Article / 11 February 2014 at 8:11 GMT

Yellen testimony — any surprise scenario for the USD?

Head of FX Strategy / Saxo Bank

• Yellen's initial statement at 13:30 GMT, Q&A starts at 15:00 GMT
• Further reassurances that rate move is far in the future are likely
• USD may gain against other majors on Yellen testimony

By John J Hardy

Norway’s stronger than expected CPI data yesterday boosted NOK dramatically as the currency finally has put the brakes to the decline versus both the Euro and the Swedish krona. Norway’s 2-year rates are now up at the top end of the range of the last three months and have pushed 10 basis points higher from recent lows. Contrast that with the drop in rates elsewhere and you have the stuff for a further NOK rally against the USD, EUR, GBP and other major currencies, provided risk appetite keeps an even keel here.

AUD squeeze: Strong Australian house price and confidence data overnight have put further pressure on the rather crowded Aussie shorts, and AUDUSD has sprung above 0.9000 here — a technical break worth noting that could lead to further gains if Fed chair Janet Yellen’s testimony today doesn’t support the greenback.


A local break here today of the 0.9000 level after the Friday attempt on that level failed suggests pressure to trade higher, though of course we’ll need to see if Yellen’s testimony supports the rally. If so, we could see a further squeeze back toward the 200-day moving average swooping down through 0.9250 currently. I still believe AUDUSD is in a bear market, but the risk at the moment is for a further positioning-driven squeeze until proven otherwise.


Source: Saxo Bank



One of my favourite AUD charts at the moment is EURAUD, as the recent reversal of the last wave of the long EURAUD rally looked decisive and suggests the pair is headed for a C-wave style further correction. The 1.5000 level is obviously a huge focus here and a break could lead to a test of the 200-day moving average down towards 1.4500.

Source: Saxo Bank

Ice age in EURUSD volatility…

Yesterday was a boring Monday in a long string of boring Mondays for EURUSD, which traded in a microscopic 36-pip range and has now gone 22 consecutive Mondays without trading in a range of more than 100 pips — a record in the trading history of the Euro since 1999. The previous record was 17 Mondays in a row back in the spring and early summer of 2007. It is worth noting that EURUSD 1-volatility at the time had fallen all the way to 5.7 percent in May before ticking higher into the autumn as the sub-prime debacle began destabilising markets in the summer. EURUSD 1-year volatility is currently 7.3 percent, which is still remarkably low in the pair’s history and a low, you guessed it, since 2007.

Looking ahead

It’s Yellen testimony day today, with her initial statement released at 1330 GMT followed by Q&A starting at 1500 GMT before a House committee. One would expect the general line from the Fed is one of “we remain on course for tapering slowly, but are willing to adjust the taper either way depending on incoming data.” After the emerging markets blowup and market jitters that kicked off the year, we are likely to see further assurances that the interest rate moves lie far in the future. On this first appearance of the new Fed chair and in the months to come, I will be interested in the degree to which Fed policy becomes further politicised, particularly on the Republican side of the aisle. Don’t forget, we have the debt ceiling issue zooming into view once again.

As for market reactions, I’m wondering if we get a reversal of fortune in recent market themes — with perhaps USD strength versus the other majors like EUR, CHF, GBP and perhaps mixed versus the JPY while it is less strong or even weak against the commodity currencies and the Scandies. That’s how the current market positioning could be most thoroughly challenged, in any case. As for emerging market currencies, they can do their own thing and I generally suspect they could suffer another squeeze in the likely event that Yellen generally sends the “maintain course” message.

Economic Data Highlights

  • UK Jan. BRC Sales Like-for-Like out at +3.9 percent YoY vs. +0.8 percent expected and +0.4 percent in Dec.
  • Australia Dec. Home Loans  -1.9 percent MoM vs. +0.7 percent expected
  • Australia Jan. NAB Business Confidence/Conditions out at 8/4 respectively and vs. 6/3 in Dec.
  • Australia Q4 House Price Index rose +3.4 percent QoQ and +9.3 percent YoY vs. +3.0 percent/+8.6 percent expected, respectively and vs. +8.0 percent YoY in Q3

Upcoming Economic Calendar Highlights (all times GMT)

  • US Jan. NFIB Small Business Optimism (12:30)
  • US Fed Chairman Yellen’s Testimony Published (13:30)
  • US Fed’s Plosser to Speak (140:0)
  • US Fed Chairman Yellen Testifies before House (15:00)
  • Euro Zone ECB’s Weidmann to Speak (15:00)
  • New Zealand Jan. Card Spending (21:45)
  • Australia Feb. Westpac Consumer Confidence (23:30)
  • Australia Dec. Credit Card Purchases (00:30)
  • US Fed’s Lacker to Speak (01:00)
  • US Fed’s Fisher to Speak (01:10)




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