Market Drivers August 29, 2016

Dollar extends gains
AU New Home Sales drop
Nikkei 2.30% Dax -0.69%
Oil $47/bbl
Gold $1322/oz.

Europe and Asia:
AUD AU New Home Sales -9.7% vs. 8.2%

North America:
USD Core PCE 08:30
USD PI/PS 08:30

The dollar continued it climb at the start of the week as the follow through from Janet Yellen’s Friday speech helped lift the USD/JPY through the 102.00 figure in Asian and early European trade.

With London closed for bank holiday, FX dealing was generally subdued but the greenback remained well bid as traders to Ms. Yellen’s words to heart. In her speech on Friday the Fed Chair noted that, “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months.”

That sentence helped to push the September fed fund future contract to near 50% expectancy rate while the odds of a hike by December are now above the 50% mark. If the Fed does actually hike in September the dollar could see a much stronger rally as the market will begin to price in the full scope of normalization as interest rate differentials begin to widen.

For now however, currency traders remain cautious and focused on every US economic data point in September. Today the market will get glimpse the Personal Income/ Spending data with consensus eyeing a rise in income to 0.4% from 0.2% the month prior. If the number meets or beats consensus it should help propel the greenback higher, as growth in income will only contribute to Fed’s recent hawkish bias.

USD/JPY rally has run out of gas ahead of the 102.50 level but if US data proves positive, the bullish move could regain momentum and push through that level as shorts begin to cover their positions in earnest.

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