Fed officials push back against policy pivot narrative

Fed Offical's Comments

There were some notable comments from Fed officials yesterday:
1. Chicago Fed President Charles Evans is looking for 50bps in September and 25 bps until Q2 2023.
2. San Francisco Fed President Mary Daly said "we are resolute" in lowering inflation to the 2% target.
3. Cleveland Fed President Loretta Mester said the central bank would need several months of evidence that inflation has peaked before the rate hiking cycle ends.

These comments come after our previous article suggested similarly.

US 10-Yr Treasury

Source: www.tradinglive.com

The US10Y has pulled back since reaching its cycle high dated June 14 of 3.49%. However, the instrument's pattern may be a continuation flag, suggesting higher yields. To this end, we are watching for four specific developments:
1. A bullish cross of the trend-following EMAs (top blue ellipse).
2. The bullish stochastic to cross positively and hold (lower blue ellipse).
3. The RSI to move above 50 (red arrow), representing the oscillator's bullish side.
4. The stochastic reaching the 80 levels and maintaining (blue arrow).

Risk Premium Adjustment

If these four conditions trigger, it will suggest that the risk premium is adjusting upwards. However, this adjustment will pressure present values, and risk markets will likely revise downwards. As such, we continue to monitor.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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