Talking Points:

- Federal Reserve Chair Janet Yellen testifying in front of Congress today.

- Prepared remarks released 90-minutes early show little shift in Fed thinking.

- Fed on pace to proceed with tapering QE3 throughout 2014.

The arrival of Janet Yellen as the Chair of the Federal Reserve brings heightened focus to her first Congressional testimony, especially in the wake of two very disappointing US labor market reports in December and January. Since Friday’s NFP report, markets have been in nothing short of “QE rally” mode, for lack of a better term – when US yields fall (bond prices rise), the US Dollar depreciates, precious metals rally, and equity markets rally.

The prepared remarks may have already brought about some disappointment, shaping the potential for this event to be a ‘buy the rumor, sell the news’ occurrence. Continuity would best describe the position Chair Yellen has staked out, considering that it is little changed from former Chairman Ben Bernanke:

“Economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years.

Against this backdrop, Chair Yellen also noted that its likely that the FOMC is going to continue to taper QE3 at a measured pace at each meeting – the only real question is whether or not the last month will be a $5B or $15B cut (the program started at $85B).

Yellen_Testimony_Shakes_Risky_Currencies_Lifts_Dollar_and_Yen_body_Chart_1.png, Yellen Testimony Shakes Risky Currencies, Lifts Dollar and Yen

US yields have been hammered the past several weeks (bond prices increasing), and the weak jobs data initially provoked a further flattening of the yield curve (when bonds with longer duration see their yields decrease at a faster rate than the shorter-end of the yield curve). However, the lack of new information in the prepared remarks has helped the US 10-year Treasury Note yield rebound above 2.700%.

USDJPY 1-minute Chart: February 11, 2014 Intraday

Yellen_Testimony_Shakes_Risky_Currencies_Lifts_Dollar_and_Yen_body_x0000_i1028.png, Yellen Testimony Shakes Risky Currencies, Lifts Dollar and Yen

Charts Created using Marketscopeprepared by Christopher Vecchio

With the 10YY having eased back near 2.698% at the time this report, was written, the USDJPY had retraced all of its losses. The pair rallied up to as high as ¥102.67 after the release, before falling to as low as 102.34.

EURUSD 1-minute Chart: February 11, 2014 Intraday

Yellen_Testimony_Shakes_Risky_Currencies_Lifts_Dollar_and_Yen_body_x0000_i1029.png, Yellen Testimony Shakes Risky Currencies, Lifts Dollar and Yen

Charts Created using Marketscopeprepared by Christopher Vecchio

The EURUSD was generally weaker as the market digested the lack of new stimulus measures outlined. The EURUSD slipped from near its daily high, falling from as high $1.3678 to as low as 1.3652. The pair was only modestly lower, trading at 1.3658 at the time this report was written.

Note: Fed Chair Yellen’s testimony will being at 10:00 EST/15:00 GMT. Follow the DailyFX Real Time News feed for up-to-the-minute headlines and analysis.

--- Written by Christopher Vecchio, Currency Analyst

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