Stock markets have had an excellent start to the week and are now up for the fourth day in succession, largely as a result of comments from new Head of the Federal Reserve, Janet Yellen.
Yellen, speaking in her first public address, spoke of the need for ‘measured steps’ when reducing monthly asset purchases and reiterated that there was no ‘pre-set course’ for tightening. Moreover, she hinted that the Federal Reserve could pause the unwinding process if the economic outlook deteriorated significantly.
This was met with optimism by traders and the Dow Jones Industrial Average soared 1.22% on the news. The S&P 500 and Nasdaq index posted similar gains and high profile firms Goldman Sachs and Boeing were among those to post above 2% gains.
In currencies, the dollar had a mixed response to the news, falling against the Aussie, Canadian dollar and British pound but gaining ground against the euro.
Forex traders will be preparing for more currency movement ahead as we hear central bank speeches from the likes of Mark Carney, Head of the BOE, and Mario Draghi, Chief of the ECB, tomorrow.
GBPUSD
Cable fell yesterday as stocks advanced. The currency pair bounced off the pivot in early trade before advancing to the third resistance. It later fell back to the second resistance mark but still finished the day well above the key 1.64 level.
Looking ahead, traders will be preparing for Wednesday’s quarterly inflation report from the BOE and then comments from Governor, Mark Carney shortly after the release.
Traders are expecting a change to the BOE’s guidance plan on Wednesday and this could be a key event concerning the future movement of the currency. The previous guidance plan has been rendered obsolete with UK unemployment currently hovering around the target level.
GBPUSD has been losing momentum lately and traders will be looking for a more dovish approach out of the BOE. This would no doubt lead to a sharp sell off in GBPUSD and a move back towards 1.60 could be on the cards. As mentioned, 1.64 will be a key level for GBPUSD traders.
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