Powell’s Dovish Hold Sparks Positive Risk Sentiment
The start of the week saw a wall of worry build as earnings, the Fed’s meeting, concern over highly leveraged markets, and China regulatory worries all hurt risk sentiment. The expectations of a deeper correction in stocks are still hanging heavy over market participants and the Fed’s meeting midweek was always likely to be the crossroads decision for the week. In the end, stocks were supported as Jerome Powell kept a dovish stance and this lifted risk sentiment. This also allowed gold to break higher as expected.
Other key events from the past week
- USD: Interest rate decision, July 28: Fed’s Powell was sufficiently dovish to allow stocks to gain post the FOMC. Most economists now expect the Fed to announce that they will taper bond purchases in September’s meeting.
- AUD: CPI data, July 27: The inflation data did not bring any surprises and the QQ trimmed mean for Q2 is still subdued at 0.5%. The diverging outlook between the RBA and the RBNZ has opened up an AUDNZD sell bias.
- Bitcoin buyers: $30,000 holds, July 28: The news this week that Amazon may start accepting Bitcoin payments has helped lift sentiment on the future of cryptocurrencies and push BTC up to $40,000.
Key events for the coming week
- AUD: RBA rate decision, Aug 03: The rise of the COVID delta variant in Australia and a low vaccination rate has led to a worsening outlook for the economy. Will the RBA actually increase asset purchases and send the AUD lower?
- Seasonal trades: Find a trade, August 04: This month is a very strong seasonal month for gold. However, a dovish Fed was necessary for this to encourage gold buyers this month. Check out the gold pattern for August here.
- GBP: BoE rate decision, Aug 05: The key question for the BoE is will they sur-prise markets and announce bond tapering? If they taper bond purchases then watch out for strong upside in GBPJPY and GBPAUD.
Giles Coghlan
