Market Drivers for November 14, 2013
USD/JPY takes out barriers at 100.00
UK Retail Sales miss on warmer weather
Nikkei 2.12% Europe .94%
Oil $93/bbl
Gold $1283/oz.

Europe and Asia:
JPY IP 1.3% vs. 1.5%
GBP Retail Sales -0.6% vs. 0.0%
EUR Flash GDP 0.1% vs. 0.2% eyed

North America:
USD Weekly Jobless 8:30
USD Trade Balance 8:30
USD Yellen Testimony 10:00

USD/JPY ran through the 100.00 barrier for the first time in more than two months as Janet Yellen dovish prepared remarks boosted equity markets across the world assuring investors that Fed will maintain ample liquidity for the foreseeable future.

Ms. Yellen’s is scheduled to testify in front of Congress at 13:00 GMT today, but her pre-written comments were released right after the New York close yesterday and their impact continued to reverberate through capital markets in Asia and Europe.

In her testimony Ms. Yellen is expected to defend the Fed’s ultra loose monetary policy stating that ,”I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

The market was especially focused on this passage, “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time.” Much like Governor Carney from the BoE yesterday, Ms. Yellen focused on the output gap suggesting that Fed policy could remain highly accomodative for a considerable period of time without causing any inflationary problems.

Equity markets loved Ms. Yellen’s statement with Nikkei rising by more than 2% and Eurostoxx gaining 1% in morning European trade. The positive action in equities helped to lift USD/JPY, which initially fell towards the 99.00 level in the immediate reaction to Ms. Yellen’s comments, but then recovered throughout the night as equities rallied. The pair took out the 100.00 barrier in morning London dealing and remains well bid despite the potentially dovish implications of Ms. Yellen’s policy approach.

Although Ms, Yellen’s view suggests that the Fed may hold off on taper perhaps until March, her testimony today could clarify that issue and as result the US session could be quite volatile as markets react to her rhetoric. Nevertheless, if she is generally optimistic about the US economy, both equities and USD/JPY could extend their gains and the pair could rally to test resistance at the 100.50 level as the day proceeds.

Elsewhere, cable sold off below the 1.6000 level in reaction to disappointing Retail Sales which printed at -0,7% versus 0.0% eyed. Warm weather was blamed for the lackluster sales of clothing but household goods rose 0.9%. It’s difficult to tell from this month’s number whether the drop was essentially due to seasonal factors or a more troubling function of slowing demand. Given the fact that UK labor data continues to show improvement, the currency market gave sterling the benefit of doubt and the pair rebounded after testing stops at the 1,6000 level. However, GBP/USD remains capped at the 1.6050 barrier and could drift below 1.6000 once again if dollar strength picks up in North American trade.

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