Weekly Focus: Tangled Powell Puzzles Markets

The big question of the week – what is going on with the Federal Reserve (Fed)? The U.S. monetary policymakers are sharing quite opposite positions. On the one hand, the Fed’s raising of interest rates by 25 basis points is only pushing stock markets up. On the other hand, it promises to turn extremely hawkish while markets are certainly not ready for it.

Last week Fed’s front man Jerome Powell gave all his efforts to support markets as he promised not to raise interest rates too fast. This week it seems we have another different Mr. Powell who is saying that “inflation is much too high” and the Fed could get even more aggressive with the interest rates hike together with unloading its huge balance sheet of nearly $9 trillion this May.

So, what is really going on, Mr. Powell? Which of the Fed’s positions is false? Investors seem to be puzzled as the S&P 500 broad market index continues to climb towards its target at 4600-4650 points. Investors may hope for another statement from Mr. Powell who is going to speak on Wednesday. But it doesn’t look like he is going to take his words back, and he may even not add a dovish tune to it, as it would mean the Fed doesn’t know what to do. That is even more dangerous for investors.

The crude market is intriguing as prices have little time to resume the rally towards $160-180 per barrel of Brent crude. Some efforts, however, were made as prices rose to $115 per barrel on Tuesday. But this week has to close above $120 to justify the rally to $132 per barrel, a strong resistance level.

Gold prices are consolidating below the $1920-1930 level per troy ounce with a possible downside target at $1840 per ounce, or further down at $1750-1760 by mid-April. Only increasing geopolitical tensions may cancel such an unfavorable scenario for gold. In this regard, it is important to monitor the U.S.-China diplomatic standoff, and potential U.S.-Russia cyber conflict that U.S. president Joe Biden warned American business leaders about.

EURUSD continues to ascend within the upside pattern towards 1.13000-1.14000. But many technical indicators signal a high possibility of the downside correction below 1.08000. So, there is no clear direction to open trades. Short positions opened at 1.10450 should be already closed. Any additional short positions are at high risk. The closes support is at 1.09700 and it was tested on Tuesday. If the pair fails to rebound, a strong downside movement to 1.09000 would be a priority. However, no further downside movements below this target are expected this week.

GBPUSD is also in an upside pattern with a target at 1.34000-1.35000. However, some indicators signal a possible downside. With such contradictory indications, neither positions should be opened. The nearest support is at 1.31500. Once it would be broken to the downside it would flag a strong decline of the pair.