US dollar weakens

Yellen’s speech weakens the US dollar significantly…

Janet Yellen's speech to the Economic Club of New York yesterday gave market participants a reason to sell the greenback. For the last month or so it's clear the Federal Reserve have stepped up their desire to reinforce the notion that future interest rate hikes are very much data dependant and reliant on solid global economic conditions.

So, how exactly did she cause damage for the US dollar?

Yellen mentioned two areas which are still niggling at the feet of the Fed, China and commodities. It's all well and good highlighting China again but this time we actually saw specifics, she detailed concern for their economy not only slowing down but struggling with the evolution from one reliant on exports to one seeking domestic sources of growth.

When it comes to commodities the main one the Fed have in mind is oil. Yes there's been a sizeable increase in the price which is a positive for inflation but the sector is volatile and one which the Fed cannot now simply discount as being 'temporary' in respect to its movements. Overall the speech seemed to have been focused around downside risks to the US economy.

The key question on many client's minds - whether there could be a continuation of weakness for the USD. The short answer would be yes, however, one must respect the fact we are approaching key resistance levels for both GBPUSD and EURUSD.

These are the first hurdles which must be cleared before any moves higher can be discussed, plus, when jumping those hurdles the market must consider the EU referendum in the UK and a central bank in the eurozone desperate for a weaker not stronger euro.

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