Yellen sets the tone in FX markets

Janet Yellen set the ticker boards alight this morning with some dovish tape hitting the wires.

We had already seen some subdued trading in the greenback and this only accelerated. The US dollar index has slipped below 81 after having held on to that level for the past week. The majors have all regained ground against the greenback, with the risk currencies being the main beneficiaries of Yellen’s dovish comments. Yellen’s introductory remarks highlighted that the Fed still has plenty of work to do on the economy, with unemployment still too high and inflation below the Fed’s 2% target.

This set the scene for a fairly dovish testimony by Janet Yellen at the senate hearing tomorrow.  While expectations of December tapering were slightly rising, the market still largely felt the current state of data wouldn’t allow the Fed to taper until next year. Forward guidance is probably going to be key for the US dollar and the rest of the market.

UK recovery on track

Taking a closer look at the risk currency space, GBP/USD has continued its run on the back of better-than-expected jobs numbers (particularly the claimant count change) and a fairly hawkish Mark Carney. Cable rallied from around 1.588 and has posted a high of 1.607 in Asia. The pair was testing neckline support yesterday and managed to rally off that support, a break of which would have been detrimental for cable in the short term. Near-term resistance is at 1.61 which is near the highs from earlier this month. Later today we have UK retail sales due out at 20.30 AEDT, with a flat reading expected. Any surprises to the upside on this reading could prompt the pound higher.

AUD focusing on China

AUD/USD has finally come back to life after having tested support in the A$0.93 region yesterday. The AUD rallied along with other risk currencies when the Yellen comments emerged. The pair is now within reach of A$0.94 and back in the middle of a consolidation range between A$0.93-0.95. A key catalyst today could be more detail from China’s third plenum after initial comments were very light on detail. China is always key to how the AUD performs and if we get some positive commentary, this could help the AUD maintain its near term gains.

Cable bounces off neckline support

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