Summary:

• Fed chair Powell’s opening remarks to Congress released
• Overall tone fairly positive with text contains no big surprises
•  “Sees further gradual rate hikes, outlook remains strong”

The highly anticipated first testimony of new Fed chair Jerome Powell before Congress is less than an hour away and a pre-released text has contained some interesting insights into what may lie ahead. There were no major shocks in the prepared remarks, with the overall tone fairly upbeat and seemingly in keeping with previous comments from Yellen. Selected comments are as follows:

• Sees further gradual rate hikes, outlook remains strong
• Some headwinds facing the US economy are now tailwinds
• Financial conditions accommodative despite volatility
• Must strike balance to avoid overheat and to lift inflation
• FOMC sees risks roughly balance, monitoring inflation
• Fiscal policy more stimulative, foreign demand firmer

In terms of market reaction it has been a little indecisive so far, with the USD first pushing higher before falling back. At the same time as Powell’s remarks we got the latest core durable goods orders numbers, which showed an unexpected drop. The M/M reading came in at -0.3% against +0.4% expected and even though the prior was revised higher by 0.1% to 0.7% it remains a soft data point. In Y/Y the reading was also lower than forecast, showing a fall of 3.7% compared to a drop of 2.0% projected, the largest in 6 months.  

 US durable goods orders dropped more than forecast in January and are now towards the bottom of their recent range. Source: Bloomberg

The USDJPY moved back above the 107 handle shortly after the releases to move to its highest level of the day, but these gains have since been pared. The market has yet to show a clear reaction to the remarks and the data and could now wait until the testimony itself at 3PM before making a move. 

 There has been no clear reaction to the news in the USDJPY and the market continues to oscillate around the 107 handle. Source: xStation

The Weekly chart of USDJPY shows that the break lower remains in play and unless the market can recapture the 108 handle then further declines could lie ahead. Recent lows of 105.60 could offer support but this is only a local swing level and you have to go down close rot the 100 mark to find prior swing levels from further ago.  

 The market remains below the key swing level at 108 and could be set for more downside. Source: xStation