FX Update: Yellen outweighs Junior for USD direction —#SaxoStrats

The combination of massive EURGBP buying after a dovish broadside from the Bank of England’s Broadbent and smoking gun allegations that Donald Trump Jr. and the Russians were in cahoots to take down Hillary Clinton saw EURUSD pulling above the technically key 1.1450 area, triggering weak stops and fresh momentum buying a day ahead of Fed chief Yellen’s testimony. ´

I generally try to steer clear of politics, but, objectively, the Trump Jr. revelations don’t look as incriminating as US mainstream media is making them out to be, and indirectly would almost appear to exonerate the president. The released emails are from June of last year, just a few months before the election. If Trump’s team was already colluding, why would they agree to a meeting, which didn’t result in any Clinton dirt being delivered in the first place – the dirt was hung out as a carrot for setting up the meeting. As for hoping to get dirt on an opponent, any politician worth his or her salt will accept dirt from anywhere it can be obtained – the key is get the information/story and make it available to forward your political cause – who cares where it comes from? Today’s Yellen testimony should weigh far more than that story.

It's too early to know how much to put into this, but it seems we may have a front-runner to replace Yellen in the form of Trump’s national economic council director Gary Cohn. It is worth reading Wikipedia’s colourful accounts of Cohn’s personality as well. It would certainly be refreshing to have a non-academic at the helm of the Fed, one that is willing to speak a bit more openly and off the cuff after 12 years of mind-numbing, cautious rhetoric from Bernanke and Yellen.

Otherwise, it’s a big day for Canada and CAD as the Bank of Canada is set to become the first G-10 bank after the Fed to hike rates in recent years. The key here is the guidance from BoC governor Stephen Poloz and company more than the fact of the hike itself, which is thoroughly priced in.

EURGBP jumped through the 0.8850-plus resistance area yesterday after the Bank of England’s Ben Broadbent saying he is not ready to hike rates. This could set up a challenge of the 0.9140 high (not including the flash-crash spike for analysis) from the post-Brexit months.

USD – the quality of the latest downdraft in the greenback’s fortunes faces a critical test today with Yellen’s testimony. We’re still a bit surprised at the market’s complacency on Fed hawkishness.

EUR – the double whammy of key resistance falling in both EURGBP and EURUSD helped the euro higher, but let’s see how the latter survives Yellen's testimony today.

JPY – the JPY rebounded sharply as we got a sudden bounce in the bond markets yesterday. Yield direction remains key for the JPY, and there's plenty of room for consolidation without turning the weak JPY trend after the brutal move lower in recent weeks.

GBP – the BoE’s Broadbent fretted about Brexit and said he isn’t ready to raise rates, which sees the pound sharply lower – more data from the UK today can add to the weakness or confuse the situation.

CHF – the weak Swiss franc is likely a theme worth building on if bond yields stay elevated. It could pick up pace if we ever finally see a drop in the Swiss National Bank’s weekly sight deposit data to signal that capital is finally flowing out of Switzerland.

AUD – The Aussie rose on strong confidence and card spending data overnight, challenging the modest bearish reversal in AUDUSD that never got traction recently. A key test for whether there is a pulse in AUDUSD comes today with the Yellen testimony – we watch 0.7700+ or for a sharp reversal.

CAD – Our underlying suspicion is that the CAD strength is a bit over-extended going into today’s Bank of Canada rate hike, which will bring the rate to 0.75%, with the risk of a sell-the-fact reaction if the statement and Poloz’s press conference don’t provide sufficiently hawkish guidance.

NZD – AUDNZD is up through the interesting 1.0550 area, helping the case for a bottom in place in the pair, though there is some more heavy lifting to do to generate upside interest – likely a fundamental catalyst needed outside of valuation. The 200-day SMA in AUDNZD near the highs overnight as well.

SEK – 9.65-70 is the resistance/pivot zone for EURSEK, with preference for a test lower and the next key data point Sweden’s CPI release tomorrow.

NOK – the weekly US oil supply data triggered a jump in oil and keeps the EURNOK focus lower, after a bit of disappointment that the recent modest bearish reversal hasn’t seen a pickup in moment to the downside. Still looking for 9.35-30 test.

— Edited by John Acher