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Volatile week with risk events ahead

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By Lukman Otunuga, Senior Research Analyst at FXTM

The next few days could be wild and incredibly volatile for financial markets thanks to key central bank meetings, a semi-annual Congress appearance from Jerome Powell, and the latest US jobs data.

Asian shares edged higher Tuesday morning following the mixed cues from Wall Street overnight as investors geared up for this week’s key risk events and economic releases.

US and European futures seem to be pointing to a mixed open, with all attention directed towards commentary from Fed Chair Jerome Powell later Tuesday.

In the FX space, the dollar remained subdued offering more space for G10 currencies to retaliate.

Gold remains shaky Tuesday morning, and could be exposed to more pain if Powell strikes a hawkish tone later in the day.

In other news, the Reserve Bank of Australia hiked interest rates to the highest level in over ten years. As expected, the central bank announced a 25-basis point hike, taking the cash rate to 3.6%.

However, the RBA signaled a pause in its tightening cycle which triggered a selloff in the aussie.

Taking a quick look at the technical picture, AUDUSD remains under pressure on the daily charts with prices pressing against the 0.6700 support level. A solid bearish break beyond this level may open a path toward 0.6600.

Big week for USD as Powell and NFP eyed

It has been a choppy affair for the dollar over the past few days due to the absence of a fresh fundamental spark. But upcoming events could inject fresh life into the currency and set the tone for March.

Later Tuesday, Fed Chair Powell provides his semi-annual report to the Senate Banking Committee. Any hints around the Fed veering away from 25bp hikes in future meetings have the potential to move markets.

The central bank head will address the House Financial Services Committee on Wednesday and is expected to reiterate a similar message. If Powell sounds hawkish, this could revive dollar strength and rate hike bets. Alternatively, a dovish-sounding Powell may temper expectations around rates staying higher for longer, resulting in dollar weakness.

Before the main course and potential market shaker on Friday in the form of the NFP jobs data, investors will be served appetisers in the form of the ADP’s monthly report and the weekly initial jobless claims. Market sentiment could receive a slight boost if these reports exceed forecasts.

All eyes will be on the US jobs report at the end of the week, which is expected to show that the US added 215,00 jobs in February compared to the blowout 517,000 seen in January.

Ultimately, another robust jobs report may reinforce expectations around the Fed holding rates higher for longer, in turn supporting dollar bulls. If the NFP report disappoints, this may raise questions about the dollar’s renewed strength, especially if rate hike bets cool.

Gold on shaky ground

After bagging its best week since mid-January, gold has kicked off the new week on a shaky note.

The next few days promise to be eventful for the precious metal as investors brace for Powell’s testimony and US economic data including the highly anticipated NFP.

Price action suggests that gold bulls could be back in town. However, the risk events over the next few days may determine whether the current momentum results in a more pronounced bullish reversal or simply a dead cat bounce.

A hawkish-sounding Powell coupled with another strong jobs report could spell nothing but trouble for gold. Alternatively, a cautious Powell and disappointing jobs report could keep the party going for gold bugs.

Taking a quick look at the technical picture, a strong daily close above the 50-day SMA around $1870 could encourage a move toward $1880 and $1900, respectively. Sustained weakness could open a path back towards $1845, $1825, and $1800.

 

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