Will Yellen Move the Market?

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Market Drivers September 28, 2016

Shafiq drives pound lower on dovish comments
Yellen testifies on regulation
Nikkei -1.31% Dax 1.18%
Oil $45/bbl
Gold $1327/oz.

Europe and Asia:
EUR GFK Consumer Climate 10 vs. 10.2

North America:
USD Durable Goods 8:30
USD Yellen Testimony 10:00
EUR Draghi Testimony 10:30

The currency market continues to quiet this week with most of the majors hugging the same levels since Monday as newsflow remains at a trickle with most market participants awaiting the deluge of fresh data next week.

In Asian and early European trade USD/JPY was better bid despite the Nikkei sliding lower by more than-1% as the yield on the JGBs continued to slide into negative territory. The yield on the benchmark 10 year JGBs is now almost 9 basis points below zero as BOJ’s attempts to maintain it above the zero level appear to be in vain so far.

Still there is only a limited amount of help that USD/JPY can receive from the weakness in Japanese yields and any sustained rally in the pair will depend on rise in US yields over the next several weeks. The fixed income market must become convinced that the Fed is serious about hiking rates in December and that will occur only if US labor data proves supportive.

In the meantime today’s eco calendar remains quiet with only Durable Goods on the docket. The market is looking for a retreat in the core numbers to -0.5% from 1.3% gain the month prior. Its doubtful that the data will have any impact on trade today, but Janet Yellen’s testimony in front of congress at 14:00 GMT could prove to be more volatile than suggested by the topic matter.

Ostensibly Ms. Yellen is testifying about banking regulation, but she is almost sure to face questions regarding monetary policy as well. In Monday night’s debate Donald Trump suggested that the Fed was providing political cover for the Obama administration by keeping rates artificially low ahead of the election. Although Fed strives to remain non-partisan Ms. Yellen could face a series of hostile queries from the Republican side of the aisle and her responses could create some turbulence in USD/JPY as the day proceeds.

Boris Schlossberg
Managing Director

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