The USD found itself supported by hawkish comments from the Fed Chair Janet Yellen as she indicates the FOMC are still on track to raise rates one more time this year, with December being the most likely meeting this will occur. As it stands she will need to convince the markets a little more but as she does, this leaves upside potential for the USD which has rallied off over 2.5 year lows through September. Trump’s tax plan also appears to be gathering pace and we expect to hear more about that today with expectations for the highest income tax band to be placed at 35%, while corporate earnings will be at 20%. More to come later.
Elsewhere the euro found itself under some selling pressures throughout yesterday’s session. Early losses against the USD found the single currency weakly positioned but the liquidation of risk aversion plays from early in the week which saw some euro selling, while the JPY bore the brunt of that play and was down across the board. GBP held its own, some losses against the surging USD saw GBPUSD break below its 1 week range, however GBPEUR pressed fresh 2 month highs (EURGBP two month lows). Risk appetite found itself mixed through yesterday while overnight in the Asian session Chinese indices traded higher while Japanese were lower.
We regularly highlight that in order for the Fed to hike rates they must convince the market that they are ready and willing. The last three rate hikes have come off the back of a Fed offensive with unity across the camp and most members sounding hawkish. We certainly got that impression from the last FOMC meeting and last night Janet Yellen’s speech on Inflation, monetary policy and uncertainly was taken as being upbeat on the economy and hawkish on rates. The result was a rallying USD which now trades over 2.5% above the September lows. Consumer confidence data released yesterday was slightly weaker than anticipated but was shrugged off.
Today focus turns to Trump’s tax plan and several Fed speakers. Given the greenback’s decline through much of the year there is plenty of scope for it to advance should we see an uptick in positivity. We have heard plenty of talk from Trump on his tax plan but very little details and markets will be looking for a credible, solid proposal. That will certainly be required if the USD is to remain bid but attention will also be on a number of fed speakers due across the wires this evening with Bullard, Rosengren and Brainard all scheduled to speak.
It’s a quiet session in Europe with very little in the way of major data so we’ll be looking at recent price action to drive major pairs. EURUSD trading to fresh 1 month lows this morning and the breakdown from April’s uptrend which we highlighted on Monday, is confirmed today and continuing to make progress towards 1.1670/90 area where it will run into its first bit of support and euro buyers. Any rallies higher will be looking at sellers around the 1.1855 area. GBPUSD broke out of its 1 week range, on the downside we look for some support around the 1.3260 area with firmer levels below at 1.3188. EURGBP lows yesterday at .8754 mark support, we saw an attempt higher this morning but that ran into sellers at .8800. A break above there opens a move higher to .8888 but again euro sellers dominate that area.