Forex Trading Library

Yellen Didn’t Surprise Anyone

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Monday, the German IFO Business Climate was released below expectations and Greece delayed giving its list to the European officials until Tuesday. The general direction of the Euro on the first day of the week was down. EURUSD fell below 1.1300 but closed the day around 1.1350, while EURGBP touched a low of 0.7635.

On Tuesday, the European CPI was released and it showed that inflation dropped on a year on year by 0.6%. In the meantime, Greece had submitted the list of reforms. The list was considered to be a good starting point by the president of the IMF, Lagarde.

From the United States, we had Existing Home Sales released on Monday below estimations, S&P/CS Composite released yesterday in line with its estimations of 4.5% and CB consumer Confidence was published lower than expected, at 96.4.

During yesterday’s New York trading session, Fed Chairman, Janet Yellen, testified on the Semiannual Monetary Policy Report before the Senate Banking Committee, in Washington DC. The most important takeaways from her speech were the following:

  • Fed will change forward guidance before raising rates;
  • Interest rates will be increased when Fed will be reasonably confident on inflation;
  • Fed will reduce its balance sheet gradually;
  • GDP is strong enough to gradually lower unemployment claims;
  • Lower oil prices are a significant net plus for US economy;
  • Commercial real estate valuation pressures may have risen;
  • Fed is closely watching the Chinese economy;

As you can see nothing came as a surprise to the investors, thus the volatility of the FX market has not even surpassed the 10 day average. EURUSD dropped very fast under 1.1300 but did not stay there too long. It closed the day around 1.1300. It will most probably continue to trade sideways today.

The pound was pushed lower against the US dollar on the European session because of BOE governor, Mark Carney. He declared, during the Inflation Report Hearings, that:

  • Greece default risk is a serious concern for the UK;
  • Low inflation is mainly caused by falling food and energy prices;
  • There is a possibility of deflation;
  • BOE wants to achieve the inflation target in the nearest 2 years.

His pessimism pushed cable lower against the dollar. GBPUSD traded mostly around 1.5430, but GBPJPY was aiming for new highs before Yellen started her speech.

Coming up next:

  • BBA Mortgage Approvals for UK, expected to be 36.2K;
  • BOE Carney Speaks;
  • Fed Chair Yelled testifies, second part;
  • New Home Sales;
  • Crude Oil Inventories;
  • ECB President Draghi Speaks;
  • New Zealand Trade Balance expected to drop by 162M;

Taking into consideration the fact that yesterday’s trading session did not bring too much volatility, we can expect for today to be the same. The US dollar might continue to drop against its major counterparts. Keep an eye on the currencies which contain GBP. Investors seem to have had more interest in the pound lately.

 

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