iFOREX Daily Analysis – 11/02/2016
iFOREX | Feb 11, 2016 03:29AM ET
The dollar continues to lose ground against most currencies on Wednesday after Federal Reserve president Janet Yellen provided few indications on the timing of the Fed's next interest rate move. While Yellen noted on Wednesday that widespread market volatility and a weak dollar continued to pose growth risks to the U.S. economy, she appeared confident that inflation will move back toward the Fed's targeted goal of 2%, while reiterating that the labor market is close to full employment. In addition, she added that conditions in the U.S. would allow it to pursue "gradual" adjustments to monetary policy. However, Yellen said the US economy faces a number of global threats that could derail growth and compel the Fed to slow the pace of future interest rate hikes. While the Fed expects to raise interest rates gradually, it is not on any pre-set course, Yellen said, adding that the central bank would likely move slower "if the economy were to disappoint". Markets interpreted Yellen's comments as fairly dovish, as the CME Group's (O:CME) Fed Watch lowered the probability of a March interest rate hike to 0% on Wednesday. Investors are now eyeing Yellen’s second day of testimony scheduled on Thursday. Canada is to release data on new house price inflation. The U.S. is to publish the weekly report on initial jobless claims and the Fed Chair Janet Yellen is to testify on monetary policy before the Senate Banking Committee in Washington.
EUR/USD
The euro gained against the dollar on Wednesday on a volatile day of trading, after Federal Reserve chair Janet Yellen provided few indications on the timing of the Fed's next interest rate move in guarded testimony on Capitol Hill. The currency pair traded in a broad range between 1.1161 and 1.1315 before settling 0.02% higher for the session. In her testimony, Yellen emphasized that the Fed's monetary policy cycle is not on a preset course, as further interest rate decisions will continue to depend on incoming economic data over the next several months. She also added that market volatility and a weak dollar continue to pose growth risks to the U.S. economy, but she appeared confident that inflation will move back toward the Fed's targeted goal of 2%. Markets interpreted Yellen's comments as fairly dovish, as the CME Group's Fed Watch lowered the probability of a March interest rate hike to 0% on Wednesday. For today, investors will be focusing on jobless claims data from the U.S. and on Yellen’s second day of testimony on monetary policy.
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Gold
Overnight, gold prices were relatively flat on Wednesday, remaining near eight-month highs, as Federal Reserve chair Janet Yellen reiterated that current conditions in the U.S. economy are likely to warrant gradual interest rate hikes by the U.S. central bank in the near-term future. In her testimony, Yellen emphasized that the Fed's monetary policy cycle is not on a preset course, as further interest rate decisions will continue to depend on incoming economic data over the next several months. Yellen cited a range of economic headwinds for restraining the rate including: the appreciation of the dollar, limited credit availability for borrowers and weak growth abroad. Moving forward, Yellen stressed that diminishing slack in the labor market and a bottoming of oil price declines could help move inflation back toward the Fed's long-term targeted goal of 2%. Markets interpreted Yellen's comments as fairly dovish, as the CME Group's Fed Watch lowered the probability of a March interest rate hike to 0% on Wednesday. For today, investors will be focusing on jobless claims data from the U.S. and on Yellen’s second day of testimony on monetary policy.
WTI Oil
U.S. crude oil prices fell on Wednesday, remaining near 12-year lows, despite an unexpected drop in inventories last week and continued speculation that major global producers could cut output in order to stem the prolonged downturn in oil prices worldwide. On Wednesday morning, the U.S. Energy Information Administration (EIA) said in its Weekly Petroleum Status Report that U.S. commercial crude oil inventories for the week ending on February 5, decreased by 754,000 barrels from the previous week. At 502.0 million barrels, U.S. crude oil stockpiles still remain near levels not seen for this time of year in at least the last 80 years. Elsewhere, Iran oil minister Bijan Zangeneh told reporters on Tuesday that his nation is willing to negotiate with Saudi Arabia on measures that could help stabilize persistently low oil prices. For today, investors will be focusing on Yellen’s second day of testimony on monetary policy for further indications on the strength of the dollar.
S&P 500
The S&P 500 ended flat on Wednesday, losing gains late in the session as investors digested comments by Federal Reserve Chair Janet Yellen, who kept options open for more rate hikes but also saw risks to the U.S. economy. The market was strong early in the day because Janet Yellen confirmed the fact the Fed would go very slow on rate hikes as the economy was showing some signs of weakness. The Dow and S&P posted their fourth straight day of losses while the Nasdaq ended its three-day down streak. U.S. stocks have struggled since the start of the year amid mounting worries over a slowdown in global and U.S. economic growth. The Dow and S&P 500 are down about 9 percent each so far in 2016. Materials and energy shares were Wednesday's biggest losers following further losses in U.S. oil prices. For today, investors will be focusing on jobless claims data from the U.S. and on Yellen’s second day of testimony on monetary policy.
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