A sense of normality seems to be returning to financial markets after the brutal selloff in global shares last week. Asian stocks rebounded on Tuesday following the positive cues from European markets overnight while U.S futures moved higher after their markets were closed for a holiday. While the improving sentiment could support equity bulls in the near term, caution lingers in the air with investors likely to adopt a guarded approach towards risky assets.

In the currency arena, the dollar kicked off the week in a shaky fashion while gold waited for another fresh directional catalyst to break out of its current range. Oil prices rose 1% this morning, clawing back more of last week’s steep losses as market players focused on the tight supply dynamics in the commodity.

The week ahead promises to be eventful and potentially volatile thanks to key economic reports from major economies and Fed Chair Jerome Powell’s semi-annual testimony before Congress. Major themes ranging from inflation fears, rate hike expectations, ongoing geopolitical risks, and recession concerns will influence the market mood.

All eyes on Powell’s testimony

Fed Chair Jerome Powell will be under the spotlight this week as he testifies before Congress over two days.

Last week, the Federal Reserve raised interest rates by 75 basis points – its biggest increase since 1994. However, the central bank reassured markets that such jumbo-sized rate hikes would be rare. Powell’s testimony will be closely scrutinised for hints about incoming rate hikes and the outlook for the US economy. Should Powell strike a hawkish note and offer fresh insight into rates, this may boost expectations that the central bank will maintain an aggressive approach towards rates. Traders are pricing in an 89% chance of a 75-basis point rate hike at the next FOMC meeting in July.

Taking a look at the dollar, it has weakened against most G10 currencies this morning. The Dollar Index (DXY) could extend declines if a breakdown below 104.0 is achieved. Alternatively, a move above 104.50 may signal an advance towards 105.00.

Oil prices buoyed by supply worries

Oil prices pushed higher on Tuesday as investors focused on the persistent supply constraints and tightening market conditions. Given how the global commodity remains pulled and tugged by conflicting forces, this could result in more volatility down the road.

On one side of the equation, ongoing geopolitical risks and sanctions on Russian supplies continue to support prices. However, the Fed’s aggressive hawkish stance has fanned concerns of an economic slowdown which will hit the demand outlook. Despite the conflicting forces, oil benchmarks are up almost 50% since the start of the year.

In regard to the technical picture, Brent crude prices remain under pressure after the steep selloff last Friday. A breakdown below $112.00 could encourage a decline towards $104 and $100. A move above $116.00 could inspire a move back towards $120.

Commodity spotlight – Gold

After the explosive volatility last week, gold has kicked off the new week on a calmer note. The lack of momentum suggests that a fresh fundamental spark needs to be brought into the picture to trigger the next major move in gold. Such a catalyst could come in the form of Fed Chair Jerome Powell’s testimony before Congress this week.

Looking at the technical picture, gold prices are trading below the 50, 100, and 200 SMA on the daily charts. Strong support can be found at $1800 and strong resistance at $1900. There seems to be minor support around $1830. A solid breakdown below this level could encourage a decline towards $1800 and $1764. A breakout above $1858 could trigger a move higher towards $1870 and $1900, respectively. Beyond $1900, the first checkpoint can be found at $1920.