Date: 25 Feb 2019

Financial market participants are braced for a spike in volatility this week, as traders and investors look to a jam-packed economic docket, central bank action and key geopolitical risk events that will likely set the tone of the market for days to come and quite possibly the rest of the financial quarter.

Federal Reserve Chair Jerome Powell testifies on Capitol Hill this week, with Chair Powell going before the Senate Banking Committee on Tuesday and the House committee on Wednesday, where he set to face a grilling over the current state of the United States economy and monetary policy. Investors will be on the watch for any significant shift in Chair Powell’s stance on the US economy and upcoming rate increases since the Federal Reserve’s last policy meeting.

President Donald Trump faces a pivotal week in office as commander-in-chief, as he heads to Vietnam for a crucial summit with North Korean leader Kim Jong Un. President Trump earlier extended trade negotiations between Beijing and Washington after both sides reportedly made strong progress last week, although hopes of an actual deal being struck this week remain low.

If both sides fail to come to an agreement next month then the Chinese economy will face the prospect of 25 percent trade tariffs on $200 billion of Chinese goods into the United States. Investors are likely to shift into panic mode if the worst possible outcome occurs, which should put pressure on both sides to at least come to some form of understanding.

The United States economy also releases a raft of high-impacting economic data this week, which will give investors a good indication if the U.S economy is actually starting to slow as some economists fear. United States quarterly GDP is set to be released on Thursday, with the government shutdown delaying the initial release of the much-watched economic indicator. The Federal Reserve’s preferred measure of inflation, Core PCE price index is set for releases on Friday, which is expected to show only a muted 0.1 percent pick-up in monthly U.S inflation.

The United States economy also releases the ISM manufacturing index this, with last month’s ISM report showing prices contracting at their fastest pace since 2016. The ADP private sector job report is set for release, alongside Durable Goods Orders and Consumer Confidence, which according to initial estimates is set for a rebound during the month of February.

 

USD/JPY Daily Mount Chart | Source-ActivTrader Platform

USD/JPY Daily Mount Chart | Source: ActivTrader  

 

The USD/JPY pair has so far failed to react to the news that Sino-U.S trade talks are going to be extended beyond the March 1st deadline. Given the significant amount of upcoming risk-events this week, we could see traders becoming cautious about overall positioning until Federal Reserve Chair Powell’s testimony starts on Tuesday.

The technicals have largely remained the same over the last few weeks for the USD/JPY pair, with the price still trading within the 110.24 to 111.12 range. A break above the 111.12 level exposes a break towards the 111.40 level, with the 113.00 level extended resistance. To the downside, a sustained break below the 109.80 level and the USD/JPY pair will be on shaky ground, with the 109.10 level key support below.

 

Written by Nathan Batchelor, External Analyst

 

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