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From the Floor: Powell comments boost USD, hinder risk sentiment

#SaxoStrats
   • Fed chair Powell comments spark USD rally, risk retreat
   • JPY makes new highs versus euro while USDJPY rangebound
   • Capital-intensive sectors the biggest decliners in equities
   • US consumer confidence highest since late 2000
   • Commodities sent lower by USD bulls

SaxoStrats
By Michael McKenna

Federal Reserve chair Jerome Powell's testimony before a US House committee Tuesday sparked a dollar rally that weighed heavily on both stocks on commodities. In Saxo Bank head of forex strategy John Hardy's view, it was Powell's demeanour – his "more transparent style" – that marked the biggest shift away from the Bernanke/Yellen era, with markets picking up on the change and boosting USD.

"We see a variety of USD pairs at their 200-day moving averages with USDCAD having broken through the line and AUDUSD now testing it," says Hardy.

Concerning the Aussie, Hardy reports that a meltdown through 0.7750 would mark a definitive end to the AUD's rally.

AUDUSD:
AUDUSD
Source: Saxo Bank

On the yen, Hardy notes that the currency surged versus most major rivals, likely on the traditional risk-off bid, but USDJPY remains rangebound given the dollar's bullish tone. 

In stocks, Saxo Bank head of equity strategy Peter Garnry reports that capital-intensive sectors like real estate, consumer discretionary, utilities, and telecoms were hardest hit Tuesday given the dollar's rally.

beyond Powell, the USD bid was lent extra force by the release of a US consumer confidence print showing the highest reading since late 2000.

Garnry reiterates his overweight stance on semiconductors, technology hardware, software, and consumer shares while maintaining and underweight stance on energy, utilities, telecoms, media, and real estate.

Looking back to the Powell address, Garnry says that four rate hikes are now determinedly on the table for 2018.

Federal Reserve
A change of tone from Powell saw the USD rally firmly. Photo: Mark Van Scyoc / Shutterstock.com

Michael McKenna is head of editorial content at Saxo Bank
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