Yellen revives hopes for a March rate hike

15 February, 2017

The US dollar rallied to a fresh 1-month high yesterday, spurred by hawkish comments from Fed Chair, Janet Yellen who reiterated the Fed's rate hike plans. By potentially keeping the options open, Ms. Yellen rekindled hopes for a March rate hike sending the greenback and US equities higher on the day. On the economic front, data was supportive of the rally as the U.S producer prices index rose 0.6% and 0.4% on the headline and the core respectively, beating the median estimates and pushing the headline PPI 1.7% on an annual basis.

In the UK the rise in inflation was not as high as forecast briefly sending the British pound weaker while in the Eurozone, German inflation edged closer to the ECB's 2% inflation target rate. But this did little to shore up the single currency which closed the day 0.19% weaker against the US dollar.

Looking ahead, the UK's monthly jobs report due later today is expected to show wages rising at a steady pace of 2.8% while the UK's unemployment rate is expected to remain unchanged at 4.8%. The US monthly inflation report is also due and expected to show headline prices rise 0.3% on a month over basis, while core CPI is expected to rise 0.2%. Retail sales figures will also be released simultaneously. The Fed Chair will resume her second day of testimony to the US Congress today.

EURUSD intra-day analysis

EURUSD (1.0578): EURUSD posted a fresh 1-month low yesterday breaking down below the round number support of 1.0600. The declines came as the Fed Chair Janet Yellen signaled the Fed's intent to pursue policy tightening. Following the break down below 1.0600 support, EURUSD is likely to drift towards 1.0555 where the next support is seen, albeit some pull back ahead of this decline will see prices retesting 1.0600 support to establish resistance. The single currency failed to post any gains despite data from Germany showing that Europe's largest economy was powering ahead at full steam after registering at 1.9% annual GDP growth rate in 2016.

GBPUSD intra-day analysis

GBPUSD (1.2463): GBPUSD formed a bearish engulfing pattern yesterday as data from the Office for National Statistics showed that consumer increased less than expected at a pace of 1.8%. Economists expected to see CPI rise 1.9% instead. The British pound came under pressure with a stronger US dollar, closing the day at $1.2468. Price action continues to trade rather flat with $1.2400 support remaining in sight. The monthly jobs report from the UK will be the main event risk for today with traders likely to focus on the wage growth which is expected to show a headline print of 2.8%.

USDJPY intra-day analysis

USDJPY (114.38): USDJPY is pushing ahead after what looks to be a break above 114.00 resistance level yesterday. Further upside will see the dollar targeting the unfilled gap from 27 January at 115.10. However, the daily Stochastics is showing a hidden bearish divergence, and this makes it essential for USDJPY to post a daily close above 114.00 to ascertain further gains. Failure to do so could signal near term weakness in USDJPY which could push prices back towards 113.00 - 112.50 support level which is pending a retest.

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