Lael
Brainard, a dedicated dovish member of the Federal Reserve’s (Fed) Federal Open
Market Committee, has suddenly turned hawkish before the Senate Banking
Committee while it was reviewing her in consideration as a nominee for a second
term as vice chair of the Fed.
During her
testimony Mrs. Brainard said the Fed will use all necessary instruments to
lower inflation to the target of 2%. “Our monetary policy is focused on getting
inflation back down to 2 percent while sustaining a recovery that includes
everyone. This is our most important task,” she said. It looked like she had
received a monetary hawkish bite at the Capitol as everybody does there. So,
the last stimulus advocate within the FOMC has finally been empoisoned by the
“too high inflation” virus.
Investors
were enjoying a full complacency after Fed Chairman Jerome Powell’s testimony
earlier this week but were alarmed by Mrs. Brainard’s rhetoric. Meanwhile, the
U.S. stock market was alerted at the end of the week as the S&P 5000 broad
market index lost all of its earlier gains by Friday. The index fell below the key
resistance level at 4680 points.
All
incoming macroeconomic data plus statements by Fed members indicate that Fed
stimulus measures will be over by this March, while interest rates will see
their first hike also in March.
Moreover, the Fed’s massive balance sheet of $8.8 trillion will start shrinking
in July 2022.
The technical
picture suggests the stock market may reverse to the downside as the S&P
500 index is below the key resistance level of 4680 points, which means a
further slide to 4580-4600 points.
Brent crude
prices have suddenly broken through an important resistance level at $83 per
barrel. Now it looks like prices may pave a foothold for the next jump. But in
order to do so, Brent crude prices have to cross the important threshold at $85
per barrel. And it seems crude prices could succeed in this. However, the rally
to $88-90 per barrel may seem uncertain amid possible global economy slowdown.
Gold prices
are seen to be weak, at least until the end of January. By that time any buy
positions with a target at $1840 per ounce should be considered with extra
caution. The recent spike in U.S. 10-year Treasury yields suggest gold prices
may plummet any time soon towards $1800 per ounce.
EURUSD has
reached the 1.14800 landmark with the important resistance level at
1.15200-1.15300. If the pair goes above this level, we may expect a strong
rally to 1.16500-1.75000. In this regard any open buy trades should be put on
hold.
GBPUSD
surpassed its primary target at 1.37000. Any buy orders should be closed now,
while better sell positions could be opened at 1.37900-1.38100. Such operations
should be considered short-term with a rebound to 1.37000 as a maximum downside
target.