Will investors lose bearings because of Flynn?

15 February, 2017

The US Dollar

The Dollar retreats ahead of Yellen speech, as investors will want comments about the potential policy tightening in March. There are no major reasons to rush the rate hike, as economic information lacks indications of consistently strong underlying momentum. The growth of wages was weaker than expected, while core PCE is still below the FED target (printed 1.7% in January). Moreover, Yellen may surprise investors by expanding the FED’s toolkit, like targeting the yield curve of long maturity bonds by clearing their balance sheet or make good on the shortage by issuing new bonds. In this case, Dollar is risking to lose its main growth catalyst, as rate hikes timeframe may be greatly distorted.

The resignation of beleaguered Michael Flynn, Trump’s advisor in national security, could also bring some discomfort to the investors as they could lose their bearings in predicting some political decisions of the US government.

The European currency 

Euro saw choppy action while maintaining a bullish bias despite the slowdown in the German GDP growth. Euro post minor gains against the Dollar and British Pound, EUR/USD support remains firm at 1.06 while further upturn is highly likely due to a selloff ahead of the Yellen speech. The Japanese Yen and Swiss Franc both advanced against the US Dollar on the rising demand for safe heavens.

The Russian Rouble

Russian rouble renews peaks, as the differential between inflation and CBR interest rate boosts the appeal of the currency, making it into the target for carrying trading. The Central bank may face sharp appreciation of the currency, while verbal interventions may be also a case to reverse rapid gains.

The Chinese Yuan

The Chinese inflation topped estimates due to the rise in steel prices and other commodities and global pickup of the manufacturing activity. Consumer inflation also rose due to the celebration of the Chinese New Year. The response to the Chinese equities was muted, as concerns hover over the economic growth underpinned with massive credit support. ShComp closed little above Tuesday opening.

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