FX.co ★ Powell continues to confuse the currency markets

The market was focused on the speech of Fed Chairman J. Powell in Congress on Wednesday, where he fully confirmed the previously announced rhetoric of his much-anticipated speech.

The thought that the regulator still considers the inflation growth as temporary sees no reason to change the course of monetary policy. He also assured that it is justified to believe that employment will return to pre-pandemic levels. It seems that he was referring precisely to the return to the labor market of low-paid segments of the population, who currently prefer to stay at home relying on benefits.

Thus, there is only one question: How does Powell intend to encourage these segments of the population to go to work in the conditions of COVID-19 and the availability of broad measures of financial support from the government?

Obviously, the Chairman of the US Central Bank did not want to hint that the regulator would still begin to gradually exit from the super-soft monetary rate. Everyone understands this. The main thing is to understand when will it be, but everything is not so simple.

America continues to live in debt, taking away a better life from future generations, while traditionally trying to shift the financial problems to other countries, exporting inflation to the outside. There is doubt whether it will be able to get out of this situation. The political, social, and economic processes that do not allow us to return to the past are taking place in the country. But as long as the United States manages to convince investors of its financial inviolability, the US dollar will maintain its attractiveness as the world reserve currency. However, this process cannot last indefinitely without the support of a self-sufficient economy that can live without colossal state financial injections.

Now, the markets face the question: can the US economy survive without subsidies? We strongly doubt this. In fact, its financing state has been wobbling since the beginning of this century. And this phenomenon generates a parasitic attitude both in business and among the population, which is now observed. That is, it does not allow the local labor market to recover.

Powell tried to calm the markets yesterday and it did for a while. Treasury yields declined, but the stock market came under pressure after rising at the start of trading. The US dollar declined, albeit minimal. In fact, it continued to consolidate on the ICE index in a sideways range.

Observing everything that is happening, we believe that this situation will most likely dominate the markets as a whole. Some serious movements will only be observed if the Fed makes real actions regarding the super-soft monetary rate. That's when the US dollar will really get good support, and the US stock market and then the world will begin to adjust down. But at the same time, gold, yen, and the franc will be in favor.

Forecast of the day:

The USD/JPY pair is trading above the level of 109.60. It will most likely continue to decline if the demand for risky assets remains weak. If so, we can expect the pair to move below the level of 109.60, which will lead to its further decline to 108.70.

The XAU/USD pair continues to rise towards the previously defined targets. We believe that the current situation in the markets will support the demand for gold. A price consolidation above the level of 1830.00 will lead it to the levels of 1837.00, and then to 1852.00.