London Forex Report: Dovish Yellen Dents Dollar

London Forex Report: Dovish Yellen Dents Dollar

London Forex Report: Markets turned risk-on as they viewed Fed Chair Yellen’s testimony as Dovish, Yellen reiterated the Fed’s plan for gradual policy normalisation of further rate hike and imminent balance sheet reduction this year. The Fed Chair Yellen also downplayed recent softness in inflation but said that the central bank will continue to closely monitor inflation trajectory to ensure it is on track towards the Fed’s 2.0% goal. Reflecting the Fed’s stance on the economy, Beige Book reaffirmed that growth in the US economy remains moderate. BOC also came to the fore as it raised its benchmark rate for the first time in seven years by 25bps.

USD Fed chair Janet Yellen said in her testimony to Congress that progress in economic recovery will allow further monetary policy tightening but the central bank will continue to closely monitor inflation trajectory to ensure that it is on track toward the 2.00% goal. Yellen also said that policy rate “would not have to rise all that much further” and she anticipates that the Fed will start reducing its balance sheet “this year” although size of the reduction is still uncertain. On the data front, MBA mortgage application declined 7.40% last week after increasing 1.40% in the previous week.

EUR Eurozone’s industrial production rose 1.30% MoM in May following a revised 0.30% MoM increase in April. Output in the bloc’s largest economies registered stronger growth, with Germany’s output surging 1.40% (previous: +0.80%), France 1.90% (previous: -0.60%) and Italy 0.70% (previous: -0.50%).

GBP UK’s unemployment rate dropped to 4.50% in May, the lowest in 42 years as employers added 175k to payrolls in the three months through May. Despite a tighter labour market, wage growth remained subdued, strengthening the case for BOE to stay pat at its record low level of 0.25% even as inflation hovers close to 3.00%

JPY Japan’s tertiary industry index slipped 0.10% MoM in May after a 1.40% MoM increase in April. On the other hand, producer’s prices rose 2.10% YoY in June (May: +2.10% YoY).

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.1430 resistance removed as 1.1400/1.1380 supports bulls target 1.1530 as the next upside objective, a daily close below 1.1330 concerns the near term bullish bias and open a test of 1.1280/60

1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.1450 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – 1.3048 is the next upside objective, ahead of the pivotal 1.3238, the immediate upside hurdle moves to 1.2985, a daily closing breach of 1.2810 concerns the near term bullish bias.

1-3 Week View – The weekly failure to close above 1.3045 ahead of the broader symmetry swing objective sited at 1.3238 suggest underlying weakness persists 1.2450 becomes pivotal for the medium term perspective
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Upside objective 114.35 achieved, potential for profit taking pullback to test near term support toward 113.40 as this contains corrections bulls target 115.50 next, only below 112.10 would concern the immediate bullish bias.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

EURJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Bullish expansion targets at 129.45 achieved as 129.30 contains corrections bulls target 133.36 as the next upside objective, only below 126.80 concerns near term bullish bias.

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, resetting focus on pivotal 124.40 the weekly breach of this level opens 129.44 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long

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