Global financial markets could see increased volatility over the coming week due to Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress.

Attention will also fall on key central bank decisions including the Bank of England coupled with Fed speeches and top-tier economic data from major economies:

Monday, June 19

• AUD: RBA meeting minutes

Tuesday, June 20

• CNH: China loan prime rates
• JPY: Japan industrial production
• USD: Fed speeches

Wednesday, June 21

• EUR: Eurozone new car registrations
• CAD: Canada retail sales
• GBP: UK May CPI
• USD: Federal Reserve Chair Jerome Powell testimony

Thursday, June 22

• CHF: Swiss National Bank rate decision
• EUR: Eurozone consumer confidence
• GBP: BoE rate decision
• USD: Federal Reserve Chair Jerome Powell testimony, Fed speech

Friday, June 23

• EUR: Eurozone S&P Global Manufacturing & Services PMI
• JPY: Japan CPI
• GBP: UK S&P Global/CIPS Manufacturing PMI
• USD: S&P Global Manufacturing PMI, St. Louis Federal Reserve Bank President James Bullard speech

Just one week after the FOMC meeting brought a hawkish tilt on the rates outlook, Federal Reserve Chair Jerome Powell will be under the spotlight again. 

Powell will provide his semi-annual monetary-policy report to the House Financial Service Committee on Wednesday 21st June and Senate Banking Committee on Thursday 22nd June. Powell is widely expected to reiterate comments from his post-Fed meeting press conference, which were cautious but still opened doors for more rate hikes. Indeed, the latest dot plot indicates two more 25 basis point rate hikes in the coming months but markets think otherwise with traders only pricing in one more for 2023.

Given how markets remain highly sensitive to rate hike expectations, his testimony has the potential to spark volatility – especially if fresh clues are offered on the Fed’s next move.

With all of the above discussed, here’s how these 3 assets could react to Powell’s testimony:

• USD Index 

Despite receiving a boost earlier in the week from a hawkish Federal Reserve, the dollar has found itself under renewed selling pressure thanks to disappointing US economic data. This has raised questions over just how much further the Fed can raise interest rates despite the dot plot signalling two more 25 basis point hikes in the coming months.

• The dollar could weaken further if Powell strikes a cautious tone during Testimony, which could drag prices toward 101.50 and 100.72, respectively.
• Should Powell sound more hawkish and offer fresh clues on rate hike timings, this may offer support to the dollar, pushing prices back above 103.00.

•     SPX500_m 

The SPX500_m is en route to ending the week at levels not seen in 14 months as disappointing economic data fuelled expectations around the Fed’s hiking campaign coming to an end. SPX500 bulls are certainly in a position with power with the index gaining over 15% year-to-date.

• The SPX500_m could extend gains towards 4500 in the coming week if Powell sounds cautious and expresses concerns over the US economic outlook.
• If the Fed head suggests that US rates are likely to stay higher for longer, this may cap the SPX500_m upside gains – encouraging a decline back towards 4351 higher low.

• Gold 

Gold still remains trapped within a range with support at $1932 and resistance at $1985. A potent fundamental spark may be required for prices to experience a decisive breakout.

• Gold prices could push above the $1985 resistance level on growing market expectations around the Fed’s hiking cycle coming to an end. This may be fuelled by cautious remarks from Powell or Fed officials.
• Prices could sink back towards the $1932 and $1900 if Powell’s testimony boosts the dollar and renews rate hike bets.