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DailyFX Morning Digest: US Dollar Gains on Yellen; Loonie Awaits Poloz

DailyFX Morning Digest: US Dollar Gains on Yellen; Loonie Awaits Poloz

2017-09-27 13:00:00
DailyFX Research,

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The US Dollar is rallying for the third consecutive day as rates markets’ pricing of a December 2017 rate hike from the Federal Reserve has risen further. Now at 70%, Fed funds futures contracts were pricing in a 45% chance of a 25-bps rate hike by December before the FOMC meeting one week ago.

The latest push higher was catalyzed by Fed Chair Janet Yellen’s speech yesterday, “Inflation, Uncertainty, and Monetary Policy,” in which she warned that “too gradual” of a pace of rate rises would risk the economy “overheating.” Notably saying that it would be “imprudent to stay on hold until inflation” reaches the Fed’s +2% target level, it seems the Fed is doing everything it can to prepare markets for a hike in December.

Rising rate expectations are occurring in tandem with rising US Treasury yields, with the 10-year yield reaching its highest level in one month today. EUR/USD has extended to fresh monthly lows while USD/JPY has reached new monthly highs as a result of the moves in rates.

DailyFX Economic Calendar: Wednesday, September 27, 2017 - North American Data Releases

DailyFX Morning Digest: US Dollar Gains on Yellen; Loonie Awaits Poloz

There are several items on the North American calendar that are worth paying attention to. US Durable Goods Orders, released earlier this morning, are an important barometer for US consumption, which constitutes roughly 70% of GDP. Typically, consumers hold off on buying durable goods during poor economy conditions; thus, improved orders suggest confidence among American consumers with respect to their future financial security. The better-than-expected reading for the August preliminary print today is positive for Q3 GDP expectations, even if the headline figure was overall underwhelming.

While there are three Fed speakers due up at the tail end of the North American trading session, our focus today is on Canada, with Bank of Canada Governor Stephen Poloz providing an economic progress report and a news conference starting at 11:45 EDT/15:45 GMT today. Rates markets are pricing in around a 40% chance of 25-bps rate hike next month and nearly have fully priced in a hike by the end of the year, following hikes in July and September already this year. An indication that another hike is around the table may help the Canadian Dollar firm up in what has been an otherwise tougher environment for the commodity currencies the past few days.

DailyFX Webinar Calendar: Wednesday, September 27, 2017

DailyFX Morning Digest: US Dollar Gains on Yellen; Loonie Awaits Poloz

IG Client Sentiment Index Chart of the Day: USDJPY

DailyFX Morning Digest: US Dollar Gains on Yellen; Loonie Awaits Poloz

Learn more about the IG Client Sentiment Index on the DailyFX Sentiment page

USDJPY: Retail trader data shows 54.0% of traders are net-long with the ratio of traders long to short at 1.17 to 1. In fact, traders have remained net-long since Jul 18 when USDJPY traded near 114.004; price has moved 0.9% lower since then. The number of traders net-long is 1.2% higher than yesterday and 2.5% higher from last week, while the number of traders net-short is 1.4% higher than yesterday and 2.7% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse higher despite the fact traders remain net-long.

Five Things Traders are Reading

  1. “DXY Index Faces First Test in Bottoming Effort” by Christopher Vecchio, CFA, Senior Currency Strategist
  2. “EUR/JPY Technical Analysis: Support Meets Prior Resistance” by James Stanley, Currency Strategist
  3. “USDCAD, NZDUSD Options Vol Rises Ahead of Poloz Speech, RBNZ” by Paul Robinson, Market Analyst
  4. “Silver Price Technical Analysis: More Weakness, Watch How Gold Treats Support” by Paul Robinson, Market Analyst
  5. “EUR/GBP Pauses Ahead of Potential Move Lower” by Nick Cawley, Analyst

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