Dollar Slumps on Yellen Testimony

Daily Analysis - 25/02/2015

The U.S. Dollar Faced Steep Losses After Fed Chairwoman Yellen Hinted at Extended Rate Timeline

The U.S. dollar plummeted from near multi-year highs as Janet Yellen suggested no rate hikes would be forthcoming in upcoming FOMC meetings. Testimony also sent Treasuries lower as bonds were bid on expectations of lower interest rates for longer.

Treasuries Soar on Yellen

During Federal Reserve Chairwoman Janet Yellen’s testimony before the Senate Banking Committee yesterday, the dollar broadly sold off against major peers while U.S. Treasuries saw demand substantially increase, pushing the 10-Year Note yield back below 2.00%. Highlighted during her remarks was the Federal Reserve’s intent to keep rates low for an extended period of time with no imminent plans to hike interest rates in the next few FOMC meetings. She defended the Fed’s caution with rates, maintaining that any increase would remain dependent on improving economic data. Although wage growth was regarded as sluggish, Yellen highlighted that the drop in inflation as likely only transitory and would not broadly affect the Federal Reserve’s 2% long-term target.


China Manufacturing Wavers

As Chinese markets returned to normal operation after the Lunar New Year Celebrations, traders were met with conflicting indicators as the HSBC Flash Manufacturing PMI managed to rise to expansionary territory while equity benchmarks were unable to rise from losses experienced before the holiday. Despite the positive PMI, the manufacturing outlook is dimming as job cuts are expected in the pipeline and new orders for exports contract in-line with the drop in import and export figures witnessed earlier in the month. Analysts are forecasting further monetary easing measures from the People’s Bank of China just as the Yuan hits 30-month lows against the dollar. Gold prices strengthened during the reopening, climbing back above $1200 per troy ounce on broad weakness in the dollar and renewed physical buying.


API Crude Stocks Soar Past Expectations

The latest U.S. crude oil data marks another week of blockbuster inventory numbers as oil stockpiles continue to break higher to new records. The latest inventories climbed a remarkable 8.900 million barrels, causing WTI crude oil prices to decline towards important support sitting firmly at $48 per barrel. Today’s Department of Energy crude oil inventories release is expected to beat expectations once more as U.S. producers are forecast to continue expanding output to new records. Any beat of estimates could put more downward pressure on crude oil prices and foment the next leg of the downtrend in energy prices. Oversupply remains a fundamental problem facing the market as producers seek a rebound in prices to maintain revenues and repay outstanding debts.


EURUSD Horizontal Range Technical Setup

After weeks of trading within a narrow horizontal band, EURUSD continues to trend sideways between support and resistance as markets assess the fundamental outlook. EURUSD touched the bottom of the range after Yellen’s comments which sent the dollar cascading lower against peers. The timeline for more hawkish monetary policy measures has been pushed back further as the Federal Reserve looks unwilling to reconsider its present stance unless the data supports higher rates sooner. The Euro has also recovered modestly from multi-year lows as the latest Greek compromise comes to fruition. No new information will see the pair hold tight in the formation, trending between resistance at 1.1450 and support at 1.1280 with long positions suggested at the bottom of the range and short positions at the top. Any move outside these levels will likely see a volatile breakout to the order of 120-140 pips.


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