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Latest Trump Rally for Dollar, S&P 500 Risks Yellen Spoiler

Latest Trump Rally for Dollar, S&P 500 Risks Yellen Spoiler

John Kicklighter, Chief Strategist

Talking Points:

• Last week's Dollar and US equity rally charged by hopes of favorable tax policy carried through to Monday

• Neither the Euro nor Yen responded directly to event risk, while oil took moved in direct contrast to OPEC's optimism

• A big day ahead for the Dollar, Euro and Yen will be lead by Fed Chair Yellen's testamony in the Senate

See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.

Last week's most robust trend - a rally from the US currency and equities on hints of a favorable tax policy wind - continued into Monday's session. A gap higher Monday for the Greenback and a fifth consecutive rally for the S&P 500 (the second longest run in 11 months) suggests this jawboning on US policy still has significant traction in the speculative ranks. Yet, how much reach should we expect from open promises of favorable business policy that continues to lack time frame or policy detail? Fed Chairwoman Janet Yellen may test the effectiveness of that speculative spell Tuesday.

The head of the Federal Reserve is scheduled to testify before the Senate Banking Committee in the first of two days of grilling in Congress. Referred to as the Humphrey-Hawkins testimony, this is the mandated semi-annual update the Fed must give to the government. There is little doubt that this is an important economic event with capacity to move markets. The question is: what fundamental theme does this event tap? The relative monetary policy advantage of the Dollar and US assets is an obvious dynamic the market will work through. The probability of a March hike is modest at best and Yellen is a practiced tight rope walker when it comes to giving away a personal or official bias. Risk trends may prove an incidental theme given the market's exposure and the fluid motvation through sentiment. It is the third top fundamental theme that may prove the most productive: uncertainty and competition amid global trade policy. There will no doubt be plenty of questions directly or indirectly related to President Trump's proposed policies.

High profile event risk can be a preoccupation that waylays markets until it passes or inevitably takes the reins. Two days of Ms. Yellen's testimony, the G-20's Finance Ministers' meeting and Moody's US credit rating are dead ahead and evenly spread out release moving forward. Outside of the Dollar's world, the dense calendar will have a higher bar to translate volatilty into trend - if the jolt of activity is even offered up. The Euro absorbed the EC's upbeat forecasts and await Eurozone investor sentiment survey as well as the 4Q GDP updates from various countries. The British Pound fresh off a mixed update on growth forecasts from the EC heads into inflation statistics and then jobs figures Wednesday. Both crude and gold should also remain on the watch list after the former suffered despite OPEC jawboning and the latter slipped to test a frequented technical level with financial health requiring a constant vigilence. We discuss all of this and more in today's Trading Video.

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