Yellen

As the US Senate prepared for a potential floor vote on its new tax reform plan this week, as well as the confirmation hearing for Federal Reserve Governor Jerome Powell to be instated as the new chair of the central bank, the US dollar remained pressured as it has been for the past three weeks.

The week ahead will be slower in terms of economic data than the past week. Contributing to this slowdown will be the major Thanksgiving holiday in the U.S. Aside from speeches by heads of key central banks, including the European Central Bank, Reserve Bank of Australia, Federal Reserve, and Swiss National Bank, the week will be dominated by the release of minutes from several central bank meetings.

The heavily anticipated speech by Federal Reserve Chair Janet Yellen in Jackson Hole on Friday disappointed Fed-watchers who were hoping for a glimpse into possible monetary policy moves on the horizon. The speech was long on commending regulatory actions taken after the financial crisis, but very short on any clues about interest rates or other aspects of monetary policy going forward.

A combination of highly anticipated speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the Jackson Hole Symposium later this week has the potential to shake EUR/USD out of its recent trading range.

The US dollar rebounded on Tuesday morning, ahead of the highly anticipated speech by Fed Chair Janet Yellen at the Jackson Hole Symposium towards the end of the week, helping push the already heavily-pressured GBP/USD to fall towards a major support level at 1.2800. After closely approaching this key level on Tuesday morning, the currency pair pared some of its losses but remained pressured.

The Dollar Index (DXY) gapped lower overnight as the outcome of the French election underpinned the euro, which makes up a big portion of the index. Despite the DXY’s weakness, the USD/JPY gapped higher as the news also undermined perceived safe haven assets such as gold and yen. But the gains for the USD/JPY were short-lived and the daily chart of the USD/JPY is currently displaying a bearish price pattern, which suggests that the gap may well be ‘filled’ completely in due course and there may even be a possibility for a deeper pullback.

The price of gold extended this week’s losses early on Friday as several Federal Reserve officials, including Fed Chair Janet Yellen, signaled in prepared speeches the likelihood of a mid-March rate hike.

The last two days of the week have seen US stocks cool down slightly after a relentless, record-breaking run in the previous five days that was due in part to ever-rising anticipation surrounding President Trump’s fiscal stimulus plans. Likewise, the US dollar had been rising in a sharp rebound until the latter half of the week, when continued uncertainty over the Federal Reserve’s path of rate hikes was pushed to the forefront. With a solid earnings season starting to wind down, US equities in the upcoming weeks will be driven even more by Trump’s actions, speeches, and tweets. The dollar will also be affected by developments emanating from the Trump Administration’s economic policies, but even more so by continued speculation over the Fed’s rate hike trajectory.

EUR/USD continued to fall on Tuesday, extending the downturn that has been in place since the beginning of the month, amid a slew of less-than-encouraging economic data emerging from the Eurozone and the beginning of US Fed Chair Janet Yellen’s two-day testimony before the US Congress.

What doesn’t kill you makes you stronger: US stocks hit new record high levels despite the Fed Chair Janet Yellen sounding rather hawkish in her testimony to the Senate Banking Committee today. As you would expect, the dollar strengthened across the board.

Several Federal Reserve officials have recently stressed the need for and likelihood of a Fed interest rate hike in December. But perhaps the strongest affirmative indication came on Thursday, when Fed Chair Janet Yellen said in testimony before the Joint Economic Committee of Congress that such a hike would be "appropriate relatively soon."

After 1) a first presidential debate in which Hillary Clinton was seen to have secured a major win over Donald Trump, 2) a vice-presidential debate where the Republican ticket gained back some ground with its supporters, 3) a scandalous revelation regarding a lewd tape of Trump’s self-professed “locker room talk” years ago, 4) a second presidential debate with mixed results for both Clinton and Trump, 5) a withdrawal of support for Trump by some prominent Republicans like House Speaker Paul Ryan, and 6) a release of additional hacked Clinton emails that could further damage the Democratic ticket, Clinton appears by most accounts to be leading the race with an increasingly wider margin.

As widely expected, the Fed opted once again to refrain from raising interest rates after its two-day meeting concluded on Wednesday afternoon. And as usual, market-watchers dug feverishly into the policy statement searching for any clues as to potential guidance on future rate hikes, but were again largely disappointed despite the fact that the Fed did acknowledge some economic improvement.

Sentiment in the stock markets continue to improve. One of the biggest sources of support has been the sharp recovery in oil prices which have helped to underpin commodity stocks. Today, Brent oil has reached a new 2016 high of $51, while WTI has climbed above $50 a barrel again. As well as the on-going unscheduled supply outages in places like Nigeria and higher levels of demand, buck-denominated oil prices are helped further by the weakness in US dollar on the back of reduced interest rate hike expectations there. The probability of a July rate rise fell further last night when the Federal Reserve Chairwoman Janet Yellen acknowledged Friday’s poor monthly jobs data and expressed concerns about the consequences of a Brexit vote on US monetary policy. Consequently a rate rise in June is very unlikely now.  In fact, according to the CME Group’s FedWatch tool, the odds for a 25 basis point rate increase in July is now just 25% and 40% for September. The slightly weaker dollar, rising oil prices and the prospects of low rates in the US for longer are clearly positive developments for global equities.

The US dollar is attempting to make a comeback after being hammered on Friday on the back of a very poor jobs report from the world’s largest economy. The dollar bears are worried that the Fed’s Janet Yellen may spoil the party for them in a speech later today as she may stand firm on her recent call that a rate hike in “coming months” is still likely. After all, some would argue that one month’s worth of data is insignificant and that there is a danger the Fed will be losing (more) credibility if it once again backtracks on its promise of raising rates.

As we noted yesterday, market volatility was expected to pick up as we moved through the week as the top-tier data releases and traders at their desks gradually ramped up. Today we’re getting our first look at that phenomenon, with Federal Reserve Chair Janet Yellen making some waves at her speech to the Economic Club of New York.

Military analysts often draw a distinction between “hot” wars, which involve armed military conflict between nations, and “cold” wars, where enemy factions use economic and political means to jockey for an upper hand against their rivals. While we feel the term “currency war” is a bit overhyped by the media, the recent easing actions by the world’s most powerful central banks make the cold/hot currency war analogy too perfect to ignore. As the war heats up, we’re seeing how effective each central bank’s “weapons” (policies) are on the actual “battlefield” (the market).

As we noted in yesterday’s FOMC Preview report, any Fed fireworks wouldn’t come from the monetary policy decision per se, but rather how today’s meeting shaped the conversation around the timing of the next rate hike in the coming months. As of writing in the midst of Yellen’s presser, it’s been the monetary policy doves who are flying high, rather than the hawks.

The world’s most widely-traded currency pair has garnered its fair share of headlines over the last week, but heading into this afternoon’s monetary policy announcement from the Federal Reserve, EUR/USD could be poised for another big move.

Last week and this week mark an unusual confluence of central bank meetings; Already this month, we’ve heard from the Bank of Canada (on hold), Reserve Bank of New Zealand (cut rates to 2.25%), European Central Bank (enacted a suite of easing measures), and Bank of Japan (on hold) and before the week’s out, traders will get the latest updates from the Federal Reserve, Bank of England, and Swiss National Bank (all of which are expected to leave policy unchanged, though the SNB meeting could be interesting as we noted yesterday).

In yesterday’s preview report, we highlighted how traders might look at today’s FOMC minutes as staler than Grandma’s cereal after the market volatility and mixed economic data we’ve seen over the last three weeks . As it turns out, Federal Reserve members has a bit of a dovish lean even back in January. Some of the key headlines from today’s FOMC minutes follow [emphasis mine]: