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Whether traders were glued to their TVs taking in the developments of the Olympics in Sochi, or investors were wary of taking large positions heading into Janet Yellen’s testimony to Congress on monetary policy, it was a relatively dull day in financial markets, with little market-moving events of note.   The S&P edged up by a little more than a tenth of a percentage point, while currencies remained essentially range-bound throughout the North American session, with the EUR, GBP, and CAD all pinned within approximately 30-40pt ranges.

While it is still a little ways off, prepare for financial media outlets to begin to ratchet up the propaganda surrounding the next debt ceiling debate in the US.   Like most things in Washington, the final deal to amend and raise the debt ceiling will happen last minute, with time already becoming of the essence.   Treasury Secretary Lew has said his ability to maneuver and pay pre-existing liabilities by using extraordinary measures will be exhausted by February 27th, however Congress recesses this Wednesday and doesn’t come back for a full session until the 26th.   With most deadlocks and political debates coming down to the wire, should the debt ceiling issue be hanging out in the air after Congress recesses on Wednesday, expect a slightly cautious mindset for financial markets as the end of February inches closer.

Despite Japanese markets closed today for National Foundation Day, the rest of Asia-Pacific charged ahead on positive investor sentiment overnight, with the Shanghai and Hang Seng positing gains of 0.84% and 1.78% respectively.   The Aussie has been the big mover overnight, jumping past 0.9000 against the USD after a round of economic data sparked a buying spree to send the Antipodean currency above the strong psychological level.   Data from the housing industry showed that prices rose 9.3% over Q4 2013, while business confidence increased in January, giving traders impetuous to increase exposure to the AUD as the data from the region gets less negative.   The next event risks for the AUD will be the release of Chinese trade data and the domestic employment situation, so with these two large event risks looming, corporates that are long Aussie might want to think about peeling off some of their near-term exposure after today’s jump.

The European session has been relatively quiet from a news flow perspective; however, the optimism seen in Asia has transpired within the major European bourses as well, with the FTSE, Dax, and Stoxx up by 0.80%, 1.41%, and 0.87% respectively.

Looking ahead to the remainder of the session, there are a few notable economic releases still to come.   First off, Janet Yellen is due to testify to Congress on the Fed’s prescribed course of monetary policy at  10:00am EST, and the ramifications this will have on the growth trajectory of the US economy.   As we discussed yesterday, there is little evidence to surmise that Yellen’s testimony, and answers to the questions that Congress could pose, will vary in a material manner from her predecessor; most likely echoing a roadmap that outlines a plan of continuity.   A clear message from Yellen that the size and pace of the QE taper is likely to remain unchanged unless there is a massive external shock to the US economy will likely help the USD garner a slight bid tone, as traders position for the continued slowdown of monetary stimulus.

In addition to Yellen taking the floor in Washington, the number of job openings for the American economy during the month of December is set to be released later this morning.   As a leading indicator of the overall employment picture in the US, a larger amount of job openings is seen as a positive sign for the economy as it signals businesses are looking to expand their existing teams in order to deal with increased demand, with the median analyst estimate forecasting an availability north of 4M job openings for the month of December.   A softer than expected release and a slide below last month’s 4M mark would likely see the buck cede some ground, having investors pare exposure to the big dollar on continued weakness in the labour market heading into the end of 2013.

As we get set for the beginning of the North American session, the main theme of the overnight session has been USD weakness, although this has abated somewhat with the release of Yellen’s prepared remarks to Capitol Hill.   There had been a reluctance to be long USD heading into the beginning of Yellen’s testimony, however, with the market seemingly protected against the possibility of a slightly dovish steer from Yellen today, and then the prepared remarks signalling there would not be any material deviation from previous policy guidance, a bout of short covering has helped the DXY recover its earlier losses.   The DXY had been down around 0.20% ahead of the testimony release, but is now essentially flat as traders reposition based on the prepared remarks from Yellen.   The Loonie is essentially unchanged compared to yesterday, unable to hold its earlier gains as the bid tone for the American buck drives USDCAD back into the mid-1.10s.   With the question and answer period for Yellen’s testimony likely to garner further volatility, be sure to speak to your dealing teams about strategy to harness this volatility, utilizing limit orders and trailing stops to proactively enter the market.

Further reading:

3 more factors that impact exchange rates

EUR/USD Feb. 11 – Steady As Markets Eye Yellen Testimony