Fed Chair Powell started his two-day Congressional testimony this morning, states Bill Baruch of BlueLineFutures.com.

Last week, the Federal Reserve surprised markets, not by keeping rates unchanged, but by raising its forecasted terminal rate to 5.6%, via the ‘lauded’ Dot Plot. In short, this would imply two more 25bps hikes before yearend. We discussed this on Thursday, the day after the policy decision. According to the CME’s FedWatch Tool, there is a 79.4% probability the Fed will hike by 25bps at its next meeting on July 26. Fed Funds futures do not agree with the Fed’s forecast, and despite favoring a hike in July, signal 36.7% probability rates are at the current 5.0% by yearend and only a 10.5% chance they are at the 5.5-5.75% mark.

The US economic calendar is light on data this week, but we do have weekly Jobless Claims tomorrow and flash PMIs for June on Friday. Yesterday, Housing Starts blew the doors off surging by 21.7% m/m. Yes, there is certainly sticker shock with the record-setting read, but instead of focusing on the demand alluding to stubborn inflation, we believe this is the supply story the economy needs; more supply is disinflationary.

Today, we look forward to comments from Fed Vice Chair Nominee Jefferson and Fed Governor Nominee Cook at 9:00 am CT. Each had reaffirmed the 2% inflation target in comments yesterday. Chicago Fed President Goolsbee is due to speak at 10:40 am CT, he is a 2023 voter, and Cleveland Fed President Mester speaks later at 3:00 pm CT, she is a 2024 voter. Fed Governor Waller is expected to speak early tomorrow morning at 3:00 am CT. The known hawk’s comments on Friday were perceived as reaffirming the Fed’s hawkish pause, adding that the failure of a few banks shouldn’t derail the Fed’s fight against inflation.

Abroad, CPI data from the U.K for May was hotter than expected earlier this morning at +8.7% y/y versus +8.4% expected, unchanged from April, and +0.7% m/m versus +0.5% expected, but cooler than the +1.2% in April. However, PPI data showed some disinflation m/m at -0.5% versus -0.1% expected and came in slower y/y at +2.9% versus +3.6%. This leads to tomorrow’s Bank of England policy decision, due at 6:00 am CT.
Just days after US-China relations seemed to take a step forward, President Biden referred to his Chinese counterpart Xi Jinping as a “dictator” at a fundraising dinner. China called the comments a fresh “provocation”.

E-mini S&P (September) / E-mini NQ (September)

S&P, yesterday’s close: Settled at 4434.75, down 19.00
NQ, yesterday’s close: Settled at 15,256.50, down 11.50

E-mini S&P and E-mini NQ futures tested our major three-star support levels perfectly yesterday before rebounding into the back half of the session. Still, neither index has been able to clear our first major three-star resistance, a level that would help neutralize selling that began Friday. This mark is most crucial for the E-mini S&P and aligns a previous level with Friday’s settlement at 4453.75-4455.50. Price action has so far responded where it must, major three-star support at 4407.25-4409. However, an inability to recover the aforementioned major three-star resistance will leave the tape vulnerable to further waves of selling, opening the door to the breakout zone and rare major four-star support at 4342.75-4348.75

Bias: Neutral
Resistance: 4441.50-4444.75**, 4453.75-4455.50***, 4465-4469**, 4485.50-4486.25**, 4493.50***, 4500-4509****
Pivot: 4434
Support: 4416.75-4418.50**, 4407.25-4409***, 4400.50**, 4393.75**, 4381.75-4383.50***, 4342.75-4348.75****

NQ (Sept)

Resistance: 15,268-15,310***, 15,333-15,374**, 15,475-15,510****
Pivot: 15,237
Support: 15,164***, 15,114-15,126**, 15,066*, 14,963-14,986***, 14,850-14,870***, 14,735***, 14,503-14,508***

Crude Oil (August)

Yesterday’s close: Settled at 71.19, down 0.74

Crude Oil futures have traded resiliently out above $70, responding to the mark yesterday upon a brief low of 69.76. Due to the Juneteenth holiday, today’s weekly EIA inventory report will be released tomorrow at 10:00 am CT. Later in the session, we look to estimates from the private API survey and others. The session low has so far held our first key support at 70.78, while battling around our pivot and point of balance at 71.20. While this and a settlement above 70.30-70.33 yesterday is constructive, the bulls must clear major three-star resistance at 71.93-72.36 in order to open the door for any sustained move higher.

Bias: Neutral
Resistance: 71.93-72.36***, 72.76-72.97***, 75.10-75.16***, 75.70***
Pivot: 71.20
Support: 70.78**, 70.30-70.33***, 69.76**, 68.88-69.03***

Gold (August) / Silver (July)

Gold, yesterday’s close: Settled at 1947.7, down 23.5
Silver, yesterday’s close: Settled at 23.234, down 0.892

Gold and Silver futures were bludgeoned yesterday, highlighting how short a market’s memory can be. On Wednesday, the Federal Reserve forecasted a fresh high in its terminal rate, at 5.6%, but signaled data dependence. There are signs the labor market, a lagging indicator, has begun to turn a bit and more evidence of such was provided on Thursday via Jobless Claims, stoking a rebound in Gold and Silver. However, yesterday was a new day and a new week, and a surge in Housing Starts erased hope of a slower Fed. Although such strong Housing Starts signals a strong economy, as referenced above, it also creates supply, something the housing market desperately needs and something that should become a deflationary factor. Regardless, Gold is retesting Thursday’s pre-Jobless Claims low, the lowest since March 15 and Silver, the May 26 low, which was the lowest since March 22. Only a close back above major three-star resistance at 1949.6-1952.9 and 23.32-23.35 will lift Gold and Silver out of the hole in order to then begin repairing the damage.

Bias: Neutral
Resistance: 1949.6-1952.9***, 1962*, 1968.9-1971.2**, 1983.4-1985.6***, 1999.5-2000.5***
Support: 1936.1-1943.7****, 1906.2-1911.6***

Silver (July)

Resistance: 23.32-23.35***, 23.74-23.85***, 23.95**, 24.11-24.13***
Pivot: 23.14-23.19
Support: 22.91-23.03***, 22.53***

Learn more about Bill Baruch at Blue Line Futures.