Forex headlines for August 22, 2014:
- Yellen: Faster progress on goals may bring rate rises sooner
- Draghi: “We stand ready to adjust our policy stance further”
- Draghi: If inflation drop continues, risks for price stability would increase and governing council would need to use all available tools
- June 2014 Canadian retail sales 1.1% vs 0.3% exp m/m
- July 2014 Canadian CPI 2.1% vs 2.2% exp y/y
- Fed’s Lockhart sees risk in moving too quickly on interest rates
- Fed’s Bullard warns ECB over inflation
- Fed’s Williams says he’s not concerned about inflation
- Bullard says market looking for lower Fed funds than forecast by FOMC
- Fed’s Plosser say Fed is not reacting to data
- Fed’s Plosser urges rate rise “pretty soon”
- White House calls on Russia to remove convoy from Ukraine or face consequences
- WTI crude down 33-cents to $93.64
- Gold up $4 to $1280
- S&P 500 down 4 points to 1988
- AUD leads, EUR lags
“I waited all week for this” was a common reaction on trading floors to Yellen’s speech. Reading through it you got the sense that she was finally about to take a side and then the next paragraph would start with “conversely” or some other way of avoiding any real stance. For me it was telling that she left the word “significant” to note the slack in the labor market and that will be key in the next FOMC statement.
The market reaction was generally dollar positive but there certainly weren’t the fireworks you might expect. EUR/USD fell to 1.3220 from 1.3270 and USD/JPY up to 104.19 from 103.75. Why? The real money was on the sidelines waiting to buy dollars after yesterday’s positive round of data. As the day wore on, good portions of those initial reactions faded.
The euro’s reaction to Draghi’s speech was bizarre. I mean, was anyone expecting him to come out and promise QE? He basically took a small step toward that but qualified it by saying that inflation should pick back up. I didn’t see any reason to buy the euro but it jumped to 1.3260 from 1.3238. It was comforting that it gave it most of that bounce before the end of the day. I suspect that if there are no tape bombs over the weekend the selling will resume when Asia and Europe get a crack on Monday.
Cable skidded down to a fresh cycle low but it was only momentary and the overall move on the day was negligible.
Canadian dollar traders were whipsawed by the data. USD/CAD shot to 1.0979 on soft CPI but fell back to 1.0943 on better retail sales. The final word on 1.10 still feels like it hasn’t been spoken. It would be nice to have two consecutive Canadian dollar indicators point in the same direction (heck it would be nice to have ONE indicator that didn’t reverse directions a week later). More thoughts on the Canadian data here.
