USD rallies after Draghi comments, traders await Janet Yellen’s speech today

Fed Chair Janet Yellen

What Happened Yesterday

It was bit of a snoozer in Asia but activity quickly picked up in Europe.

Sterling was whipping about as usual but did pick up a positive tone against the USD and EURO after UK PM Theresa May struck a deal to prop up her minority government, peeling away one layer of uncertainty for Britain as its negotiates its exit from the European Union.

The US Durable Goods data completely missed the mark coming in at -1.1% versus -0.6% forecast. This saw all the majors react 30-40 pips but there hasn’t been much of a follow through as the market now awaits FED Yellen’s speech on Tuesday.

Fed Chair Yellen is set to deliver a speech in Europe on Tuesday. Analysts said traders were expecting Yellen to maintain a positive outlook on the U.S. economy despite a recent batch of weak U.S. economic data, thereby supporting the Fed’s forecast of raising interest rates once more this year and three times next year.

The majors reversed earlier moves after ECB President Mario Draghi, speaking to university students in Lisbon, said super low rates create jobs, foster growth and benefit borrowers, ultimately easing inequality.

Draghi was basically pouring water on expectations of reducing monetary stimulus. Remember the Euro fell earlier this month after the ECB said policymakers had not discussed scaling back its massive bond-buying program.

So it’s back to the grind for Euro, but once again there was no follow through…with Yellen’s upcoming speech holding traders off for the moment.

And that’s fair enough after last weeks patchy trading activity…. we want USD direction.

Janet..please…if you wouldn’t mind!

What’s Happening with the Majors

Most of the majors have stayed within their recent ranges, although these ranges are starting to contract which means a break out one side or the other.

The AUD and NZD continue to trade in unison with a slight upwards/sideways bias. The Kiwi is definitely more reactive at the moment.

The EUR and GBP aren’t far off the mark either with EURGBP dancing around 0.8790. They are basically trading pip for pip for now.

 

USDYEN shrugged off the weak US data and instead followed the ‘rumour’ that Yellen would maintain her positive outlook, rallying to the topside taking out stops above 111.80.

The USD Index is also closing the US session on a high for the day just under 97.50.

USDCAD has lost it’s mojo and it trading sideways once again as oil bounces off it’s lows.

Major Currencies in Play Today – The Best Potential Opportunities

GBPUSD

Technical Set Up: We’ve got support & resistance and a nice steady up-move to work with.

Fundamental Drivers: BOE Governor Carney speech – he has been somewhat cautious of late and I expect this to continue.

Potential Strategy: There’s a chance for a break trade to the downside if Carney maintains his cautious stance.

 

EURUSD

Technical Set Up: We’ve got support & resistance and a nice sideways market.

Fundamental Drivers: FED Chair Yellen speech – Will she be positive or neutral?

Potential Strategy: If Yellen maintains her positive outlook then EURUSD should break down through 1.1160.

 

The Next Best Trade

The week is only just beginning and I want to see more information before we place the NBT.

Janet Yellen will be the focus from here so I am expecting the trades to flow following her speech.

Fingers crossed she gives us something to work with!

I don’t expect a lot of activity in Asia so take some time out and relax …. Janet is due at 3am AEST and that’s when things will really kick off.

Good luck

Brad

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