Cable jumped fresh 2020 highs 1.3285 initially and corrected partially following a knee-jerk market reaction
Fresh economic data out of the US was mixed and pressured the greenback slightly. There were 1,006,000 initial claims for unemployment benefits in the country last week versus the previous print of 1,104,000 (revised from 1,106,000). US Q2 GDP second reading came in at -31.7%, an upward revision of 1.2% from the previous estimate issued in July.
Meanwhile, Powell in his speech said that the Fed places employment before inflation in its new monetary policy strategy and that the central bank will target average inflation. Also, the Federal Reserve Governor noted that the regulator will not hesitate to act if inflation rises above levels consistent with their goal. The announcement sent the greenback south across the board, as the idea of targeting average inflation is dollar-negative. However, the US currency reversed losses after a knee-jerk reaction.
As a result, the euro turned positive on the day and briefly touched the 1.19 handle in an initial reaction to the speech. The pair has retreated since then, having settled marginally above 1.18. Despite a sharp local reversal, the daily RSI is pointing slightly lower again, suggesting the euro’s bullish potential is still limited. Furthermore, once traders digest the message from Powell, the greenback could fully reverse losses eventually.
GBPUSD saw a similar reaction to the event. The pair jumped fresh 2020 highs 1.3285 initially and corrected partially following a knee-jerk market reaction. As such, the pound was climbing higher for the third day in a row. However, considering the fact that the pair failed to hold around the mentioned highs may signal a potential deeper correction below the current levels around 1.32. The RSI on the four-hour timeframes is pointing south again, suggesting the bullish momentum was short-lived and has faded already.
USDJPY was trading marginally higher before Powell’s speech. As the greenback reversed lower across the board on the statement about inflation targeting, the pair briefly dipped to one-week lows around 105.60. Just a few minutes later, the pair regained the 20-DMA and settled above 106.00, up 0.17% on the day. In a wider picture, USDJPY remains within a strong bearish trend, however.
Gold prices rallied to $1,975 following the Fed’s statement but failed to preserve gains and dipped into the negative territory again. As of writing, the precious metal was changing hands below $1,940. If the dollar continues to regain ground in the short term, the bullion may threaten the $1,900 handle for the first time since August 12. This is the key support zone, a break below which could attract more sellers on the condition that positive risk sentiment prevails in the global financial markets. On the upside, the initial resistance now arrives at $1,960, followed by $1,975.