Dollar Strengthens vs. Euro After Yellen Speech
Today’s Spotlight Market
Fed watchers and traders are seeing an increase in the probability of a Fed rate hike at the June 2015 Fed meeting.? Fed funds futures are currently pricing a 46% chance of a rate hike at the June Federal Open Market Committee (?FOMC?) meeting, vs. a 26% chance at the April 2015 meeting. The Fed target rate has a 37.6% probability of being at 0.25% and a 31.48% chance of a 0.50% target rate by the end of June 2015 according the current Fed Funds futures prices.
Fundamentals
The U.S. Dollar is back in the bullish spotlight, as traders are beginning to factor in higher U.S. short-term rates and a less ?dovish? Fed. The ?greenback? reached 1-year highs vs. the Euro and 7-month highs against the Yen following comments from Federal Reserve Chairwoman Janet Yellen on the U.S. labor market. Speaking at the annual central banking symposium held in Jackson Hole, Wyoming, Chairwoman Yellen acknowledged improvement in the U.S. economy, but noted there was still a lag in the labor market.
Although Yellen acknowledged that the Fed will likely continue to remain accommodative in its monetary policies — signs that increasing consumer prices as well as labor wages could force the Fed to begin raising short-term interest rates sooner than current market expectations.
Traders saw Chairwoman Yellen?s comments in line with the recently released FOMC minutes in which several members were becoming comfortable with raising rates in the near future. While the U.S. appears to be nearing an end to extreme accommodative monetary policies, both the European Central Bank and the Bank of Japan continue to face economic headwinds that may keep these central banks in an accommodative stance for the foreseeable future.? ?
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for the Euro FX futures, we note that the uptrend line drawn from the July 2012 lows has been broken, and what appears to be the start of a bearish trend for the Euro is emerging. Prices are now well below both the 20- and 200-day moving averages, and the 14-day RSI has turned weak, with a current reading of 26.61. While the RSI is in oversold territory and a near-term short-covering rally would not be unthinkable, it should be noted that currencies tend to experience long-term trends and that a look at the longer-term chart shows the potential for a significant downside move before any major chart support is found. Near-term support is found at 1.3105, with major support not seen until 1.2775. Near-term resistance is seen at 1.3447, with major resistance seen at 1.3705.
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