So once again, we have Yellen testimony in front of the House Financial Service committee and some interesting comments from her by the way. Her hawkish comments that despite low inflation, the evolution of the US economy warrants gradual tightening to maintain maximum employment and stable prices is fuelling the USD bulls. While this gradual tightening will likely take a brief pause in September 20th as Future Fund rate trackers place the probability of a rate hike at 13%, solid fundamentals with GDP revisions to the upside will fuel USD strength. Despite this expectations, we are seeing a situation where Yellen is upbeat but other members of the FOMC are taking a step back and reassessing the situation of the economy with particular concern on headline inflation as wage growth especially stagnating or not growing quickly to create price pressures. As data shows, inflation is suppressed as PCE is low at 1.4% YoY below the Fed’s 2.0% target. It is clear that members are taking divergent views with overly hawkish members-who are in line with the GOP view and others like Kashkari who thinks the economic data is weak to warrant a rate hike leave alone the planned budget recalibration. Indeed these kind of opinions were expected but while it happens, it looks like the Yen on slaughter is underway. The GBP in particular is bearing the brunt of it all as Gold on the other hand gets off from the current lows. We can also see that the Euro is retracing from yesterday’s highs after that political motivated run coupled with strong industrial output reported from Germany. This to me means the Euro is peaking and technically, correction is happening as we speak.
In the daily chart, we can see upside momentum losing steam as bears take control. Price action is making a series of higher highs while stochastics are winding off, almost flat and printing a sell signal today. In fact, today will likely close with a bearish engulfing pattern and a double bar reversal pattern. In light of this, our strategy is to enter SHORT and trade as follows:
Stop Loss: 130.20
Take Profit: 126.20
Have a good trading day.