The US dollar initially had a bullish reaction to Fed Chairperson Janet Yellen’s testimony, as the US central bank head didn’t show any preference for negative interest rates. However, dollar bulls reduced their positions after Yellen also mentioned that the equity slump could wind up dragging growth down. She noted that Fed officials are watching market developments closely to figure out if they need to adjust their tightening path.
USDJPY broke below its short-term consolidation around 115.00 to a low of 112.76, EURUSD dipped below the 1.1200 handle but eventually rallied back above 1.1320, AUDUSD tested support at the .7000 mark then rallied back to a high of .7153, and USDCAD is trading back above the 1.3900 handle on weaker oil prices.
US crude oil inventories were down 0.8 million barrels for the previous week but reports on failing energy companies appeared to have a stronger influence on the commodity’s price. US initial jobless claims are up for release today and Fed Chairperson Yellen has another testimony lined up, which suggests that traders might be wary of the US dollar once more. On Friday, retail sales and consumer sentiment data are up for release.
Sterling gains despite downbeat manufacturing data
The pound managed to hold on to some of its wins against the commodity currencies and even advance against the dollar despite weaker than expected manufacturing production figures. Industrial production slumped 1.1% instead of just posting the estimated 0.1% decline while manufacturing production was down 0.2%.
GBPUSD bounced up to the 1.4550 minor psychological mark, GBPAUD is up to the 2.0500 handle, GBPCAD is climbing up to the 2.0300 resistance, and EURGBP pulled back to the .7700 area of interest.
Japanese yen supported by risk-off flows
The yen has been the biggest winner for the day, as it took advantage of the risk-off market environment. There were no reports out of Japan yesterday but the yen managed to outpace the safe-haven US dollar, which was vulnerable to event risks then.
EURJPY went on to drop below 128.00 to a low of 127.33, GBPJPY pulled up to the 167.50 area before dropping to 164.00, and AUDJPY is testing support at the 80.00 handle.
Japanese banks are closed for the holidays, indicating lower liquidity and potentially higher volatility in the equity and currency markets. Profit-taking could occur ahead of the weekend, especially with Chinese traders set to return from their Spring Festival holidays, so yen pairs might still be due for a bounce.
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