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Trading is light in the Forex and commodity markets today as investors await the testimony of U.S. Federal Reserve Chair Janet Yellen which begins at 10:00 a.m. ET. Traders want to hear whether she maintains her dovish tone, or if she switches gears to a more hawkish outlook. Most traders however agree that she is going to stick with the Fed’s script and declare that the economy is improving, the labor picture is looking better and inflation is under control and within the Fed target.
Yellen’s testimony may move the markets if she waver from the Fed’s current assessment of employment and economic conditions. A more dovish tone is likely to weaken the dollar while underpinning the Euro, British Pound and Gold. A more hawkish tone will soften these markets.
The GBP/USD rallied today after the Office for National Statistics said annualized U.K. inflation jumped to 1.9 percent in June from 1.5 percent the prior month. Traders were looking for a reading of 1.6 percent.
Buyers came back into the market after an almost week long sell-off because the bullish inflation news keeps the idea of a rate hike by the Bank of England firmly on the table.
The EUR/USD continued to see-saw near a series of retracement levels on the daily chart. Traders have chosen to hold the Euro in a range until the Euro Central Bank reports on the region’s inflation. Traders are also giving Draghi and the rest of the ECB members the benefit of the doubt regarding their recently announced stimulus package.
Today, the German ZEW Economic Sentiment Index posted a decline to 27.1. Traders were looking for 28.9. The number was also under last month’s reading at 29.8.
The ZEW Economic Sentiment Index also posted a much steeper decline to 48.1, down from 58.4, and below the estimate of 62.3.
August Comex Gold traded slightly better as traders took profits following yesterday’s steep sell-off. Short-term oversold conditions probably contributed the most to today’s slight increase.
Monday’s $30.00 sell-off in the precious metal should serve as a reminder to investors of the markets vulnerability. The stable U.S. Dollar, the strengthening stock market and some clarity about the economy are some of the reasons why traders decided to leave gold on Monday. Bullish traders want to see more uncertainty about the U.S. recovery.
Although there is growing unrest and violence in the Middle East, none of it appears to be a threat to the flow of oil which is putting the focus on the size of the U.S. crude oil supply. After rebounding on Monday and posting a small gain, September Crude Oil futures declined once again on Tuesday, setting up the market for a possible test of the psychological $100.00 price level.
An oversupply of gasoline is also hurting demand for crude oil. Severe weather conditions throughout the country are causing more drivers to stay at home this summer, curtailing demand for gasoline.
Look for low volatility and volume today unless Fed Chair Yellen surprises the market during her testimony before Congress.