Through much of yesterday the USD was rather lackluster, the greenback started the day weaker as profit taking and a stronger JPY favored USD selling, then into the afternoon the index held modest gains but showed nothing like recouping Mondays’ losses, that was until Janet Yellen took to the stage. I mentioned Yellen was unlikely to offer us anything new on policy that we hadn’t heard last week, and to a point I was right, however I was off the mark as her bullish outlook on the labour market and hawkish stance on rates favoured USD buying into the close of the US session. Elsewhere the Euro remained weak and under pressure, EURUSD pressed towards recent lows below 1.0400 and levels not seen since 2002. Risk appetite was relatively sour through much of the early session, losses in the Asian session saw Europe open weaker, but the tone shifted into the US session and a rally in to the close saw major US bourses close in the green once more.
Overnight markets were mixed, and it is not surprising. In Japan the BoJ kept rates steady and raised their outlook, noting the weaker JPY was improving their forecasts, while minutes from the RBA also offered an improved outlook for the global economy. Geopolitical tensions between US and China continues to wrangle and Chinese stocks lagged in trade overnight once more while elsewhere an assassination of the Russian ambassador in Turkey, apparent terrorist attacks in Germany, British weapons being used by the Saudis in Yemen, and attacks on a mosque in Zurich (this all within the last 24 hours) continue to show the world is an angry, fractured place for many, yet in the US/Europe stocks look to continue their advance, while VIX (volatility index) also known as the “Fear index”, has hardly even been lower. It’s difficult to line this up, and again caution is advised as amidst all this news flow, thin market liquidity may result in erratic moves across currencies and other markets.
In her address to the graduating class of the University of Baltimore, Janet Yellen highlighted that the labour market in the US is in its strongest position in a decade, as wage growth presses to the upside she re-enforced the Feds hawkish message from last week and markets continue to look for three additional hikes through 2017. The USD index rallied higher, now up almost 1% form the week’s lows. USDJPY has a round trip yesterday, dropping almost 1.25% on risk aversion to start the week, before rallying overnight and this morning almost 1.5%. That’s an impressive range for a pair to cover in a short period of time, especially without much major, game changing news flow. The USD was also dominant against GBP, we saw GBPUSD drop towards lows of 1.2353 before recovering back above 1.2380 area we highlighted yesterday. Moves below here continue to find bids for GBP, upside resistance remains towards 1.2500, while intraday moves towards 1.2454 will likely be the first test for sellers to re—emerge. EURUSD is testing last week’s lows below 1.0380, thus far we’ve seen the Euro hold but the lack of any traction to the upside keeps pressure towards the 1.0170 area I highlighted yesterday. 1.0480 to 1.0510 area offers resistance to moves higher, those looking for progression higher will need to see this are broken.
There is not much in the way of meaningful data from the Eurozone or UK today, and likely headline news will play a bigger role. GBP faced some selling yesterday as Brexit jitters remerged, but EURGBP managed to recover, once again the 200 day ema at .8405 is holding EURGBP down, the pair rallied above .8400 found sellers (yesterday’s highs above .8450 was the biggest press and fall back since the last break on December 5th). We’ll need to see a daily close above the 200 day ema to favour upside in this pair and for now the range remains in play, with support towards .8330/55 area.