Article / 30 May 2016 at 7:00 GMT

Morning Markets: Dollar flexes on Yellen the 'hawk'

Managing editor, TradingFloor.com / Saxo Bank
Denmark


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Watchlist

  • German Finance Minister speaks                                   (0900 GMT)
  • Euro area May Business and Consumer Survey            (0900 GMT)
  • Germany May Flash Consumer Price Index                   (1200 GMT).


The dollar was looking stronger across the board ahead of the European open having hitched a ride on the US Federal Reserve's increasingly bullish stance on an interest rate-hike move this summer. 

Janet Yellen threw off her usual cloak of caution to don something altogether far more flashy and talk of a move "in the coming months", reinforcing the message from a raft of Fed officials that the agenda is being set.

A move in June is priced at 34%, according to CME Group. July is now reckoned a 60% chance, nearly double from the end of April.

USDJPY was testing towards the 111.50 area in the hour before Europe opens helping to propel the Nikkei up nearly 1.5% where markets were also cheered by the news that prime minister Shnizo Abe is ready to postpone a sales tax hike until late 2018. EURUSD was close to 2.5-month lows at just above 1.1100.

Gold, meanwhile, is teetering on the edge of $1,200/oz and AUDUSD, GBPUSD and USDCNH are all on the backfoot with the latter pushing towards 6.59.

A raft of European data this morning may move the needle on this, but ongoing Fed talk and data from the US will likely be the major determinant of direction. There's a holiday in the US today (as well as the UK), but attention is already turning to this Friday's nonfarm payrolls report for May. 

If it is a market mover, expect the speculation over June/July to reach fever pitch.

Market signals

Asian session

  • Janet Yellen's remarks that a hike may be appropriate in coming months lifted the USD
  • The fall of the yen against the US dollar gave investor sentiment a boost in Tokyo
  • The Nikkei 225 was up by a robust 114% to 17,027.53 at 0505 GMT
  • Oil is up 7.4% this month on lower US output, Canada and Nigeria disruptions: Bloomberg
  • Doomsayers are starting to exit crude oil markets, says Bloomberg
  • China's benchmark Shanghai Composite rebounded from a slide at the open
  • The Shanghai Composite was up 0.18% to 2,826.19 at 0330 GMT
  • Hong Kong's Hang Seng Index was up 0.23% to 20,625.03 at 0513 GMT 
  • India's S&P BSE Sensex was up 0.03% to 26,662.18 at 0523 GMT
  • Miners dragged Australia's S&P/ASX200 into negative territory in early trading
  • The S&P/ASX200 edged higher in later trading; it was up 0.07% to 5,409.70 at 0523 GMT
  • US markets are closed for a public holiday today, while the UK is enjoying a bank holiday

Forex ahead

  • The US dollar surged on Janet Yellen's hike talk; it was worth ¥111.1250 at 0517 GMT
  • Dollar expected to stay on front foot through Europe session
  • USDJPY entering 112-115.00 zone if Fed rate expectations stay higher
  • EURUSD could test 1.10 this week
  • The Aussie dollar lost ground against the greenback; it was worth 0.7160 at 0513 GMT

From the Floor

Carry on. “We have a continuation of risk on after the strong last week”, says van-Petersen

Up and up. “S&P 500 could be taken to new highs these week”, says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1...2...3
Germany's finance minister Wolfgang Schaeuble will be speaking in Berlin on sustainable public finances, and his influence means his speech will attract attention. says Juhani Huopainen

A week of Fed chatter
Kay Van-Petersen says it will be interesting to see if the six Fed officials who speak this week support comments made by FOMC chair Janet Yellen last Friday.

Golden rule for trading
Max McKegg says that effective risk management is the rule he lives by in professional trading, including his trades in the precious yellow metal.

Data may lift S&P/ASX200
It's been a disappointing start to the week for the S&P/ASX200, but data due out later this week could give the benchmark index a boost, says the team at Saxo Capital Markets Australia

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Better together ... US markets are closed for Memorial Day, originally brought in to remember all who fell in the fight that almost left a great nation permanently divided. Photo: iStock

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