Yellen’s dovish speech lifts Stocks, Euro and Aussie

April 1, 2014

It is going to be a very interesting day today with the Chinese PMI keeping things real for traders who will also have an eye on what the RBA has to say at 2.30pm. Just because they won’t move doesn’t mean this will be a non-event so watch out at 2.30pm.

Looking at the Aussie we see it dipped briefly below the 4 hour support but the overall trend resumed  after a 0.9216 low.

Importantly, in the context of the RBA decision today is that this 0.9200/30 zone is going to be very strong support again with many technicians still targeting o.9340/50 which is both the 61.8% of the 97+ to 86 high selloff.

But the Aussie is up close to 3% since the last meeting so the RBA might have something to say.

Turning to the ASX and it was a bit of a disappointing night as even though local stocks are going to open a little stronger they have underperformed the US markets by a long way. The catalyst to the overnight moves in the Aussie and stocks were comments by Federal Reserve Chair Janet Yellen in what was a somewhat Dovish speech saying that the Fed was going to retain accommodative monetary policy for some time yet. ASX Futures trade shows a gain of just 4 points though which is strange given the strength in the US as I’ve noted.

Yellen’s comments were interesting in the context of last week’s talk of rates rising as soon as 6 months after the end of the Taper and it brings a lot more clarity to what Yellen is really thinking. The key takeaway is that Yellen reckons there is still plenty of slack left in the US economy. Which of course there is otherwise rates wouldn’t be at zeroish would they.

So at the close US stocks ended the quarter on a strong note with the Dow up 0.83% overnight. The Nasdaq up 1.04% and the S&P 500 rose 14 points to 0.77%.

In Europe it was a more sullen end to the quarter with the Bundesbanks Jens Weidman warning of the risk of running too low interest rates on Sunday (their time). Equally in a shot across the ECB’s bow Der Spiegel ran a story saying the German FInance Ministry expects rates to rise which runs counter to what the market had been thinking particularly given that the EU inflation data last night was lower than expected printing 0.5% year on year. Deflation isn’t too far away but some members of the ECB are in denial.

So at the close the FTSE fell 0.27%, the DAX dropped 0.33% and the CAC fell 0.44%. In Milan however stocks rose 0.73% while in Madrid they were up slightly gaining 0.12%.

On Foreign Exchange markets there is no prize for guessing what impact this had on the Euro and it climbed back above 1.38 at one point but sits at 1.3777 up 0.17%. Sterling is up 0.15% to 1.6673 as the recovery continues while USDJPY is a few points from a huge break out technically at 103.16.

On commodity markets Nymex crude is largely uncahanged at $101.49 Bbl, Gold is gone technically now below $1285 at $1284.10 but copper is hanging in at $3.05 lb. Corn is up 2.03%, wheat a smidge, gaining 0.14% and Soybeans rose 1.67%.

On the data front the RBA is out at 2.30 pm today and while there is no move expected the market will be hanging on their words. Prior to that we have the AiG Performance of Manufacturiing index and then it is global PMI’s lead by HSBC China in our time zone tonight before European and the Americas tonight. German unemployment is out as well and US ISM manufacturing will be watched closely

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