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NFP report will decide the fate of September Fed QE announcement
Powell stuck to the hawk line in Jackson Hole last week, but avoided specifics to allow himself room for maneuver at future meetings. The Fed chair hinted at the possibility of QE tapering start this year, which the markets apparently interpreted as sure event. The question is when the QE announcement will be made - in September or towards the end of the year. September shift in the Fed policy is likely to require a strong upside surprise in the August Non-Farm Payrolls report.
Majority of Powell peers at the Fed spoke in favor of making an announcement on QE in September and saying goodbye to the asset-purchase program already in the 1st or 2nd quarter of 2022. However, Powell opted for cautious stance saying that it "might" be appropriate to start trimming the Federal Reserve’s activity in the Treasury and MBS markets this year, with a decision based on incoming data and delta strain dynamics in the US in the fall.
Powell acknowledged that the recovery is happening faster than expected and that inflation in the United States has taken off. At the same time, there is no guarantee that its temporary nature cannot change to a permanent one.
What cheered the markets and hit the dollar is comments of the Fed chair on employment, interest rate path and risks of a premature policy change. Powell said that in a weak labor market, early tightening could hit economic activity and employment, undermining all the gains from stimulus policy. In addition, he said that changes in QE shouldn’t be viewed as a signal of the Fed intentions regarding the timing of a rate hike, which also greatly disappointed proponents of the Fed hawkish policy stance.
Relatively dovish position of the Powell last week led to broad dollar sell-off with EURUSD rising to two-week high of 1.18. The pair scored 8 winning days out of 9 as the liftoff began thanks to synergy of buyer interest as can be seen from the intersection of lower bound of the downside trend channel and strong annual support area 1.1650-1.17:
This week the Eurodollar is to challenge the upper border of the short-term trend channel. Considering vast of unused upside momentum on 1D timeframe with RSI at ~ 52 points, support of both short-term and medium-term buyers, there are high chances of a breakout before the NFP The nearest target for bulls resides in horizontal resistance zone of 1.1880 - 1.19. However, in the medium term, the pair remains in a downtrend. This can be seen from the downward slope of the annual trendline starting from 2021. It follows from this that holding gains above 1.19 will be difficult as ECB outlook remains pretty dovish. A negative NFP surprise is likely to fuel dollar sales boosting EURUSD recovery towards 1.20 as expectations for the announcement of QE tapering will move to the end of the year.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Powell stuck to the hawk line in Jackson Hole last week, but avoided specifics to allow himself room for maneuver at future meetings. The Fed chair hinted at the possibility of QE tapering start this year, which the markets apparently interpreted as sure event. The question is when the QE announcement will be made - in September or towards the end of the year. September shift in the Fed policy is likely to require a strong upside surprise in the August Non-Farm Payrolls report.
Majority of Powell peers at the Fed spoke in favor of making an announcement on QE in September and saying goodbye to the asset-purchase program already in the 1st or 2nd quarter of 2022. However, Powell opted for cautious stance saying that it "might" be appropriate to start trimming the Federal Reserve’s activity in the Treasury and MBS markets this year, with a decision based on incoming data and delta strain dynamics in the US in the fall.
Powell acknowledged that the recovery is happening faster than expected and that inflation in the United States has taken off. At the same time, there is no guarantee that its temporary nature cannot change to a permanent one.
What cheered the markets and hit the dollar is comments of the Fed chair on employment, interest rate path and risks of a premature policy change. Powell said that in a weak labor market, early tightening could hit economic activity and employment, undermining all the gains from stimulus policy. In addition, he said that changes in QE shouldn’t be viewed as a signal of the Fed intentions regarding the timing of a rate hike, which also greatly disappointed proponents of the Fed hawkish policy stance.
Relatively dovish position of the Powell last week led to broad dollar sell-off with EURUSD rising to two-week high of 1.18. The pair scored 8 winning days out of 9 as the liftoff began thanks to synergy of buyer interest as can be seen from the intersection of lower bound of the downside trend channel and strong annual support area 1.1650-1.17:
This week the Eurodollar is to challenge the upper border of the short-term trend channel. Considering vast of unused upside momentum on 1D timeframe with RSI at ~ 52 points, support of both short-term and medium-term buyers, there are high chances of a breakout before the NFP The nearest target for bulls resides in horizontal resistance zone of 1.1880 - 1.19. However, in the medium term, the pair remains in a downtrend. This can be seen from the downward slope of the annual trendline starting from 2021. It follows from this that holding gains above 1.19 will be difficult as ECB outlook remains pretty dovish. A negative NFP surprise is likely to fuel dollar sales boosting EURUSD recovery towards 1.20 as expectations for the announcement of QE tapering will move to the end of the year.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.