US Year-End Inflation Projection Decreases

23 June 2022, 02:52

Market Focus

US shares edged slightly lower on Wednesday as markets struggled to sustain a rebound from earlier on Wednesday following the hearing from Fed Chairman Jerome Powell. The Dow Jones Industrial Averages fell 0.15% while the S&P 500 dropped 0.13%; in the meantime, the Nasdaq Composite edged 0.15% lower to 11,053.08 at the end of the day. 

On the hearing from the Fed Chairman, Jerome Powell, he emphasized that the Fed is fully committed to bringing prices and inflation under control, even if doing so risks an economic downturn. Meanwhile, the Fed is not attempting to engineer a recession or provoke a recession although Powell understands and acknowledges that a recession might be possible as several central banks are having a hard time reducing inflation. Moreover, during the hearing, Jerome Powell reiterated that continuously increasing the interest rates would be appropriate, and he declined to rule out the possibility of a 100 basis points move if needed. According to the Fed’s latest economic projection, inflation is expected to drop only 5.2% by 2022, lower than the projection in April, 6.3%.

Main Pairs Movement

WTI oil price tumbled 4.95% as the market feared a looming recession would drag down global oil demand. At the same time, US president Joe Biden’s administration is locked in a dispute with the US oil industry.

EUR/USD was up 0.32%, finished with 1.05641 at the end of the day. EUR/USD advanced for a third consecutive day. The demand for the US dollar seemed to become softer on Wednesday even though Fed Chairman Jerome Powell mentioned that he would never take any size of interest rate hike off the table during his testimony hearing.

AUD/USD dropped 0.63%, to 0.69246 on Wednesday. The Aussie lost demand despite the PMI data in Australia beating estimates. The PMI landed 52.6, significantly higher than the expectation of 49.1. However, it failed to boost the Australian dollar.

GBP/USD declined 0.12% to 1.22606 on Wednesday. The inaction of GBP/USD could be the mixed plays as investors were cautious ahead of the preliminary PMI data for June from both the US and the UK.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD traded higher amid broad based dollar weakness. The Euro extended its third gaining day and traded 0.3% higher against the US Greenback. Fed chair Jerome Powell’s testament on Wednesday added selling pressure on the US Dollar. Chairman Powell iterated that he would not leave larger magnitude of interest rate hikes off the table as the central bank continues its effort to tame inflation. The EU leaders will be gathering on the 23rd to examine current economic and geopolitical situations of the Eurozone.

On the technical side, EURUSD has edged above our previously estimated resistance level and 1.05483, but still faces strong selling pressure near this price level. RSI for the pair sits at 48.6, as of writing. On the four hour chart, EURUSD currently trades below its 50, 100, and 200-day SMAs.

Resistance:  1.05483, 1.06315

Support: 1.04036, 1.03783

GBPUSD (4-Hour Chart)

GBPUSD traded lower slightly despite a weaker US Dollar. Market participants are alarmed by the British CPI data, which rose by 9.1%, year over year, marking its largest jump in 40 years. The BoE’s efforts to tame inflation seem to have minimal effect on the actual inflation rate. On the 23rd, Britain will release its key PMI figures, which will further price information for companies. Wednesday’s drop in Cable could not be offset by the broader based weakness of the US Greenback.

On the technical side, GBPUSD remains depressed below our previously estimated resistance level of 1.239, while support levels at 1.2173 remains firm. RSI for Cable sits at 52.18, as of writing. On the four hour chart, GBPUSD currently trades above its 50 day SMA, but below its 100, and 200-day SMAs.

Resistance: 1.25944, 1.239

Support: 1.2173, 1.20824

USDJPY (4-Hour Chart)

USDJPY has plateaued near the 136 price level as the US Dollar loses demand over the past couple of days. A pull back on the US 10 year treasury yield has helped the Japanese yen gain steam against the US Dollar. Since the beginning of April, the Japanese yen has fallen more than 12% against the US Greenback, further depreciation of the Japanese yen could pose fundamental threats to the currency; however, with chairman Jerome Powell’s testament last night, the interest rate difference between the US and Japan only seems to be growing.

On the technical side, USDJPY has met fresh resistance at around the 136.28 price region. USDJPY still seems to be on a steady upward trend despite stalling around 136 for the past couple of days. RSI for the pair has dropped out of overbought territory and currently sits at 59.5. On the four hour chart, USDJPY is trading above its 50, 100, and 200-day SMAs.

Resistance: 136.28

Support: 133.5, 132.5