Yellen Leaves ‘Em Guessing

When the newswires can't decide if a speech is hawkish, or dovish then it's probably neither. Differing Yellen interpretations caused a whipsaw in markets Tuesday as the Canadian dollar led the way and the New Zealand dollar lagged. Japanese business confidence and Chinese industrial profits data is due up next. The latest Premium video assesses our the existing trades ahead of this week's tax reform announcement from the White House and barrage of economic data & central bank speak.

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Yellen's speech dove deep into monetary but failed to change the maths on a December hike. Her comments were initially reported by Reuters with headlines that tilted dovishly, stressing the uncertainties. A couple minutes later, Bloomberg's main take was Yellen's warning that the Fed should be wary about moving too gradually.

Initially the US dollar fell but it then jumped on the second set of headlines, sending EUR/USD down to 1.1757. Ultimately, the market decided she'd given enough of a hint or commitment to December to move odds of a December hike from 64% to 70%. In the bigger picture, Tuesday was larger a mirror image of Monday. The risk-off trade spurred by worried about North Korea slowly evaporated. Gold fell $16 to erase a $16 gain the day before.

One exception was EUR/USD as it fell for the second day and touched the lowest since Aug 22. The fall broke the neckline of a minor head-and-shoulders top as worries about the German election spread and the US dollar holds a modest bid. In the days ahead, that pair is likely to spot to watch, especially with inflation data from Europe and the US coming up.

Looking ahead to Asia-Pacific trading, the calendar is generally benign. At 0130 GMT, Chinese industrial profits are due. They're coming off a whopping 16.5% y/y gain in July. At 0500 GMT, we will get Japanese small business confidence data, which is forecast at 49.5. Neither is likely to move markets.

One spot to keep an eye on is a Republican primary in Alabama for Senate. The anti-establishment candidate looks poised to knock off an incumbent, who has been heavily supported by the party.