USD drops, S&P 500 surges after Powell comments

[MongiIG]

Fed chairman Jerome Powell says it's time to slow the rate at which rates rise over the coming meetings, starting with the last meeting of the year in two weeks’ time.

 Jeremy Naylor | Writer, London | Publication date: Thursday 01 December 2022

Powell comments stir markets

The big move up in global equity markets and the drop in the dollar has all been attributed to the speech made on Wednesday from the Fed chairman, Jerome Powell, indicating that he felt that there was no need to continue the recent pace of interest rate rises from the Federal Reserve (Fed).

But he did warn that rate rises would still be coming, but at a lower level.

Let's take a look at the quote. He signaled that the economic adjustments underway could mean a long period of elevated interest rates. He said cutting rates is not something the Fed wants to do soon. That's why they are slowing down and going to try to find a way to see what the right level is.

In that reference to cutting rates, Elon Musk, the owner of Twitter and the founder of Tesla has said that the US economy is headed for recession and the only way to avoid that is to cut interest rates.

Musk is not an economist so doesn't understand maybe the deeper problems that are going on here. But he's a businessman and he is concerned about the outlook for growth.

S&P 500

One area of the market that benefited a lot was the S&P 500, with equity markets up globally.

Let's take a look at this chart here, which now shows that the S&P 500 is above the 200-day moving average (MA). Significant for some people that follow technical analysis. The last time we got an entire candle above that, now we've got to go way back to March this year when we saw that little bit of a peak back at the back end of that month at 4640.

Here we are now at just 74 points above the 4000 level. Substantially lower, but nonetheless over 17% up from the lows that we had back on the 13th of October. So money going back into the equity markets, it continues to do so.

But what some are worrying is that the markets aren't yet really pricing in the downside to come at the beginning of next year. Now, one of the effects of what also happened to us, the point that money was also coming out of the dollar and going into other currencies significantly.

EUR/USD

The EUR/USD trade today above the 200-day moving average with an entire candle above that point as well. And that's the first time we've seen that on the way up since April 2021.

We are having a little bit of a nervous wobble at the top here. I've got the MACD pointing down, indicating potentially momentum could pick up now on the downside.

But that being said, the Eurozone is still expecting fast rate rises to come, which now could start to outpace the Fed. Both the Fed and the European Central Bank are due to make interest rate announcements in two weeks' time.