Dollar Hollar: Yellen Clips Hawks Wings, Wounds USD Bulls
Dollar Hollar: Fed Chair Yellen’s speech Tuesday to the Economic Club of New York was titled ‘The Outlook, Uncertainty and Monetary Policy’ The core message clipped the wings of recent hawks, whose rhetoric of late had markets second guessing the potential for a move at the April meeting with even higher probabilities being places on a June move. However the Chair struck a distinctly doveish tone underpinned by a strong sense of caution regarding global growth and the impact on domestic data.
With respect to the global growth perspective Yellen believes that there has been no material development to encourage amending staff projections. The precipitous decline in Commodity markets coupled with China concerns continue to cause concern for US markets and economic outlook. Yellen perceives that markets have reduced interest rate expectations in light of global uncertainty, which was confirmed to a certain degree with recent negative amendments to FOMC member’s Dot plots.
Yellen remains unconvinced that the recent uptick in core inflation will be sustained and stressed the impact of inflation projections in estimating real inflation. Highlighting that the pull-back in positive inflation views in recent months was cause for further pause. In summation she maintains the view that the FOMC show continue ot adopt a rigorously data dependent wait and see mode, which to her mind was was further warranted especially in light of the low level of the FED funds ratee, which leaves the FOMC constrained in deploying conventional monetary policy measures should volatility rise.
In the subsequent Q&A session Yellen fielded question on employment and wage growth and the FED’s reaction function. Yellen maintains the belief that if the FED had continued in a tightening vein at the March meeting this would have likely exacerbated the negative economic impact of weaker growth and would have led to less progress being made in the labour market than required. A such the FOMC reduced expectations of the the policy path, while keeping its projections broadly in line with its December estimates.
Yellen made it clear that the FED is eager to defend against ‘economic downdrafts’ as such remains flexible in its thinking about the policy path.The speech left many market participants questioning whether we will see another move for the remainder of 2016 and that for this year it may well be a case of one and done especially as we had into he political uncertainly of the fall Presidential election cycle.
Technical & Trading Takeaways
The chart below and analysis below is take from my March 16th report you will see from the last chart that price has played out near perfectly to the market map.
From a technical and trading perspective the price action continues to develop in a complex consolidation pattern which has been frustrating bulls and bears since this time last year. We are still rotating around the apex of the pattern, against 98.50 the horizontal blue line on the chart, I would anticipate further exploration of the downside retesting 95.28 en-route to an ideal 94.00 symmetry swing objective. A bounce from the 94.00 level should meet resistance on a retest of the apex from below between 96.00/97.00 I will monitor intraday reversal patterns should this probable price path play out, setting shorts to target a full retest of the consolidation support at 92.50. A move through 98.50 against the current swing lows at 96.00 will negate this set up and I will reassess and update in the next report.
As per my analysis above I have initiated short exposure on the retest of the apex of the consolidation at 96.00 will hold this position for a move down to test range lows with first objective at 94.00. Where I will reassess price action.
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