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In the Zone
- The Fed still seem to be split on inflation, there are a lot of bears on that committee and I wonder if President Trump will ruffle the feathers a little bit by introducing more bulls.
In light of the recent central bank shenanigans, I thought that Fed Chair Yellen was pretty solid in her testimony in front of the House Financial Services Committee. The market however chose to ignore most of the testimony and instead fixated on one simple headline, “the Fed does not have to hike much more to reach neutral.” They ignored the fact that she went to comment that there will be gradual hikes over the next 12-18 months and also chose to ignore that we are likely to see some QE unwound this year. I am not sure what the market is expecting, she does testify again today in front of the Senate Banking committee, I don’t feel that there will be anything different out of this testimony.
This testimony was shadowed by the BOC interest rate decision yesterday though, the outcome here was that Canada rose interest rates for the first time in 10 years. The move in the CAD over the last 5 weeks has been rather dramatic and it led me to wonder if we may see a “buy the rumour, sell the fact,” trade – instead the CAD strengthened even further. It finished the day at the lowest level since June 2016. The pair bounce at 1.2679 and started trading at 1.2750, this would have expected and one would think that sellers will start building offers at these levels. The sellers will be concerned if the pair trades higher than 1.2820, as then we enter muddy waters.
The EURUSD bucked the trend yesterday by weakening against the dollar after the testimony, it respected a long standing trend line and the sellers immediately starting building offers up there. What that tells me is that the buyers failed. Technically, a there are a couple of levels that will be watched today – sellers will want price below 1.1392 to get excited whilst if the price trades higher than 1.1435, the buyers will start getting interested again.
We cover the rest of the pairs in the morning video
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