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All Eyes on Yellen Speech; Inflation Could Jump Start the Dollar

David Becker
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All Eyes on Yellen Speech; Inflation Could Jump Start the Dollar

It did not take long following the dovish FOMC meeting minutes for investors to turn their attention to economic growth. US data on Monday showed that retail sales and business inventories would like drive Q2 growth to 3%, following one of the worst winters on record. With 5 Fed officials speaking on Tuesday, investors will focus on Janet Yellen who will be opining at the financial markets conference.

Yellens speech is not a forum where investors should expect new revelations from the new Fed Chair. Still, without question she is the signal for investors to hone in on. Her message has been relatively consistent and she has most certainly learned that any comments she makes will be scrutinised by the financial markets. Recall during her first press conference she equated extended period to 6-months which immediately caused traders to re-prices interest rate futures contracts.

In addition to Yellens speech, March CPI could jump start the currency markets. With March PPI coming in stronger than expected, investors will be carefully watching the consumer price index. Traders expect a stable core reading 1.6% and headline rate at 1.5%.

Despite Monday’s stronger than expected retail sales data, the dollar only gained slightly versus the Yen. This result is a reflection of trepidation in the currency markets, and will likely persist until equity markets stabilize. The yield differential between the US and Japan remains steady, keeping the currency pair range bound. Support on the USDJPY is seen near a horizontal trend line at 101.27. Resistance is seen near the 10-day moving average near 102.50.

Momentum on the currency pair is negative as the MACD (moving average convergence divergence) index prints in negative territory with a downward sloping trajectory. The RSI is printing near 43, which is on the lower end of the neutral range.

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