Another round of USD weakness post dovish Yellen – S&P500 in 2016 highs
Markets were fairly range bound in the EU session yesterday, but this changed drastically following Yellen’s comments before the Economic Club of New York, which sent the Dollar Index down with 1% and the US Dollar tumbled against all peers. US and Asian stock markets, less Japan, enjoyed Yellen’s comments as their cost of capital remains low. The main points from Yellen’s speech were that a pickup in risks from external factors along with downward revisions of the long-term rates were among the reasons for the FOMC to be more cautious on the rate outlook. Markets immediately sent yields lower and the implied probabilities for a hike in June fell to 28%. Most market participants are pricing in two rate hikes this year, so the risk for the USD is to the downside going forward. A better than expected US Consumer Confidence and a decent S&P/Case-Shiller Home Price Index made an additional impact on equities and the S&P 500 future has this morning printed new 2016 highs. Gold and Oil both enjoyed a rally, which in FX markets translated to an appreciation of the AUD and CAD.
This morning, the USD-weakness has continued and besides from the US ADP report, which serves as a proxy for the Nonfarm Payrolls in the US Job Report on Friday, to be released at 1430CET, there are no interesting data points on the calendar. On the monetary side, we could experience some market noise when Chicago Fed President Evans will address the Forecasters Club of New York with his monetary outlook. Since he mentioned two rate hikes earlier this year, we believe he will stick to this and not trigger additional unnecessary noise to the markets.
EURUSD has broken outside of the daily Wedge formation and has immediate resistance at the March 2016 highs at 1.1342 before 2016 highs at 1.1376. A close above the Wedge indicates that we could see an additional move towards 1.1430-area.
AUDUSD has been on the rise since the beginning of 2016 and has this morning printed new 2016 highs. Also, the 50-DMA has broken above both the 100- and 200-DMAs, which tells us that the short term momentum is more bullish than longer term. The pair is currently testing the 61.8% fibo retracement level in the major wave from 2015 highs to 2016 lows, where a close above would open up for a test of 0.7740 and then 0.7850.
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