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USD: After Fed Yellen’s Testimony: Staying Bearish And Looking

Yellen pushed the greenback higher and so did the data. Initially. The strength did not last too long. What’s next?

Here is their view, courtesy of eFXnews:

Today’s siren song in currency markets is of upcoming Fed hikes, with many investors being lured into bullish dollar positions.

Admittedly, the dollar has bounced on yesterday’s hawkish comments from Fed Chair Yellen and today’s strong data, but  short term bounces do not always translate into long-term trends. Indeed, Ms Yellen’s upbeat speech on 18 January saw a similar rally in the dollar only for it to falter some days later

……At the same time, this also implies that other central banks pursuing non-conventional monetary policy, such as the ECB and BOJ, have very negative implied policy rates. But if they were to exit their policies then they should see an equivalent tightening and hence currency appreciation. This will likely be the bigger story for 2017 – US economic strength will help boost global growth and tilt the risks for the ECB and BOJ to exit their ultra-easy policies. Already the BOJ has seemingly ratcheted up its 0% 10yr target to 0.1% and inflation is picking up sharply in the euro area, which should increase the likelihood of the ECB tapering after the French elections.

We therefore favor maintaining a bearish dollar stance and would look to sell any rallies in the currency.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.