Another Day of Yellen – Will it Be Different?

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Market Drivers July 13, 2017
USDJPY holds 113.50
EURUSD slips to 1.1400
Nikkei 0.01% Dax 0.25%
Oil $45/bbl
Gold $1221/oz.

Europe and Asia:
No data

North America:
USD Weekly jobless 8:30
USD PPI 8:30
CAD New House Price Index 8:30
USD Yellen in Senate 10:00

A very choppy, mixed session in Asian and early European trade today as both EURUSD and GBPUSD tried to rally but failed while USDJPY popped to 113.50 in early Asia only to give it all back but find support at the 113.00 level ahead of the North American open.

With no data on the docket FX markets essentially flopped around testing the both the upper and lower ends of the ranges with EURUSD popping to 1.1450 only to drift back down to 1.1400 while cable verticalized on a fresh set of hawkish set of comments by McCafferty but failed to hold the 1.2850 level and drifted lower towards 1.2800 once again.

With Janet Yellen scheduled for the second day of testimony, this time in front of Senate, the FX markets will once again focus on her statements to the banking committee. Yesterday, the Fed chair walked a middle line, reaffirming the Fed’s commitment to another rate hike, but demurring on setting any hard timeline for balance sheet reduction. Overall the market took Ms. Yellen’s testimony to be more dovish than hawkish and both USDJPY and US yields sold off as the result.

As our colleague Kathy Lien pointed out, Yellen noted that “everything hinges on inflation” which remains the great uncertainty for policymakers. Today’s PPI data could go some way to informing the market as to the state of price levels in the US economy. The consensus view is for a -0.1% drop, but if PPI data surprises to the upside it would support Ms. Yellen’s contention that the recent drop in price pressures is temporary and that inflation readings will begin to creep up as the year proceeds, justifying the Fed’s hawkish stance.

Often the dollar tends to reverse the moves of the first day of Humphrey-Hawkins testimony, so if US data proves supportive and Ms. Yellen remains resolutely hawkish USDJPY could revisit the 114.00 level while EURUSD drifts further below the 1.1400 figure.

Boris Schlossberg
Managing Director

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