NY FX: Dollar Dives On Yellen
Littlefish FX | Mar 31, 2016 05:11AM ET
New York Forex Report: USD remains under pressure over early European trading today following comments made by Fed Chair Yellen yesterday, which disappointed hawks. In her speech to the Economic Club of New York, Yellen diverged from recent hawkish comments from other Fed officials, saying the Fed should proceed “cautiously” with raising rates, highlighting her concerns over prevailing headwinds from weaker global growth, low oil prices and China. The Fed Chair was also not confident that the recent spike in inflation is sustainable. This reinforced the view that the Fed rate normalization path will be very gradual, and odds are rising that we may only see just one hike this year. Risk sentiment has rallied strongly in the wake of these comments with the commodity FX bloc soaring against the dollar as equities ramp on unwinding rate hike expectations.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR continues to gain against the US Dollar as the latter continues to be sold in the wake of yesterday;s Dovish remarks by Fed chair Yellen. Data focus today is on German CPI at 1300GMT1 followed by US ADP Employment Change and crude oil inventories.
Technical: The close over 1.1220 opens a move back to retest range highs at 1.1350 en-route to symmetry swing objective at 1.1420, expect intraday support to come in at the aforementioned 1.1220.
Interbank Flows: Bids 1.1250 stops below. Offers 1.1350 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: Sterling ripped higher on the risk rally which followed yesterday’s Dovish comments by Yellen. Brexit concerns still look large however with the BOE noting that banks should start to build capital reserves earmarked for supporting lending when the economy turns lower, noting that the referendum on June 23 heightened financial stability risks
Technical: 1.4050 pivotal support provides a platform for technical rebound to retest the topside of the broader 1.45/1.40 range. A failure to hold 1.4050 opens a retest of year to date lows at 1.38 ahead of 1.37 weekly swing objective.
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Interbank Flows: Bids 1.4050 stops below. Offers 1.45 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: USDJPY dropped sharply lower following Yellen’s comment. Yellen highlighted external risks and stressed needs to be cautious in raising interest rates. The exchange rate of JPY is less of a concern for the Japanese government than sharp swings in its value, according to top Japanese financial diplomat Asakawa.
Technical: Continue to play the broader range of 110/114 with 112 the pivot to lean against intraday, a breach of the range is required to help define the next directional play.
Interbank Flows: Bids 110.50 offers below. Offers 114 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
EUR/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: Japan’s industrial production tumbled more than expected in Feb. IPI fell 6.2% MoM last month, overturning the 3.7% MoM increase in Jan. Output of capital goods dropped 9.0% MoM as businesses continue to cut capex amid bleak economic outlook. IPI print offset the uptick in small business confidence index, which rose 0.9 points to 48.8 in March
Technical: While 126.40 bids support intraday expect a test of symmetry resistance at 128.15 as the immediate corrective objective. Failure at 124.50 suggests false upside break and opens retest of 123.
Interbank Flows: Bids 126.50 stops below. Offers 128 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: AUD was sharply higher in the wake of yesterday’s Dovish comments by Fed chair Yellen.If the lift of inAUDUSD is sustained, it would be the largest monthly rise since 2011, though much of the gains are due to a weaker US currency on fading expectations the Fed will resume raising rates soon.
Technical: Only a close below .7550 threatens the near term bullish bias, while this level supports intraday expect a grind higher to test symmetry swing objective at .7670.
Interbank Flows: Bids .7550 stops below. Offers .7700 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: CAD strengthened to a near one-week high against the USD after Federal Reserve Chair Janet Yellen said the US central bank should proceed “cautiously” with rate hikes. The comments offset factors that would weigh on the Canadian currency, including a drop in oil prices and soft domestic figures. Traders’ focus will now turn to January gross domestic product figures due on Thursday.
Technical: Bears have the ball while 1.3160 contains upside reactions expect a retest of recent lows in the 1.2920’s to set a potential double bottom base, a failure of buyer participation here opens a run down to test structural support at 1.2830.
Interbank Flows: Bids 1.3000 stops below. Offers 1.3150 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
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