Yellen Focused on Jobs

The late-Friday speech from Yellen was notable because she shifted the focus back to jobs and away from wage inflation. The best performers last week were JPY and CHF while AUD lagged. We also look at the weekend news and note that CFTC positioning shows euro shorts at a record.

Yellen delivered a speech late on Friday and the unusual time left less time (and perhaps energy) for market participants to analyse the text. The main headlines were that a rate rise may well be warranted later this year but the bulk of the speech was a call for waiting for more data.

Specifically, Yellen continues to be focused on jobs even though market participants are keyed in on inflation and wage growth. “An important factor working to increase my confidence in the inflation outlook will be continued improvement in the labor market,” she said.

Yellen followed that up by saying a significant pickup in readings on core inflation is not a precondition for an initial hike and that wage inflation is often skewed. The US dollar hardly reacted to the speech and early-week moves are nil.

The main weekend event was the Swiss summit on Iran's nuclear program. The self-imposed deadline for a deal isn't until Tuesday but negotiators appear to be making progress and Russia said there was a much better than 50% chance of a deal. Oil and CAD will certainly be affected by the outcome.

Comments from PBOC leader Zhou could be good news for commodity currencies and risk assets. He said China needs to be more vigilant about deflation and that inflation is slowing a “little too quick.” That could be setting the stage for more hikes but the signals are mixed. Just a week earlier Zhou warned that excessively loose monetary policy could but structural reforms at risk.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -221K vs -194K prior JPY -46K vs -48K prior GBP -39K vs -38K prior AUD -28K vs -29K prior CAD -33K vs -33K prior CHF -4K vs +2K prior

Ashraf wrote about the extreme in euro shorts on Friday. It's often a contrarian indicator but we note that euro shorts rose after the euro bounced to 1.10. That may show a high level of confidence and aggression from shorts that's usually not evident at a turning point.