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US Dollar Underpinned by GDP Data; Gains Limited as Traders Await Yellen Comments

By:
James Hyerczyk

June US Dollar Index futures posted another gain on Friday and is set to finish the month with its strongest weekly performance since November 2015.

US Dollar Underpinned by GDP Data; Gains Limited as Traders Await Yellen Comments

June US Dollar Index futures posted another gain on Friday and is set to finish the month with its strongest weekly performance since November 2015. Investors have been supporting the dollar as of late in anticipation of a Fed interest rate hike in the coming months. Later today, it may get a boost if Fed Chair Janet Yellen makes hawkish comments in a speech scheduled for late afternoon.

Yellen is due to speak at an event hosted by the Harvard University. Earlier in the week, a slew of Fed policymakers from John Williams to Bill Dudley and James Bullard all sounded relatively hawkish. Yellen’s comments are expected to cause some late session volatility.

Earlier today, the Commerce Department reported that U.S. Gross Domestic product rose at a 0.8 percent annual rate as opposed to the 0.5 percent pace reported last month. It was the weakest performance since the first quarter of 2015.

The EUR/USD inched lower on Friday, easing to 1.1145, however, it remained above this week’s low at 1.1129. Volume and volatility were light today due to the lack of fresh Euro Zone economic reports and ahead of Yellen’s comments and Monday’s U.S. bank holiday.

The GBP/USD also eased on Friday as traders took profits ahead of the U.S. and U.K. holiday on Monday. The Sterling is expected to post a strong gain for the week with the Forex pair in a position to challenge the recent top at 1.4769.

This week’s strength was driven by bullish headlines, which revealed more U.K. citizens prefer to remain a member of the European Union. A recent poll showed 55% of all Brits surveyed want to stay a member of the EU, whiled 45% want to exit.

The USD/JPY lost a little ground on Friday and is poised to finish the week lower. This week’s price action suggests investor indecision and impending volatility. There was little reaction to the outcome of a two-day G-7 summit. The G& industrial powers pledged on Friday to seek strong global growth, while papering over differences on currencies and stimulus policies.

There was also little reaction in the foreign currency markets to reports that Japanese Prime Minister Shinzo Abe is considering delaying a sales tax hike, originally planned in April 2017, by about two years. The move could underpin the Japanese equity markets which would put new pressure on the Yen.

July crude oil futures also continued to weaken after briefly trading over the psychological $50.00 level on Thursday. Renewed concerns over short-term outages and the global supply glut may force the market into a trading range. Selling pressure also came from the firmer U.S. Dollar, upbeat U.S. economic data and expectations of a rate hike in June or July.

August gold futures reached an eight-month low, but profit-taking ended the price slide, allowing the market to become range bound on an intraday basis. However, the market is still expected to finish lower for the fourth straight week amid growing speculation that the Fed will raise rates in June or July. The move is expected to continue to underpin the dollar which would curtail demand for gold and press prices even lower over the near-term.

Later today, traders should look for increased volatility and perhaps a spike in volume when Fed Chair Janet Yellen offers her comments about the economy and possibly the timing of the next Fed rate hike. If Yellen leans towards a rate hike over the near-term, then the futures fund curve should show a higher probability of an imminent rate hike. This would make the dollar a more attractive investment while leading to more liquidation in the dollar-denominated gold market.

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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