Asian Session Morning: Fed on Track and Driving Direction

July 16, 2015

Fed on Track:
Federal Reserve Chair Janet Yellen delivered her semi-annual testimony to Congress overnight. Around being grilled by Republicans who are concerned about the transparency of the central bank, she did manage to deliver an upbeat message on the direction of the US economy and indicated that the Fed was still on track to raise rates this year.

Yellen spoke optimistically about the economy being expanding as expected and cited improving labour market conditions as a likely trigger for a liftoff on rates this year.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target.”

“Fed officials expect growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.”

Most importantly, Yellen made sure to emphasize that from the point of view of the Fed, it’s the pace of subsequent interest rate hikes that are more important than the timing.

“Policy will probably remain highly accommodative for quite some time she said.”

Any liftoff on rates is going to be gradual. Is 2 this year gradual?

Austerity Accepted:
Outside parliament on the streets of Athens, protesters stood in a haze of smoke while inside Greek lawmakers passed the bailout agreement that sees the harsh austerity measures that the people voted against implemented.

Greek riot police were forced to use tear gas to push back a swarm of protesters throwing molotov cocktails and petrol bombs, setting parts of Syntagma Square on fire.

Inside, both Finance Minister Euclid Tsakalotos and Prime Minister Tsipras summed up how the Syriza party felt about going against the will of the people and voting for the very package that they were elected to vote against.

“Accepting the agreement with creditors was a decision which will be a burden for me for the rest of my life.”

“It was a choice between accepting a deal I didn’t agree with or a disorderly default.”

There was no positive outcome for the government here. With 39 of Syriza’s 149 votes saying no to the reforms, what happens now for the government is unclear.

EUR/USD Daily:
Click on chart to see a larger view.

EUR/USD was relatively unchanged after the vote, with markets seeing it as the foregone conclusion that it turned out to be. All eyes now turn to the Fed and whether an interest rate hike will push The Euro to parity.


On the Calendar Thursday:
NZD CPI (0.4% v 0.5% expected)
EUR Greek Vote (Passed)
AUD MI Inflation Expectations

EUR Eurogroup Meetings
EUR Minimum Bid Rate
EUR ECB Press Conference

USD Unemployment Claims
USD Fed Chair Yellen Testifies
USD Philly Fed Manufacturing Index


Chart of the Day:
The Bank of Canada cut interest rates overnight in an attempt to stimulate an export driven economy that is still trying to come to grips with the lower price of oil.

After previously cutting rates earlier in the year, Governor Stephen Poloz then indicated that the BoC wouldn’t need to cut rates again as the bank expected a recovery from the oil price crash during the first quarter. But as the economy deteriorated, ultimately Poloz felt that the BoC couldn’t wait any longer and moved to cut interest rates by 0.25%.

“One of the big shocks in this outlook is the downgrade of investment intentions by the companies in the oil patch.”

With commodity currencies slipping across the board on the back of the decision out of Canada, we take a look at USD/CAD below.

USD/CAD Daily:
Click on chart to see a larger view.

It wasn’t all that long ago we were buying at a USD/CAD confluence of support after the daily chart pulled back and printed a nice little flag pattern.

After reaching our target at the upper band of the flag, the bulls took control and price broke out higher. They managed to take price to the swing high resistance where we sat heading into the Bank of Canada decision.

USD/CAD Hourly:
Click on chart to see a larger view.

On the back of the decision to cut rates, price broke out through resistance and continues to look strong.

Do you see the trading opportunity in a sustained USD/CAD breakout or are you now looking for a pullback? Let us know by leaving a comment below or mention @VantageFX on Twitter.

Dane Williams – @VantageFX

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