Dollar Seeking Direction as U.S. Equities Continue to Fly

Talking Points:

– Fed Chair Janet Yellen’s two-day Humphrey-Hawkins testimony evoked some engaging sensitivity this week; initial with a really clever Dollar after day one, followed by a really diseased Dollar and really clever gains in batch prices after day two.

– Next week’s mercantile calendar is comparatively light, and this can be a good time to sign marketplace view around stream themes and trends.

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As we pierce towards a tighten of a week that’s seen utterly a few drivers come into markets, it’s time for traders to start perplexing to demeanour around-the-corner to see that themes might be pushing price action in a week ahead. Next week’s mercantile calendar is comparatively light. The prominence for macro themes will expected be a FOMC Meeting Minutes from a Fed’s Feb assembly to be expelled on Wednesday. Below, we dive into U.S. equities and a U.S. Dollar.

U.S. Stocks: To Infinity and Beyond?

U.S. Stock prices have continued to run-higher, even with a build of risk factors in a macro backdrop. SP futures have moved-up by a whopping 16.2% from a lows of choosing night, and so distant in 2017 are adult by 5%. And while U.S. Stock prices are still during historically ‘expensive’ levels, a net-impact of this week’s two-day Humphrey-Hawkins testimony was even-higher batch prices; so a one vital risk cause to continued gains in equities prices – a aloft luck of faster rate hikes from a Fed – does not seem to be a tying cause during a moment.

As for drivers? This is expected utterly a bit of wish with a good understanding of excitement. A lot of that wish seems to be pinned towards domestic factors and a awaiting of a large taxation cut devise in a United States along with a wish for increasing infrastructure spending and expansion programs down-the-road. This is expected one of a reasons because so most of a financial media has turn fixated on a Twitter comment of President Trump, and it does pierce adult what is looking to be an engaging tango in a months ahead.

Given subsequent week’s expectedly still backdrop, this would be a good event to sign marketplace view around this theme. If we do see a pullback in U.S. equity prices subsequent week, this can open a doorway to a shopping opportunity. If we don’t – afterwards fears of ‘exuberance’ and markets removing forward of themselves should christen a still position in such venues.

Dollar Seeking Direction as U.S. Equities Continue to Fly

Chart prepared by James Stanley

Is a Dollar Going to Pick a Direction?

U.S. Dollar cost movement has been rather pell-mell this week. What started out as another post-Election rally, with an out-sized annulment starting on a night of a election, a U.S. Dollar faced substantial offering around a month of January. But a reasons for bullish trend remained really most alive, as there are/were simply few other economies looking during tighter rate process options in a near-term.

So, as we non-stop a doorway to February, that bullish up-trend began to uncover again; and this week’s events gave that thesis some additional fire-power, during slightest during first. At day one of Chair Yellen’s testimony, she began her prepared remarks by indicating that rate hikes should come earlier rather than later, and she offering an upbeat comment on a U.S. economy.

The following morning, CPI was expelled out of a United States with a .6% imitation for January, twice a expectancy of .3%, and this serve contributed to a Dollar’s gains as a Greenback temporarily traded above a pivotal insurgency turn during 101.53. But that was short-lived: As Yellen began day dual of her testimony, offering took over in a Greenback and has been benefaction flattering most ever since. The categorical indicate of row appears to be around a probable travel in March. On Tuesday (day one of her testimony) contingency for a Mar travel shot-up really fast as she spoke to Congress. But on day dual of that testimony, contingency began to dump and haven’t nonetheless revived.

The expected motorist here will substantially come from Fedspeak, during slightest if this mirrors identical function as a past. This is really identical to what we saw in Aug of final year with Yellen and Stanley Fischer both affianced to near-term rate hikes during a Jackson Hole Economic Symposium. The evident impact was Dollar strength as traders feared a probable pierce in September; though as we indeed changed nearer to that Sep assembly a proof of hiking rates only forward of a pivotal Presidential Election commanded that it substantially wouldn’t happen. In that instance – a Dollar didn’t start to re-strengthen until after a Fed’s Sep meeting.

June seems like a most expected claimant for that subsequent rate pierce from a Fed, and this appears to be what markets are gearing adult for. But any indications of a intensity Mar pierce – any mentions of ‘three hikes in 2017’ could re-trigger Dollar strength, during slightest in a near-term, as markets prop for a slightly-increased luck of a pierce during a Fed’s assembly subsequent month.

Dollar Seeking Direction as U.S. Equities Continue to Fly

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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