10.07.2024: USD on defensive however prone to weaken because of dovish Fed’s agenda. S&P 500, EURUSD, Brent

The US economy is “no longer overheated,” the Federal Reserve Chairman said yesterday, delivering his semi-annual testimony to the US Congress. Although senators asked Jerome Powell questions about rate cuts, the head of the central bank not only did not say anything new but also answered extremely evasively. At the same time, he again mentioned the need for more economic data to make well-grounded policy decisions.
Nevertheless, the markets grasped subtle hints in the speech of the Fed Chairman that the regulator was still approaching a rate cut. Besides, the policymaker underscored the weakening of business activity and employment as well as the fact that economic metrics are beginning to move in the right direction.
However, given that the market, as usual, has already priced in the September rate cut in the US, the situation for popular assets has changed little. So, today’s speech by Jerome Powell in the House of Representatives will hardly bring anything new. The US central bank is looking forward to inflation data, which will be released tomorrow.
Thus, the most realistic scenario for the US stock market is stagnation. However, stocks that had been in a sleeping mode for most of the year have perked up amid rising expectations that the monetary easing cycle will begin in September. The S&P 500 index updated its all-time high and today showed further growth, trading in the intraday corridor of 5,574 to 5,590.
The technical picture in the forex market remains unchanged since crucial data on US inflation will be released only tomorrow. Until then, the most likely scenario is stagnation.
The US dollar index today is hovering within a narrow intraday range of 105.0 to 105.2. At the same time, the index remains stable above the critical support of 105 points.
This year, investors are trying to determine the moment when inflation will come under the control of central banks. The other thorny issue is when the regulators themselves admit that they control prices and not vice versa. For example, the US inflation report for June, due tomorrow, is also expected to be stable.
If consumer prices do not rise and remain at the same level, this may be enough for the Fed to revise its timeline for rate cuts. Such prospects may hurt the US dollar. You can learn more about the impact of economic data on exchange rates in our Trader’s Calendar.
For example, today in Japan, data showed that annual wholesale inflation accelerated from 2.6 to 2.9%. Such data cemented market expectations regarding a rate hike by the Bank of Japan in the near future.
This prospect is positive for the Japanese currency. Therefore, the yen tried to strengthen during the Asian session at about 161.36. However, the wide gap between key policy rates in Japan and the US pushed the dollar/yen pair back up to 161.6. So the US dollar again won its small victory over the ailing yen.
As for the euro/dollar pair, despite the slowdown in the upward cycle, the single currency remains above 1.0800 for the fifth session in a row. This indicates bullish sentiment among market participants. If the instrument settles above this line, then the door will be open for a further bullish move of the euro.
Moreover, the single currency can test 1.0850 and move higher towards 1.09. This forecast will be realistic if a possible revision of the Fed’s agenda for rate cuts will put pressure on the US dollar. The bearish scenario for the euro/dollar pair will come into play if the euro again drops below 1.0800, the level which in this case will act as resistance.
Oil prices have also gained ground today. In early Wednesday, crude oil declined due to the mitigation of the effects of Hurricane Beryl and weak inflation data in China.

00:00 INTRODUCTION
00:33 POWELL’S SPEECH AT CONGRESS
01:20 S&P 500
01:50 USDX
02:19 TRADER’S CALENDAR
03:04 JAPAN INFLATION
03:18 USD/JPY
03:46 EUR/USD
04:37 PRODUCER PRICE INDEX IN CHINA
05:17 BRENT

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