Yellen pushes prospect of December hike

27 September, 2017

Yellen has cast aside the dovish tone in the Trump era as of late, as she looks to turn up the heat on markets which have been downplaying the possibility of a December rate hike. Last week we saw a measured plan to reduce the current holdings of the FED to return to more normalised monetary policy. And now we are seeing Yellen come out to say that inflation is likely to touch the 2% target which presents a very hawkish statement, even though they expect it to fluctuate in the coming years to perhaps just under. More importantly though was the comment "FOMC should be weary of moving too gradually". This to the markets was further hawkish signs and bets have now increased that we will indeed see a hike in December which will help propel the USD higher - or so the general market sentiment has been thus far.

Looking across at metal markets and they were deeply affected by the hawkish FED talk today with both gold and silver dropping sharply. The rhetoric from North Korea these days is also falling on deaf ears for the market, as it seems that the Trump administration does not want a war with North Korea at all. Gold had recently saw some strong bullish movements yesterday, but today it fell quite rapidly after testing resistance at 1313. The engulfing candle which followed saw the market dive downwards and certainly set the tone for the bears to take control from here on out, as it pushed through support at 1295. Now with the market looking bearish it will be interesting to see if the candle today can hold under 1295 and look to test the next level of support at 1281.

Yesterday I touched on the weakness of the NZD and we saw large falls as the USD strengthened and markets looked to take apart the high flying kiwi after weaker than expected data. Now with the upcoming Reserve Bank of New Zealand (RBNZ) rate decision it's likely we will see the RBNZ take the helm and look to talk down the dollar. Interest rates are likely to remain flat at 1.75% and remain so for some time until 2018 given the recent data. Unless of course we see a sharp jump in inflation, even though it's been lacklustre of late.

So for the bears looking south on the NZDUSD there is certainly a clear test up ahead and that comes in the form of the 200 day moving average which saw a sharp rejection last time it touched. Expect it to act as dynamic support around 0.7157 and this could be a sharp profit taking area as a result. If it can break through this level and swing lower then I would expect further extensions down to support at 0.7054 with the proposition to go even further in the long run if the RBNZ comes out swinging tomorrow.

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