A global bonds selloff has pushed yields up across the board towards post-Brexit highs while the anti-establishment wave sweeping the western world could force a 'No' vote on the Italian referendum in December.
Article / 26 August 2016 at 8:11 GMT

FX Update: USD risks two-way around Yellen speech today

Head of FX Strategy / Saxo Bank
  • Initial Yellen reaction may mislead if based on short-term implications for rates
  • Fed will inevitably present a longer-term policy stance roadmap
  • Fed's past policy slammed by leading WSJ columnists
 Today is all about the Fed. Photo: iStock

By John J Hardy

Two WSJ columns (The Federal Reserve Needs New Thinking from Kevin Warsh and other from noted Fed commentator Jon Hilsenrath) out yesterday heavily criticise the Fed for its past policy missteps, inability to forecast economic growth or foresee the risks of the credit crisis in the mid 2000’s. The Fed’s arsenal of policy arrows since the crisis is also fair game for criticism.

Hilsenrath’s column in particular connects critical dots in pointing to the Fed’s political vulnerability as the boisterous and divisive 2016 presidential campaign has made it clear that the population at large is beginning to look to the Fed as part of the problem as well and that the social fabric itself is under strain. 

These articles point to the mounting long term credibility problem the Fed has been suffering and after more than two years into Yellen’s tenure, it is well past time for Yellen to address the situation. In particular, as an economist specialising in inequality and labour, Ms. Yellen must be especially distraught by the current status quo.

Neither article discusses what the Fed will or should do. On that front, we likely have key hints from the San Francisco Fed’s Williams and Vice Fed Chair Fischer pieces that we have covered extensively over the last few days. We should be attentive most of all to how Yellen views the Fed’s role for the longer term: if she underlines that the Fed will be reluctant to employ the tools that boosted bond and riusk asset markets in the past unless the coming administration launches a notable fiscal expansion, this could be seen as extremely negative for risk appetite and positive for the USD. 

On the other hand, a very vague true-to-the-usual-form Yellen mentioning point and counterpoint on all of the issues dogging the US and global economy without a firm prescription for what this means for the future of the Fed’s policy stance could have the opposite effect and encourage another wave of USD selling. Our read is that it is time for Yellen to sound a bit more decisive and the market looks ill prepared for this.

USDJPY should be one of the more reactive currencies to Yellen’s speech today, as we watch for the 99.50/101.00 range to fall for the next trigger, even amidst the frustrating wait.
 Source: SaxoTraderGO

The G-10 rundown

USD – everything keying off Yellen’s speech today – one concern is that lack of short-term signals may be seized on for action, when the longer term implications of what she is saying are given short shrift – meaning we may not get the “correct” or decisive move today.

EUR – potentially somewhat lower beta here to the USD movements post Yellen than other USD pairs.

JPY – USDJPY action compressed (and spring-loaded) in the 99.50-101 range – as mentioned yesterday, even if Yellen and the September Bank of Japan don’t push the yen lower, we see less downside potential in USDJPY than upside potential for the longer run (focus on break lower is 94.60/95.00.

GBP – sterling perhaps the most sensitive to the risk appetite fallout (or boost) form Yellen’s speech today. 1.3250 area the key resistance for GBPUSD. Not seeing GDP release as relevant as an input as Q2 ended 7 days after the Brexit vote.

CHF – interesting to see EURCHF poking close to the range highs toward 1.0950 today – a move higher in interest rates likely need to pique interest in CHF trades – especially USDCHF post Yellen’s speech today.

AUD – Traders dithering in tight range – the key downside trigger is 0.7600/0.7575 in AUDUSD on the other side of Yellen today, while the upside bogs down in fresh resistance above 0.7800 if 0.7750 area falls.

CAD – we prefer USDCAD higher, but the pair has gotten thoroughly lost in the range, so awaiting developments below 1.2750 or above 1.3000/50.

NZD – bulls apparently champing at the bit at the top of the range, but if the Yellen speech chastens the yield chasers, this will be the currency most vulnerable to a steep correction.

SEK – EURSEK poking back toward tactical 9.50 area resistance after ugly confidence data.
NOK – EURNOK trigger areas look like 9.20 and 9.30/35 now, with oil prices a key factor.

Upcoming Economic Calendar Highlights (all times GMT)
  • 0830 - UK Q2 GDP 
  • 1230 – US Q2 GDP revision 
  • 1400 – US Federal Reserve Chair Yellen to Speak at Jackson Hole  
  • 1400 – US Aug. Final University of Michigan Confidence  
  • 1450 – UK Bank of England’s Shafik to speak at Jackson Hole 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank

26 August
Armando_c Armando_c
In other words, the FED and Yellen are utterly clueless and know nothing for certain, lawmakers all over the worlds are lost for words it seems...


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail