- Federal Reserve Chair Janet Yellen to Appear Before House, Senate Committee.
- Will Chair Yellen Continue to Look for a Consumer-Led Recovery in 2016?
Trading the News: Humphrey-Hawkins Testimony
The semi-annual Humphrey-Hawkins testimony with Fed Chair Janet Yellen may prop up the greenback and undermine the near-term rally in EUR/USD amid the diverging paths for monetary policy.
What’s Expected:
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Why Is This Event Important:More of the same from Chair Yellen may boost the appeal of the dollar as the Federal Open Market Committee (FOMC) pledges to further normalize monetary policy, and the dollar may trade on a firmer footing should the fresh batch of central bank rhetoric boost interest-rate expectations.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Unemployment Rate (JAN) | 5.0% | 4.9% |
| Average Hourly Earnings (YoY) (JAN) | 2.2% | 2.5% |
| Consumer Price Index ex Food & Energy (YoY) (DEC) | 2.1% | 2.1% |
Signs of sticky price growth accompanied the ongoing improvement in the labor market may encourage Chair Yellen to highlight an upbeat outlook for the U.S. economy, and the central bank may stay on course to implement higher borrowing-costs over the coming months especially as the region approaches ‘full-employment.’
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Durable Goods Orders (DEC F) | -4.5% | -5.0% |
| Personal Spending (DEC) | 0.1% | 0.0% |
| Advance Retail Sales (MoM) (DEC) | -0.1% | -0.1% |
However, the slowdown in household spending may dampen Fed expectations for a consumer-led recovery in 2016, and the fresh batch of central bank rhetoric may produce near-term headwinds for the greenback should Chair Yellen largely endorse a wait-and-see approach.
How To Trade This Event Risk(Video)
Bullish USD Trade: Fed Stays on Course to Further Normalize Policy in 2016
- Need red, five-minute candle following the rate decision to consider a short EUR/USD position.
- If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish USD Trade: FOMC Talks Down Bets for Higher Borrowing-Costs
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same strategy as the bullish dollar trade, just in the opposite direction.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using FXCM Marketscope 2.0
- EUR/USD may continue to retrace the decline from the August high (1.1713) as it breaks out of the downward trend carried over from the end of 2014; may see the 2015 range come back in play as the Relative Strength Index (RSI) preserves the bullish formation from December.
- The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since February 1, but the ratio continues to work its way back towards recent extremes as it slips to -2.13, with 32% of traders now long.
- Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
- Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)
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Impact that the Fed Testimony has had on EUR/USD during the last hearing
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
JUL 2015 | 07/15/2015 12:30 GMT | - | - | -40 | -64 |
July 2015 Humphrey-Hawkins Testimony
Fed Chair Janet Yellen struck an upbeat tone in front of the House Financial Services Committee as the central bank head anticipates a robust recovery in labor market, leading to ‘moderate’ growth for the U.S. economy. Moreover, Chair Yellen largely argued that the central bank remains on course to achieve the 2% inflation over the policy horizon as the disinflationary environment remains largely driven by transitory factors. The greenback strengthened following the semi-annual testimony, with EUR/USD grinding lower throughout the North American session to close the day at 1.0940.
Read More:
US Crude Oil – Global Inflection Point?
EUR/USD Bullish Interpretation is Valid While above 1.1050
USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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