US Fed Chair Jerome Powell is expected to resume his testimony today before the US Congress on the state of the US economy. He is largely expected to pick up from where he left off in his remarks. Some of the key quotes from yesterday’s session are showcased below:
“The US economy can operate at a much lower level of unemployment than many would have thought.”
“It is a bit of a puzzle why there has not been more of an uptick in wages.”
“The new normal is lower interest rates, inflation and economic growth.”
“The Fed thinks it has repo market issues under control.”
“The fact that interest rates are lower, does not mean US government can ignore deficits. There is a need to reduce US deficit.”
“Inflation is moving sideways.”
“The labour market is not sending any signal that it is too hot. There is a lot to like about today’s labour market.”
Powell is therefore expected to reiterate that the economy is in a good place and that monetary policy adjustments will only be considered if the economic outlook deteriorates. In other words, the Fed does not have a preset course for interest rate adjustments and will adopt a reactionary approach.
The comments by US Fed Chair Powell did nothing to shake off the negative sentiment that hit the markets after President Trump’s speech failed to provide enough information on the state of the US-China trade relationship and the pending Phase 1 deal.
Safe haven buying has taken the USDJPY lower today, and this occurs within the context of the rising wedge pattern seen on the daily chart.
Continued downside movement could see the USDJPY touching off the lower wedge border at the 50% Fibonacci retracement level of 108.40. A break of this level targets 107.50 and 106.86, in that order. This move coincides with the expected resolution of the rising wedge, with a measured move that could take the asset all the way to 106.86.
On the flip side, a bounce at 108.40 returns price to the upper border of the wedge. This border intersects the 61.8% Fibonacci level of 109.30; a major resistance to upside recovery. A break above this level targets the May 30 high at 109.94.