Waiting for Yellen

You could tell that markets were playing a waiting game on Thursday. The dollar gave back some gains, but only partially against the Aussie and the euro. Otherwise, even the better data on housing and sentiment from the US was not sufficient to given the Greenback a further lift. The focus remains with the US and dollar today with the much awaited speech from Fed Chair Yellen at the Jackson Hole Symposium. With the focus on labour markets, some are thinking she may take a less hawkish line that was evident in the FOMC minutes yesterday, as this is more her area of expertise and it is the labour market that has kept US policy so accommodative for such a sustained length of time. This could lead to a reversal of the dollar strength seen through this week, but as we’ve been mentioning, there has been a change in underlying dynamics on the dollar as yields have fallen elsewhere and especially in the Eurozone. Speech comes at 14:00 GMT.

The only other distraction today is inflation and retail sales data in Canada. The past two months have seen inflation come in stronger than expected, which helped the outperformance of the CAD down to the 1.0621 on USDCAD. It’s pretty instructive that we have not seen a break above the 1.10 level and 1.0986 remains first resistance point for today should we see the numbers fall onto the weaker side. Beyond this, note that ECB President Draghi speaks this evening at the same event in the US at Yellen, Finally, note that sterling is finishing its seventh consecutive week of declines vs. the US dollar, a run not seen since August 2008. Back then, it was an 11% decline, this time it just over 3%. We are in lower volatility times, but the move does mean that sterling is more prone to short covering should we see a weaker dollar tone emerge into the end of the week.

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