May 1 (Reuters) –EUR/USD turned positive Wednesday and rallied above the 10- and 21-DMAs after the Fed statement on reduced quantitative tightening and Chair Jerome Powell’s press conference eased investors’ concerns that the Fed will turn overtly hawkish.
The Fed’s policy statement indicated the central bank’s balance sheet run off would be limited to only $25 billion in Treasury bonds. Investors may have expected the balance sheet run off to be bigger going forward.
During Fed Chair Powell’s press conference he said policy is restrictive and is weighing on demand, it’s unlikely the next policy move will be a hike and that to hike the central bank would need to see evidence policy is not sufficiently restrictive.
U.S. Treasury yields US2YT=RRUS10YT=RR fell sharply on the statement and Powell’s comments while riskier assets gained.
Stocks ESv1 and gold XAU= rallied while USD/CNH dropped below 7.2325.
EUR/USD’s rally helped generate some technical signals which highlight upside risks.
Daily RSI diverged on EUR/USD’s 6-session low, monthly RSI turned upward and the pair traded above the 10-DMA.
Focus now turns to Friday’s April payroll report. Data indicating a softening labor market may drive riskier assets upward as investors may pull forward their expectations for the Fed’s first rate cut which short-term rates markets have now priced in for November.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
