U.S. Dollar to 1 Month High on Hawkish Yellen
The U.S. dollar climbed to a 1 month high on Tuesday as comments from US Federal Reserve Chair Janet Yellen bolstered the case for a December rate hike. The Fed chair said that it would be “imprudent” to wait for further cues from inflation and that the central bank “should be wary of moving too gradually on rates”. US yields rose on the comments and the US Dollar moved up to test the falling channel which has been guiding prices lower since early April.
A break above the channel top would turn us bullish and target resistance in the 94.10 to 94.80 zones. Markets are now pricing in a 78% chance of a rate hike in December, up from 72% last week.
EURUSD hit from all sides
The Euro was one of the worst hit pairs overnight as a perfect storm of technicals, European political woes and fundamental drivers teamed up and hit it for six. Pair had been trading in an upwards channel since early April and a Head and Shoulders topping pattern had been brewing on the daily chart. The channel floor and neckline were breached Monday, with significant follow through Tuesday on the back of Yellen’s comments:
The pair is now bearish and sellers will be looking to test the 23.6 fib over the coming sessions.
Nuclear war or just a war of words?
Geopolitical tensions between the US and North Korea continue to bubble away, but the issue is beginning to look more and more like a battle of bad haircuts. Gold caught a significant bid on Monday as tensions escalated, but sold off overnight as Trump stated that a military resolution would be “devastating”, but was not his favoured option:
Though we see all out war between the US and North Korea as extremely unlikely, with strong-man images to protect in both nations, it is unlikely either leader will back down and this war of words and passive-aggressive missile launches could continue for sometime. Markets get bored of inaction pretty quickly and absent significant escalation, implications for gold and stocks are limited.
Charting Source: TradingView