Forex headlines for July 15, 2014:
From the Fed Chair:
- Yellen says ‘high degree’ of accommodation remains appropriate
- Yellen: Increases in Fed funds rate likely would occur sooner and be more rapid than envisioned if labor market conditions continue to improve more quickly than anticipated
- Yellen: We have to make sure economy is on a solid path before hiking
- There is room for more wage growth before seeing inflation pressure says Yellen
- Yellen warns on biotech & social media companies. Mixed messages on small caps
Other headlines
- US June advance retail sales +0.2% vs +0.6% expected, revisions higher
- Retail sales control group +0.6% vs +0.5% exp, revisions higher
- July 2014 Empire state manufacturing index 25.6 vs 17.0 exp
- June 2014 US import prices 0.1% vs 0.3% exp m/m
- May 2014 US business inventories 0.5% vs 0.6% exp m/m
- Goldman Sachs join JPM as they beat Q2 2014 earnings forecast
- Espirito Santo Group’s holding company Rioforte preparing to file for bankruptcy
- Rioforte will present an orderly restructuring plan to sell assets outside of liquidation
- WTI crude down $1.05 to $99.86
- Gold down $12 to $1294
- S&P 500 down 4 points to 1973
- GBP leads, CHF lags.
Trouble in Portugal threatened to overshadow Yellen and the retail sales report on Tuesday. The Espirito Santo Group is tied to many markets of the Portuguese economy and the trouble is washing out some shady, incestuous financial deals and no one is sure how far the trouble goes.
The bankruptcy headlines just before Yellen and the euro was caught in the chop. Yellen was dovish (I don’t know why traders keep betting she won’t be) and that hurt the US dollar on the kneejerk, sending EUR/USD up to 1.3612 but Espirito Santo won out and sent the euro as low as 1.3562. We finish near the lows.
The initial USD dollar weakness was right across the board and slapped session extremes of 101.43 in USD/JPY and 1.7191 in cable. That didn’t last as the bond market didn’t fully buy into a dovish Yellen with some focusing on her comment about the possibility of higher rates. A risk off tone was also thrown into the fray with the problems in Portugal and Yellen’s comments on small caps. USD/JPY reversed from there and finishes at 101.69. Cable skidded back to 1.7143 but was still easily the best performer after the CPI earlier.
The kiwi is an interesting case with CPI coming up. It backed away from the 2011 highs and has been unable to break it. The fall to 0.8750 from 0.8817 today and a soft inflation report could signal a near-term top.
The Canadian dollar was under pressure all day as traders bet the Bank of Canada will be dovish tomorrow and Poloz will talk down the loonie. CAD shorts were washed out last week on the fall down to 1.0630 but since Friday’s job report they’ve been piling back in. The high today was 1.0770, which is the highest since June 19. I find it hard to see how Poloz will crush the dollar but sometimes the market sees what it wants to see and right now, USD/CAD wants to go higher.
