London Forex Report: Yellen testimony sends the USD to a three-month low. Yellen cited that tighter credit markets, financial markets volatility and uncertainty over China may pose downside risks to US economic growth.
While Yellen assured markets that the Fed is unlikely to reverse course, prevailing conditions suggested that the path of hikes may need to be gradual to accommodate fragile growth momentum in the US and avoid excessive volatility in the global financial markets. There was a modest sell-off in front-end US Treasuries following Fed Chair Yellen’s testimony that reflected the pragmatism of the FOMC.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: French industrial and manufacturing production, along with Italian industrial production, contracted in December as European banking stocks rallied 6%. ECB’s Praet also underscored the perceived merits of negative interest rates. EUR remains at a level that belies ECB promises for March action.
The euro slipped 0.5 percent to a low of 1.1161 following the release of Yellen’s statement. Later on, the euro recovered to around 1.1280 to start its Thursday session. EURUSD has climbed 4.12 percent month-to-date, surging from lows around 1.0816 to its current level 1.1280. EUR support has been driven by consecutively dropped oil prices and stumbling global stock markets.
Technical: While 1.1150/30 remains intact as support, expect rotation through last week's highs en route to test 1.14 symmetry objective. Below 1.1050 eases immediate upside pressure
Interbank Flows: Bids 1.12 stops below. Offers 1.1350 stops above
Retail Sentiment: Bullish
Trading Take-away: Long
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: British industrial and manufacturing production looks bleak, printing declines in a market expecting stability. The January NIESR GDP estimate at 0.4% m/m with negative revisions to December was also weaker than expected. GBP dropped to around 1.4508 levels against the USD after Yellen’s testimony was published, down from previous 1.4560 just beforehand.
Technical: Failure at 1.4350 suggests false upside break and resets bearish trend to attack and break 1.40 as the primary downside objective. Over 1.46 re- establishes bullish bias and targets retest of last weeks highs en route to 1.4860
Interbank Flows: Bids 1.4450 stops below. Offers 1.46 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: JPY failed to get the ‘risk on’ message with JPY dipping into the USD113s. Markets, while fearful of ‘intervention’, clearly expect JPY strength. USD fell to the lowest against JPY since November 2014 as investors rushed to safe-haven Japanese currency, withdrawing from earlier optimism that the Fed would continue to raise interest rates.
The Yen has dropped 6.71 percent month-to-date. Markets await the US Retail Sales data due tomorrow.
Technical: USD/JPY confirms break of major neckline support again overnight. While 114.10/20 caps intraday upside reactions expects a grind lower to test psychological 110 as the next downside objective.
Interbank Flows: Bids 112 offers below. Offers 114 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Japan’s producers prices plunged 3.1% YOY in Jan (Dec: revised to – 3.5% YOY), more than the expected 2.8% YOY decline. PPI dropped for ten straight months, dragged by low commodity prices. On the other hand, housing loans climbed 2.2% YOY in 4Q (3Q: 2.4% YOY) which was the slowest pace since Dec 2011.
The prints are largely in line with expectations that the Japanese economy may slip into contraction again in 4Q.
Technical: While 128.30 caps upside reactions expect a retest of year to date lows, ahead of a test of stops sub 126 only over 130.50 eases immediate downside pressure.
Interbank Flows: Bids 126 stops below. Offers 128.50 stops above.
Retail Sentiment: Bullish
Trading Take-away: Short
AUD/USD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Fundamental: The Australian dollar hovered at 0.71 level as the softer US dollar led the commodity currencies to firm slightly. With no major economic data out of the region and with both Japan and China shut for public holidays, the currency’s movement will largely depend on the risk sentiment.
Technical: AUD tests and hold bids ahead of.6950 a failure of support here opens a retest of year to date lows. Only a close over .7150 eases immediate downside pressure.
Interbank Flows: Bids .6950 stops below. Offers .72 stops above.
Retail Sentiment: Neutral
Trading Take-away: Neutral
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: The CAD dipped against USD as US crude oil prices fell and Federal Reserve Chair Janet Yellen left the door open to further interest rate hikes that the US central bank will pursue “gradual” adjustments to monetary policy. US crude prices fell 2 percent after stockpiles at the main US delivery point hit record highs while Brent rose for the first time in five days after Russia suggested oil producers cut output by a million barrels each.
Technical: Anticipated 1.40 retest from below under way, while this area contains the upside reaction potential for bearish bias to resume, however while 1.38 supports there remains potential fro a broader corrective phase with 1.4160 the next upside pivot.
Interbank Flows: Bids 1.3750 stops below. Offers 1.40 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
