S&P500: Expectations of a FED rate cut getting stronger: Powel's speech today can cause a market turnaround
Expectations of a possible rate cut are increasing. Speculations have surged during the last couple of days as a result of the impoverished US economic figures. Today, FED Chairman might be giving investors some clues about the direction of the US monetary policy. Powell’s expected speech will be held in Chicago early during the New York session.
The CME Group has stated that there is 68.1% of probability of The Federal Reserve announcing a rate cut during July’s meeting. In addition, the rumours have been fed with Bullard’s speech this week. The current President of the Federal Reserve Bank of St. Louis stated that a rate adjustment is needed very soon to balance inflation figures.
As a reminder, short and medium-term economic expansion is a direct consequence of a rate cut. Variations of this type will result in higher economic growth and faster inflation. Taking into account the previous economic principle, the decision may be the quickest solution to fix the current deterioration of the US economy. Growth has been impacted by the trade war and the persistent negative sentiment in the market. At some point, investors believed that the Chairman was avoiding the decision to go against Trump’s demand and desires, but at this point, a rate cut may be imminent.
If Powell gives any little sign of a rate cut ahead, EUR/USD and USD/JPY can experience a lot of volatility today. USD/JPY has lost 1.55% since last week, with daily price action showing no signs of recovery. At the moment of writing, the pair is testing the 107.945 zone, a demand area that hasn't been reached since January 2019. On the other hand, EUR/USD continues to be fully dominated by the bulls but the 1.12701-1.12578 resistance may be a key factor to watch during Powell’s speech. If investors' prediction does not go as expected, Dollar Index may suffer its third day of consecutive losses, with the next support being 97.00 and 96.83.
Fiber, Gopher and the Loonie would not be the only ones to be impacted if a decision of this magnitude is brought to light. S&P and treasuries may experience a shock as well. Around 55 points already have been priced in the bond’s market. Treasuries are certainly exhibiting investor's expectations, with yields sliding during the last days as a result of poor economic figures and noticeable fear of a possible recession....