Yellen speaks at 5 pm ET

Market risk sentiment has deteriorated significantly since the September Fed meeting and later today we will get to hear from the 'instigator' of the recent risk selloff - Fed Chair Yellen. The apparent dovishness of her remarks last week spooked the markets.

Since the Fed press-conference, however, various FOMC members signalled greater confidence in the US recovery and encouraged markets to frontload rate hike expectations yet again.

Ahead of the Yellen speech, investor will want to know whether she will stick to her cautious tone (as we would expect) or try to bolster investor confidence by emphasising the positives (the US domestic growth resilience) while downplaying the negatives (the deteriorating outlook for the global economy).

A reiteration of Yellen's 'doom and gloom' message from last week could weigh on USD and potentially encourage some rebound in risk, at least initially. We doubt that this will be sustained, however.

Investors continue to focus on China at present and so long as there is no improvement in the data flow, risk-correlated currencies will remain sell on rallies.

Any USD weakness should be a fade as well given that Yellen is unlikely to discourage bets on Fed lift-off altogether.

After all, for all the dovishness of the Fed press conference, the Fed chair stated clearly that the majority of the FOMC members will still prefer a hike later this year. We further suspect that a potentially more constructive tone from Yellen should be seen as an indication that the Fed is on course to hike rates potentially even earlier than expected by the markets.

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