Fed speech sends markets lower, GDP figure eyed
A day packed with announcements from around the world, while markets digest the latest Fed Reserve speech.
Testimony by new Fed Chair, Jerome Powell, sent markets lower as he indicated that rates will have to continue to tighten to control inflation. Markets reacted negatively to the news as higher rates means borrowing money is more expensive. While rates are still near historic lows, markets have become accustomed to “cheap” money. It remains to be seen whether this will eventuate however, as raising rates too quickly could push the economy into recession. At the moment, any talk of aggressive rate rises seems to be enough to put markets off. Poor US economic data (Core Durable Goods Orders) also contributed to the negative night for markets.
As is the case with pullbacks, the Dow bore the brunt of the negative news. After hitting a peak of 25,823.80 in early trading yesterday, it was mainly bad news for the index. The Dow declined gradually until the Fed Chair spoke, it spiked around 100 points around the time of the speech, the rapidly fell after that. It eventually hit session lows close to the end of the trading session, touching 25,397.70, a drop of over 425 points from its highs. It has recovered slightly since then, currently trading at 25,436.00. The Dax seemed to take the lead from the Dow, ending the session down 150 points from its highs. It reached session highs of 12,579.22 early before weakening for the rest of the session, hitting session lows of 12,424.70. It is not far off those lows, currently trading at 12,428.55.
The EUR/USD was hammered overnight, as investors flocked to the USD. The pair was at session highs of $1.23458 midway through the session before plummeting to session lows of $1.22202. It is struggling to get off the canvas, currently trading at $1.22331. The GBP/USD drop was of a similar magnitude, falling from session highs of $1.39962 to lows of $1.38560. The pair has recovered more of those losses though, trading at $1.39060.
Looking ahead to today and all eyes are on the US Prelim GDP figure. As the most crucial piece of economic data, this definitely has the potential to cause volatility if the figure misses or beats market expectations. Other data set for release today includes:
Canada – RMPI, IPPI
China – Manufacturing & Non-Manufacturing PMIs
NZ – ANZ Business Confidence, Overseas Trade Index
UK – BRC Shop Price Index, GfK Consumer Confidence
Australia – Private Sector Credit, AIG Manufacturing Index
Japan – Prelim Industrial Production, Retail Sales, Housing Starts
US – Prelim GDP Price Index, Chicago PMI, Pending Home Sales, Crude Oil Inventories
Europe – Swiss UBS Consumption Indicator, German GfK Consumer Climate, French Consumer Spending, French Prelim CPI & GDP, German Unemployment Change, Italian Prelim CPI, Swiss KOF Economic Barometer, Credit Suisse Economic Expectations, European CPI & Core CPI Flash Estimate
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