Market News & Insights
17 July 2014

Finally Yellen(ing)

EUR/USD 1.3531
GBP/USD 1.7120
GBP/EUR 1.2648 (0.7906)
EUR/CHF 1.2145
GBP/CHF 1.5362
GBP/AUD 1.8272

We start the day looking east as China released better than expected second quarter growth, coming in at 7.5% from a forecast 7.4%. The world’s second largest economy also showed June industrial output rising to a stronger than expected 9.2%, with June retail sales increasing an annual 9%. Many analysts are forecasting a significant pick up in the second half of the year in the economy and for China to be on track to continue to hit their 7.5% annual growth target.

Stateside, Yellen concluded her two day Semi Annual Testimony to the House Committee and we saw the greenback rise broadly amid market speculation she is ever so slightly moving towards tightening monetary policies that have kept U.S. interest rates at record lows. Disappointing economic reports in Europe and comments on Tuesday and Wednesday by Yellen before Congress drove dollar purchases. Overall this week, the dollar was up against sterling although overnight dropping off nearly six year highs of $1.7192 to $1.7135. The euro was down 0.35 percent at $1.3523, falling to its lowest in one month, while the greenback was slightly higher against the yen at 101.71 yen after touching a one-week high of 101.79.

The EUR/USD cross is an interesting one with recent German economic data not as strong as anticipated and some ECB policymakers showing concerns over the threat of deflation persisting. There is a growing difference in monetary policy stance between the ECB and other major central banks and one would have to ponder the potential of EUR/USD finally breaking and holding under the 1.35 threshold. After the last few days it’s becoming more and more apparent that the two economies are going in opposite directions and it could be now a case of when not if we push and hold through that barrier.

Today we are light enough on the data front. In Europe we have CPI released at 10am where we anticipate a 0.5% reading but we must wait till this afternoon for the majority of indicators released stateside. At 1.30 we have US building permits, unemployment claims and housing starts followed by the Philly Fed Manufacturing Index at 3pm.