (R3)

GBP/USD H4 Chart

Support: 1.2160 (S1), 1.2015 (S2), 1.1880 (S3)

Resistance: 1.2300 (R1), 1.2425 (R2), 1.2590 (R3)

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