EURUSD: Surprising reaction after Yellen, now eyes on Draghi
EUR/USD: Surprising reaction after hawkish Yellen, now eyes on Draghi
Yellen capped off a seemingly coordinated push from the central bank on Friday when she cemented the view that the Fed will raise interest rates at its next meeting on March 14-15, and likely be able to move faster after that than it has in years.
She said: "At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate". She added: "The process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.”
Federal Reserve Vice Chair Stanley Fischer said that “If there has been a conscious effort (to raise expectations for a rate hike) I'm about to join it.”
Among Fed officials, even Fed Governor Lael Brainard, one of the strongest voices arguing that the central bank should not move rates too high until economic conditions improved overseas, said last week she thought a hike in March would be appropriate.
The dollar unexpectedly slipped against a basket of major currencies on Friday after hawkish comments from Yellen and Fischer.
Investors shrugged off better-than-expected U.S. non-manufacturing ISM. It rose to 16-month high of 57.6, above the market forecast of 56.5. The business activity index improved smartly, up 3.3 to 63.6, a six-year high. New orders also saw a solid gain, up 2.6 to 61.2, an 18-month high, and the order backlogs index jumped 4.0 to 54.0, a 16-month high. Furthermore, the new export orders index soared 9.0 to 57.0, though that's only a three-month high. The employment index rose 0.5 to 55.2, also where it was in November. Price growth remained high, though down 1.3 from January to 57.7.
The euro rebounded after a poll showed French far-right candidate Marine Le Pen's chances in the country's presidential election dimming.
Technical analysis
A long white candlestick on Friday despite hawkish comments from Yellen was a sign of EUR/USD strength. 1.0640 stemmed EUR/USD rally today, but the rate is still above 7-day exponential moving average, which suggests the rally may be continued in the coming sessions. The nearest resistance level is 1.0680 high on February 16.
Trading strategy
Our short position was closed with a loss as strong recovery of the EUR/USD on hawkish comments from Yellen is definitely not a textbook reaction. ECB decision on rates is scheduled for Thursday. We think that EUR/USD recovery may be continued in the coming days, as the market expects Draghi to be less dovish this time. We think the ECB is likely to raise its GDP and CPI forecasts for this year and drop the easing bias on rates.
GrowthAces.com - Daily Forex Trading Strategies
Yellen capped off a seemingly coordinated push from the central bank on Friday when she cemented the view that the Fed will raise interest rates at its next meeting on March 14-15, and likely be able to move faster after that than it has in years.
She said: "At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate". She added: "The process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016.”
Federal Reserve Vice Chair Stanley Fischer said that “If there has been a conscious effort (to raise expectations for a rate hike) I'm about to join it.”
Among Fed officials, even Fed Governor Lael Brainard, one of the strongest voices arguing that the central bank should not move rates too high until economic conditions improved overseas, said last week she thought a hike in March would be appropriate.
The dollar unexpectedly slipped against a basket of major currencies on Friday after hawkish comments from Yellen and Fischer.
Investors shrugged off better-than-expected U.S. non-manufacturing ISM. It rose to 16-month high of 57.6, above the market forecast of 56.5. The business activity index improved smartly, up 3.3 to 63.6, a six-year high. New orders also saw a solid gain, up 2.6 to 61.2, an 18-month high, and the order backlogs index jumped 4.0 to 54.0, a 16-month high. Furthermore, the new export orders index soared 9.0 to 57.0, though that's only a three-month high. The employment index rose 0.5 to 55.2, also where it was in November. Price growth remained high, though down 1.3 from January to 57.7.
The euro rebounded after a poll showed French far-right candidate Marine Le Pen's chances in the country's presidential election dimming.
Technical analysis
A long white candlestick on Friday despite hawkish comments from Yellen was a sign of EUR/USD strength. 1.0640 stemmed EUR/USD rally today, but the rate is still above 7-day exponential moving average, which suggests the rally may be continued in the coming sessions. The nearest resistance level is 1.0680 high on February 16.
Trading strategy
Our short position was closed with a loss as strong recovery of the EUR/USD on hawkish comments from Yellen is definitely not a textbook reaction. ECB decision on rates is scheduled for Thursday. We think that EUR/USD recovery may be continued in the coming days, as the market expects Draghi to be less dovish this time. We think the ECB is likely to raise its GDP and CPI forecasts for this year and drop the easing bias on rates.
GrowthAces.com - Daily Forex Trading Strategies
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