Yellen's testimony presents the greatest headline risk for the session, focus back on forward guidance

Fundamental View

The main event of today is Janet Yellen’s semi-annual testimony to congress and presents the greatest headline risk for the session. All focus has shifted back on the Fed’s forward guidance language and whether the “patience” rhetoric is going to be removed or elaborated upon. Many analysts are divided on whether the testimony will be as dovish as the minutes from the meeting earlier this year. Analysts at Deutsche Bank have suggested that although the statement is likely to mirror the FOMC minutes from the previous meeting, today’s is likely to have more of a hawkish tone and attempt to reduce the impact of the “patience” language. For now it appears that the majority of equity markets are happy to remain subdued with little reaction of note. Today’s attention on the Greek situation seems to be far lower than it has been in recent days. Yesterday was relatively quiet with the majority of market participants merely waiting for the list of reforms the Greek parliament has to present in order for the loan extension to proceed. Last night saw an initial draft being delivered to the IMF and the ECB with the final draft due at some point this morning. The negation of risk is also evident due to Djisselbloem’s comments that he is confident that the Greek government has worked hard to deliver these reforms over the weekend.

Today’s View

This morning saw the release of Eurozone CPI printing in-line results across all readings. The core reading was unmoved and remains at 0.60%, with the headline remaining at -1.60%. We also have interest rate hike risk from the Turkish central bank, due to release the results of their meeting at 12pm today. This could be the 41st nation to cut rates this year, having a positive effect on the dollar. Whilst the Fed’s rate remains unmoved it can be seen that any alteration in their peers will be seen as a proxy-tightening move in monetary policy as, relative to other currencies and rates, the dollar with remain strong and their rates just as competitive. We also have US Services & Composite PMI due this afternoon at 1445 GMT, in addition to the US Consumer Confidence Index and the Richmond Fed Manufacturing Index at 1500 GMT. These are likely to be overlooked as we have Yellen’s testimony due just afterwards and any moves initiated by these data points are likely to be unsustainable in the current market space.