Weekly Outlook – USD lower on Yellen Testimony, ECB in Focus this week

  • Fed Chair Yellen took centre stage in Washington last week where she, in her testimony front of Congress, triggered a drop in the US Dollar and US yields on back of dovish comments related to the US rate outlook. Her comments sent US yields and the Greenback lower with EURUSD posting new 2017 highs at 1.1489. Risk appetite in US equities soared post Yellen’s statement, sending Dow Jones to new all-time highs on Friday at 21,681.53, where better than expected Industrial Production figures outweighed weak CPI and Retail Sales.
  • The dovish USD-comments triggered movement across the globe with GBPUSD in 10-months highs seeing resistance at 1.3120 and AUDUSD up 2.93% on the week testing 2016 highs at 0.7835. USDJPY fell after four straight weeks of gains, despite the improved risk sentiment, after failing to break the May 2017 highs at 114.36.
  • The Bank of Canada raised rates 25bp as most market participants expected, but the confirmation sent the Loonie on the bid and USDCAD completed the H-S formation target at 1.2647 (refer to last week’s update).
  • Commodity markets also rose on back of the weaker USD with Gold breaking back above the 200-DMA, currently testing the 100-DMA and trend resistance at 1235-area after testing sub-1210 at the beginning of last week. WTI Crude is in a short term bull-channel with a close above 50-DMA to confirm further upside (currently at 46.73).
  • This week, Chinese GDP has so far kept markets on the bid by coming up better than expected. Tuesday, UK inflation data will dominate the UK rate outlook and could trigger a larger move in the Sterling given the “summer markets.”
  • Announcements from the BoJ and ECB will be the key items from the central bank scene. For both CBs, we do not expect any changes in the benchmark rates and the BoJ should be a more or less non-event. For the ECB, however, the press conference should be noted in light of Draghi’s hawkish comments from Portugal last week. In our view, if the ECB does not deliver, we could see a sell-off in EUR-pairs on back of “buy rumour, sell fact”.

Read the full Weekly Outlook here!: 20170717 – weekly

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