Fed Chair Powell sees a 'sustained improvement' in the economy, but the notable rise in inflation still weighs heavy

This week's trading session sees choppy conditions and excess turbulence across the financial markets, thanks to an upbeat US economy and the monetary policy hawks at the US Federal Reserve.

Despite the Fed's admittance of inflation concerns, inflationary hedges did not react as anticipated.

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The so-called 'taper tantrum' was a harbinger of surging USD strength, causing pain for buyers in equity and asset markets.

In particular, both the traditional (Gold) and modern (BTC) hedges against inflation experienced downside pressure from the ubiquitous influence of the mighty greenback.

However, Fed sceptics are keenly aware that the US post-COVID recovery effort is still very much in progress.

Despite an impressive effort from US Government officials, the pandemic continues to pose a significant risk to the economy - with unemployment rife amongst the most vulnerable members of its community.

Fed Chair Powell must now play a careful balancing act between achieving a robust post-pandemic recovery and ensuring fiscal stimulus does devolve into scorching inflationary pressures.

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How will the latest Fed announcement affect asset markets and securities?

As discussed in Technical Outlook edition #28 (21/06/21), the financial markets remain poised and ready for the US economy's next move.

We included an upbeat Monday in the EU morning session, with some assets experiencing a much-needed respite while still recovering from the previous week's taper tantrum.

However, with price-action remaining inconclusive and disjointed, it is evident that volatility is lingering.

Let's now take a look at the charts featured in our subsequent edition - carefully note our technical forecast

US Dollar Currency Index, $DXY - Daily (D1)

Bitcoin, BTC/USD - 4 Hour (H4)

Gold, XAU/USD - 4 Hour (H4)

Q's Conclusion

Although some assets noticed relief as the US Dollar Currency Index ($DXY) retraced, it is still clear that convoluted price-action and sentiment prevail.

Due to excess unpredictability around the intentions of the USD, it may be wise to avoid unnecessary risks and allow the Fed to steer the ship through this uncertain climate.

See you again for the next update.

- q

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