Will Yellen Push the Euro Further?

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Market Drivers March 27, 2015

FX Listless on last trading day of the week
Japanese inflation data in line
Nikkei -0.95% Europe 0.10%
Oil $50/bbl
Gold $1198/oz.

Europe and Asia:
JPY Core CPI 2.0% vs. 2.1%
JPY Retail Sales -1.8% vs. -1.4%

North America:
USD GDP 8:30

USD U of M 9:55

It been a quiet and listless session on the final trading day of the week as most of the major currencies remained within a very narrow band of prices amidst little fresh news on the economic or political fronts.

The EUR/USD remained the most volatile of all the majors as it continued its reversal to the downside probing the 1.0800 level before finally finding some support. Yesterday’s sharp turnaround that saw the pair lose more than 2 cents from session highs must have been a heartbreaking disappointment for euro longs who were hoping to squeeze the pair higher.

However, for now the 1.1000 level has proven to be key resistance for the pair as the broad macro factors continue to weigh on the unit. It appears likely that the pair will maintain its 1.0500 to 1.1000 range for the time being as it is caught between the less than stellar US economic data on one side and highly accommodative ECB policy on the other.

Elsewhere the only data of note was the Japanese inflation and consumer spending numbers with the results generally in line. Core CPI was 2.0% versus 2.1% eyed while Retail Sales declined -1.8% vs. -1.4%. The news was far from euphoric, but the reports did show that Japan is making slow steady progress on the inflation front. Prime Minister Abe stated that the results showed that the country was clearly getting results on deflation. Though it remains to be seen if Japan can reach escape velocity on that issue just yet.

Escape velocity is the key concern for US policymakers as well. Today the market will get a glimpse of final US GDP figures, but more importantly it will also hear from Janet Yellen who is giving a speech in San Francisco on monetary policy. The Fed chief is likely to maintain a cautious tone which could produce some profit taking the dollar comeback today. However if she surprises the market by asserting that normalization is likely to commence by September, the EUR/USD will tumble further below the 1.0800 mark as the short covering move is unwound.

Boris Schlossberg
Managing Director

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