Global macro overview for 01/03/2018

The events of the last weeks confirm the Fed's president Jerome Powell in the belief that the US economy will deliver a high level of performance. During the speech in front of Financial Services Committee of the House of Representatives, the chairman of the US Federal Reserve presented an optimistic vision of the current and future condition of the economy and confirmed his belief in further interest rate increases in the US. He expects the economy to maintain high demand, including export, rebound of investments and maintaining positive moods among US companies. The fiscal policy will have a stimulating effect on economic growth in the coming quarters. He expects inflation to return to the 2.0% target and stay it in this area in the medium term. In his opinion, wages will also increase faster in the future. Under these conditions, it is reasonable, in the words of J. Powell, to maintain the current line of gradual removal of monetary policy accommodation (making interest rate increases), which will support the statutory goals of the bank.

The statement of the Fed's Chairperson can be considered moderately hawkish. He included in it a sentence that part of the factors in the recent years influencing economic activity in the US in a negative way (headwinds) began to push the economy forward (tailwinds). In this context, he mentioned the fiscal policy (tax cuts) and external demand. Financial conditions in the markets also facilitate running a business. The market has increased expectations for Fed rate hikes this year. The base scenario of three moves upwards by 25 points each started to be almost fully discounted, while one more market currently estimates at approx. 30%. Some economists are wondering whether, on the occasion of the next meeting, the Federal Reserve will not decide to raise the rate projection to just four hikes by the end of the year. This would be a good news for the US Dollar and bad for stocks, Gold and commodities.

The second part of J.Powell testimony in front of Financial Services Committee of the House of Representatives starts today at 03:00 pm GMT.

Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market has managed to break out above the technical resistance at the level of 90.59 and currently is trying to rally higher towards the next resistance at the level of 90.98. Strong momentum and favorable market conditions are supporting this outlook.

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