The Clash of the Titans

The Fed rate hike debate rages on with the market now nearing on a 50% probability of a hike in March after the Dallas Fed’s Robert Kaplan repeated his view that the Fed should move “sooner rather than later”. Recent Fed speakers and US data are nudging up March probability, leading up to 2 Key speeches by Yellen and Fischer on Friday. Also, President Trump was making overtones about future economic promises and all of which has seen the dollar turn stealthily bid and echoing US Bond yields for all the usual reasons.

Australian dollar

The AUD continues to find dip demand as commodities outperform and on the back of better domestic economic data. Again the recent rally was capped just above .7700 as several key crosses stalled out at critical levels. However, the Aussie is trading very constructively in the wake of the more hawkish commentary we’ve been hearing from the RBA Governor. Markets are standing firm ahead of this week’s Q4 GDP release on Wednesday, which could provide the catalyst for AUD to surge above the current resistance levels.

Euro

The Euro is an adrift in mid-range back mid-range, but volatility has been rather subdued. While political noise out of Europe will be the key driver, after getting through the weekend without any unsavoury headlines, a sense of calm has engulfed the EU zone But don’t get too complacent, as we are likely one headline away from another test of 1.0500. I sense that the short euro trade will require a good deal of fortitude to stay with given the growing near-term uncertainty of the USD.

Yen

US yields were the primary driver overnight as political risk in EU has tempered for now, but the currency markets are not about to get easier anytime soon. Outside of a Bond induced bound in the Greenback, investors are otherwise sitting fairly still, and the markets traded sideways.

While the dollar has caught a sneaky bid ahead of Trump’s Congressional Address, let’s not forget the plethora of Fed speakers on the ticket this week, concluding with Janet Yellen on Friday. If anything we have seen the Feds lean more hawkish since last week’s FOMC statement, so eyes will be focused on Fed headlines.

The market is playing this week up as a Clash of the Titans (Yellen vs Trump), but the dollar bears should take caution if Trump follows through on Infrastructure and Yellen ratchets up the Rate hike rhetoric to end the week, as USDJPY will surge. I guess the big question for the market is, will Trump use tonight’s platform to execute?