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    Yellen gives no hint, leaving the market confused; AUD rebounds

    Market Brief

    G10 Advancers and Decliners vs USD
    AUD 0.95
    GBP 0.51
    NOK 0.11
    NZD 0.10
    CAD 0.09
    DKK 0.07
    EUR 0.06
    SEK -0.01
    CHF -0.03
    JPY -0.09
    Global Indexes Current Level % Change
    Nikkei 225 Index 16675.45 0.58
    Hang Seng Index 21275.21 1.16
    Shanghai Index 2933.357 -0.03
    FTSE futures 6275.5 -0.01
    DAX futures 10171.5 0.38
    SMI Futures 8185 0.1
    S&P future 2108.7 0.02
    Global Indexes Current Level % Change
    Gold 1243 -0.19
    Silver 16.4 -0.46
    VIX 13.65 1.34
    Crude wti 49.69 0
    USD Index 93.96 0.06

    Yesterday's speech from Janet Yellen was the last before the June 14-15 FOMC meeting. Investors were therefore doing their best to guess the timing of the next rate hike. To put it mildly Janet Yellen was not of great assistance as she did not provide any clues. She did however repeat her view that the US economy is on the right path and that she sees “good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones”. Most USD crosses did not react much to Yellen’s speech; however EUR/USD made some sharp moves during the speech. EUR/USD initially fell to 1.1326 before bouncing up to 1.1393 and finally stabilised at around 1.1360. Now that the Fed has clearly stated that current conditions do not justify a summer rate hike, the probability of getting two hikes this year has fallen to zero. Moreover, we would even be lucky to get a just single one. In such an environment we anticipate EUR/USD to gain momentum and to return towards 1.15 in the short-term.

    In Australia, after cutting rates in May, the Reserve Bank of Australia has decided to keep the cash rate target unchanged at a record low of 1.75%. The decision was widely expected; however the market had priced in that Governor Stevens would reiterate its dovish bias. In that light, it was a disappointment and the market’s reaction was quick. AUD/USD jumped 1% to 0.7438 after the announcement, reaching its highest levels since May 6th. The pair is moving toward the next resistance that currently lies at 0.7474 (50dma). On the medium-term, the pair remains within its bullish bias; however in the long-term the Aussie is still trading within a declining channel. On the downside, a strong support can be found at 0.7145 (low from May 24th).

    In the UK, the 1-month 25 delta risk reversal (volatility difference between 25 delta calls and puts) fell to -6.8% this morning as traders continued buying protection against further GBP depreciation ahead of the Brexit vote. The volatility on the 1-month ATM option continued to climb further and hit 22.25% during the Asian session. GBP/USD spot trading was also very volatile in Tokyo with the pair jumping 1.25% to 1.4660. Rumours have been circulating that a fat finger may have caused the move. In any case, the cable’s reaction suggests that the liquidity is very thin and that traders are worked up.

    Today traders will be watching foreign currency reserves from Switzerland; industrial output from Spain; industrial production from Norway; GDP from the Euro zone; BoE Carney’s speech at Alberta University.


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