Jackson Hole gave USD bears a green light to keep selling USD’s. Yellens speech didnt touch on monetary policy and and gave the market no indication on the path of further hikes. The market was on hold all week waiting to get some communication from Yellen so it was a massive disappointment. There is no reason now for the market to be scared of the Fed and it showed with US yields which closed on the lows for the week. 10yr yields down 3bps at 2.16%. Draghi’s speech didnt comment on the stronger Euro and combined with no support from Yellen for the USD the Euro was the biggest beneficiary of USD weakness up 1.1% to finish the week at multi year highs at 1.1924. The 1.2000 magnet is now well and truely turned on and drawing price upwards. Its a big psychological level with lots of optionality and stops and mixed buy and sell interest so scope for some serious volatility when hit.
The USD index fell 0.65% on Friday and now within spitting distance of critical support which the market is closely monitoring. The multi year low sits at 91.90 and support gaps away. Chartists are salivating and calling a further 5% fall for the USD on a decisive break. Euro above 1.2000 will see the DXY break this critical support.
The only thing the USD has to look forward to is top tier data at the end of the week. Fri see’s a double header of ISM Manufacturing and Payrolls. Both have been trending week and expectations are for solid prints. So if we see a break of 91.90 pre Friday and USD under pressure… there is a scenario that this could be a false break and the USD shorts get washed out come Fri. Fri is a long way away and in the short term you have to respect the price action.