SELL GBPUSD & USDJPY: FED CHAIR YELLEN JACKSON HOLE HIGHLIGHTS
Updated
Yellen as interpreted by the market was bullish, though price action immediately following the JH Speech Highlights was anything but this clear cut and imo said alot more about what was actually said i.e. there is still uncertainty/ no clear commitment, as DXY moved higher immediately after before aggressively selling off for the next 20-30minutes, before then making what looks to be now the decisive move higher, concluding the markets decision to view here statement as hawkish.
One of the contradicting elements I found was her view on the near term possibilities, where in this statement, implied at the least that things arent as rosey as the market may think - "Fed Can Provide Accommodation Should Expansion Falter in Near Term" - a truly recovering economy wouldnt need this statement but maybe this is nit picking, but nonetheless could explain the lack of certainty that caused the USD sell-off initially.
The USD 30D Fed Funds futures rallied to imply a P=30% chance of a September hike, up from 21% yday and one of the highest post-brexit readings, with equities look to have broken lower, whilst gold remains in bull territory, despite the USD appreciation implying what is expected to be the start of a broader medium term risk-off shift now.
Given this fresh lease of life in USD STIR, attention will now closely focus on the USD employment report next friday, where if another 250k+ print comes in im sure we could see another 10pct addition to the september odds, if not more - especially if the unemp rate fell close to the feds terminal expectations of 4.8%.
From a trading perspective, and the above information in mind, I remain long on USD vs GBP on rallies - 1.32 or 1.325 prices are the best to engage.. On hind sight some legacy longs should have been added in the post-Yellen vol to 1.328 but given the uncertain comments it is forgivable not to have added/ held here. Next weeks, UK PMIs will remain key for Sterlings hold above 1.30/29 level - a miss and we will likely test lows again, though a hit and sterling bulls will likely continue to be happy to own the pound here in the low 1.30s on the pretence that Carney will not e so forthcoming in future policy despite his aggressive dovish fwd gd. Also I am watching USDJPY - given US equities may pop on the back of this, short gbpjpy or usdjpy to own a risk off asset may prove to be a good call - especially at the 133 level for sterling. This also hedges the long usd exposure in the event data doesnt hold up.
Yellen JH Speech highlights:
-Fed's Yellen: Case for Increase in Fed Funds Rate Has Strengthened in Recent Months
-Yellen: Growth Has Been Sufficient to Generate Further Improvement in Labor Market
-Yellen: Economic Outlook Uncertain, Monetary Policy Not on Preset Course
-Yellen: Economy Continues to Expand, Led by Solid Growth in Household Spending
-Yellen: Range Of Reasonably Likely Outcomes For Fed Funds Rate 'Quite Wide'
-Yellen: U.S. Economy Nearing Fed's Goals Of Maximum Employment, Price Stability
-Yellen: FOMC Continues to Anticipate Gradual Increases in Fed Funds Rate Will be Appropriate Over Time
-Yellen: Even If Average Rates Remain Lower Than In Past, Monetary Policy Will Be Able To Respond Effectively Under Most Conditions
-Yellen: Fed Studying Many Issues Related To Policy Implementation
One of the contradicting elements I found was her view on the near term possibilities, where in this statement, implied at the least that things arent as rosey as the market may think - "Fed Can Provide Accommodation Should Expansion Falter in Near Term" - a truly recovering economy wouldnt need this statement but maybe this is nit picking, but nonetheless could explain the lack of certainty that caused the USD sell-off initially.
The USD 30D Fed Funds futures rallied to imply a P=30% chance of a September hike, up from 21% yday and one of the highest post-brexit readings, with equities look to have broken lower, whilst gold remains in bull territory, despite the USD appreciation implying what is expected to be the start of a broader medium term risk-off shift now.
Given this fresh lease of life in USD STIR, attention will now closely focus on the USD employment report next friday, where if another 250k+ print comes in im sure we could see another 10pct addition to the september odds, if not more - especially if the unemp rate fell close to the feds terminal expectations of 4.8%.
From a trading perspective, and the above information in mind, I remain long on USD vs GBP on rallies - 1.32 or 1.325 prices are the best to engage.. On hind sight some legacy longs should have been added in the post-Yellen vol to 1.328 but given the uncertain comments it is forgivable not to have added/ held here. Next weeks, UK PMIs will remain key for Sterlings hold above 1.30/29 level - a miss and we will likely test lows again, though a hit and sterling bulls will likely continue to be happy to own the pound here in the low 1.30s on the pretence that Carney will not e so forthcoming in future policy despite his aggressive dovish fwd gd. Also I am watching USDJPY - given US equities may pop on the back of this, short gbpjpy or usdjpy to own a risk off asset may prove to be a good call - especially at the 133 level for sterling. This also hedges the long usd exposure in the event data doesnt hold up.
Yellen JH Speech highlights:
-Fed's Yellen: Case for Increase in Fed Funds Rate Has Strengthened in Recent Months
-Yellen: Growth Has Been Sufficient to Generate Further Improvement in Labor Market
-Yellen: Economic Outlook Uncertain, Monetary Policy Not on Preset Course
-Yellen: Economy Continues to Expand, Led by Solid Growth in Household Spending
-Yellen: Range Of Reasonably Likely Outcomes For Fed Funds Rate 'Quite Wide'
-Yellen: U.S. Economy Nearing Fed's Goals Of Maximum Employment, Price Stability
-Yellen: FOMC Continues to Anticipate Gradual Increases in Fed Funds Rate Will be Appropriate Over Time
-Yellen: Even If Average Rates Remain Lower Than In Past, Monetary Policy Will Be Able To Respond Effectively Under Most Conditions
-Yellen: Fed Studying Many Issues Related To Policy Implementation
Note
-Yellen: Pre-Crisis Toolkit Was Inadequate to Address Range of Economic Circumstances We Faced -Yellen: Will Likely Need to Retain Many Policy Tools Developed to Promote Recovery From Crisis
-Yellen: Policy Makers 'Inside And Outside' Fed May Wish to Consider Additional Options at Some Point
-Yellen: Business Investment Remains Soft
-Yellen: Subdued Foreign Demand, Dollar Appreciation Since Mid-2014 Restraining Exports
-Yellen: FOMC Sees Inflation Rising to 2% Over Next Few Years
-Yellen: Fed Wants Policy Toolkit That Allows Response to Wide Range of Possible Outcomes
-Yellen: Inability to Generate Substantially More Accommodation Than Could Be Provided By Near-Zero Fed Funds -Rate Was Serious Limitation Of Pre-Crisis Toolkit
-Yellen: Criticism of Asset Purchases, Forward Guidance Fails to Consider Unusual Headwinds After Crisis
-Yellen: 2013 'Taper Tantrum' Illustrates Difficulty of Predicting Financial Market Reactions
-Yellen: Fed's Ability to Use Interest on Reserves Likely to Play Key Role for Years to Come
-Yellen: FOMC Not Actively Considering Raising Inflation Objective, GDP Targeting
-Yellen: Forecasts Now Show Fed Funds Rate Settling Around 3% In Longer Run
-Yellen: Expect To Have Less Scope For Interest-Rate Cuts Than Have Had Historically
-Yellen: Understanding of Forces Driving Long-Run Trends in Rates Limited, All Predictions Uncertain
-Yellen: Real Neutral Rate Close to Zero, Could Remain At Low Level if Slow Productivity Growth, High Global Saving Continue
-Yellen: Fed Can Provide Accommodation Should Expansion Falter in Near Term
-Yellen: Fed Could Resume Asset Purchases in Future Downturns
-Yellen: Forward Guidance, Asset Purchases Will Remain Important Components of Fed's Toolkit
-Yellen: We May Need to Purchase Assets During Future Recessions
-Yellen: Policy Makers, Society May Want to Explore Additional Options for Fostering Stronger Economy
-Fed Chairwoman Janet Yellen Sees Stronger Case for Interest-Rate Increase
-Yellen: Future Policy Makers May Wish to Explore Possibility of Purchasing Broader Range of Assets
-Yellen: Society Should Explore Ways to Raise Productivity Growth
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