Date: 08 Jul 2019

Federal Reserve Chair Jerome Powell’s semi-annual testimony before U.S Congress headlines the economic docket this week, with Chair Powell expected to face a grilling over the U.S economy and Federal Reserve policy. The better-than-expected June Non-farm payrolls headline figure has now raised questions as to whether the Federal Reserve even needs to reduce the U.S interest rate.

Financial markets will be braced for any hawkish shift from Chair Powell when he testifies this week, although pressure from U.S President Donald Trump to reduce interest rates is likely to weigh heavily on the Federal Reserve Board. President Trump has recently nominated two dovish candidates to the board of the Federal Reserve, who would almost certainly be in favor of rate reductions.

Chair Powell may have to strike a balancing act this Wednesday and Thursday, as market expectations still remain high that at least a 25 basis point reduction in the U.S interest rate will be taking place on July 31st. The 224,000 June headline number certainly makes it more difficult for Chair Powell to justify a dramatic 50 basis point rate cut later this month.

Another key component the Federal Reserve are surely considering when cutting rates is the current strength of the U.S Dollar, something which President Trump has been extremely vocal about lately. U.S Dollar strength is likely to be a hot topic in the third fiscal quarter of 2019, especially if the U.S manufacturing sector continues to decline and the U.S trade balance continues to widen.

Markets have largely downplayed President Trump’s comments on the unfair advantage other nations have when artificially weakening their currencies. Should we see Treasury Secretary Steve Mnuchin making any bold statements about the need for a weaker U.S Dollar, financial markets will surely act in a much more dramatic fashion.

 

GOLD Mountain Chart Source ActivTrader Platform

GOLD Mountain Chart| Source: ActivTrader

 

Gold is one of the more interesting trades to consider this week, particularly with the newfound uncertainty towards any potential U.S rate reductions this month. Gold has strong technical support at the $1,365 and $1,340 levels, while the upside is dominated by two key resistance levels; the $1,425 and $1,440 levels. A breakout above the $1,450 level opens-the-door for further upside towards the $1,500 and $1,550 levels.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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