The Greek situation finally reached a near-term resolution as the EU/troika side more or less got its way and Greece decided not to take the country’s financial system over the edge. There is still plenty of uncertainty in the pipeline as Greece will have to come up with a plan that the troika finds acceptable within the four-month time frame, but this issue will not distract the market to nearly the same degree as it did over the last couple of weeks.
The dominant focus this week is on Fed chief Janet Yellen’s appearance before the House and Senate tomorrow and Wednesday, respectively. There is still considerable tension on the Fed’s communication of its intentions. One thing Yellen has often made clear is that she would prefer to keep all options open depending on incoming data, and the market is quite complacent on that front, preferring to believe that the market won’t move until September.
After the dovish read of the Federal Open Market Committee minutes, it would be quite easy for her to surprise this market with rhetoric indicating she prefers to take no option off the table and that improvements similar to recently established pace of payroll and earnings growth could mean a June rate hike (she won’t spell it out explicitly, but tilt the rhetoric to indicate this).
Yellen might tweak her words to suggest a June rate hike. Photo: Federal Reserve
Elsewhere, we have the German IFO survey today, as German equities have been on a parabolic ascent since the announcement of the European Central Bank's quantitative easing. It’s tough to understand why the market should react much to positive European data when the ECB is about to launch a large QE programme next week.
Looking at the positioning data in US futures, our Ole Hansen points out that the net short JPY position is the smallest it has been since late 2012, when the entire sell-off started. It is worth noting that after the recent bearish reversal in USDJPY, we’ve seen no follow-through lower, keeping a more bullish stance intact for now, though we are in the middle of the recent range and the
Yellen testimony will be critical for the next move in the pair.
Chart: USDCHF
USDCHF could be a big mover if Fed chair Yellen proves more hawkish than the market expects, now that the Greece situation is behind us for the moment at least, and never really provided much support for the CHF in the first place. 0.9500/50 is an important area as this was an old support zone as the pair worked its way toward parity and above in January before the trauma of the Swiss National Bank stepping away from the CHF ceiling. 
The G-10 rundown
USD: all about Yellen. Always a two-way surprise potential here, but market fairly complacent on Fed, so perhaps easier for her to surprise on the hawkish side if she chooses to insist on keeping all policy options open.
EUR: Some relief on Greece, which is mostly felt in EURCHF, perhaps – where the rally could continue towards 1.10. Otherwise, there is nothing to go on in EURUSD, where we’ve been stuck in a range for three weeks.
JPY: Stuck in the doldrums for the moment – a bit surprising given that higher rates and strong risk appetite haven’t pushed it weaker. Watching USDJPY resolution as the main focus, with 118.00 and 120.00 as the next real trigger areas after Yellen’s testimony.
GBP: Some weaker data last week pressuring GBP back lower against the US dollar and EURGBP is failing to build additional downside momentum for the moment. That may mean considerable risk of GBPUSD dropping back into the old range below 1.5250 if Yellen proves hawkish tomorrow.
CHF: Weak on the Greece tensions easing for the moment. 1.0650 is the support area in EURCHF and looking toward 1.1000 next if 1.0810 is taken out. In USDCHF, could we see the pair rip all the way back to parity within a couple of weeks on a hawkish of Yellen?
AUD: The range top at 0.7850 in AUDUSD has been very tenacious in holding the line, but the bears need some momentum building again below 0.7750 to get traction on a downside view.
CAD: More bearish on CAD again after weak retail sales Friday pushed Bank of Canada rate expectations lower still. Looking for this rally to take us back toward the 1.2800 area top and possibly beyond toward 1.3000, provided Yellen supports the USD outlook.
NZD: the upside momentum in NZDUSD has faded entirely for the moment, though we need a good plunge through 0.7450 to build a downside case for a test of the sub-0.7200 lows. The NZD outperformance days may be behind us as AUDNZD rallies further back into the old range.
SEK: EURSEK looks near-term bearish if 9.48/9.50 can’t hold, while any upside case demands fresh momentum and a close above 9.60 again.
NOK: EURNOK is toying with support again, but still looking for the pair to base in the 8.50 area with or without some slippage. Note that the 200-day moving average there is slowly ascending toward that level as well.
Upcoming Economic Calendar Highlights (all times GMT)
- Germany Feb. IFO Business Climate survey (0900)
- UK Feb. CBI Reported Sales (1100)
- US Jan. Existing Home Sales (1500)
- Japan Feb. Small Business Confidence (0500)