DAY 2 OF YELLEN TESTIMONY SET TO BEGIN
Federal Reserve Chairwoman Janet Yellen guided global stock markets to higher ground on Wednesday by maintaining a dovish approach to monetary policy. In prepared remarks before the House Financial Services Committee, the Fed boss said she expressed concerns over weak inflation and said the central bank would maintain a gradual approach in normalizing monetary policy.
“The evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices,” Yellen said in prepared remarks.
Yellen will testify before the Senate Banking Committee Thursday morning beginning at 12:30 GMT.
Her remarks on Wednesday sent the Dow Jones Industrial Average to record highs. It also boosted European stocks toward their best close in two-and-a-half months.
On the economic calendar, traders can expect a deluge of inflation data on Thursday, beginning at 06:00 GMT with final German CPI figures. Germany’s consumer price index is forecast to rise 1.6% annually in June. The harmonised index of consumer prices (HICP) is expected to reach 1.5%.
France and Spain will also report on consumer inflation throughout the European session. Later, Switzerland and the United States will report on producer prices.
The US Labor Department will also issue its weekly jobless claims report at 12:30 GMT. The number of Americans filing for first-time unemployment benefits is forecast to decline by 3,000 to a seasonally adjusted 245,000 in the week ended 7 July.
The US dollar index (DXY) advanced slightly on Wednesday, partially offsetting the previous day’s sharp drop. The index was last down 0.2% at 95.60.
DOW JONES INDUSTRIAL AVERAGE
The Dow Jones posted triple-digit gains Wednesday on route to fresh all-time highs. It was the index’s first record high since 19 June. The uptrend suggests that the post-election uptrend trade is still in effect, although this time the catalyst was dovish monetary policy expectations. The Dow has momentum on its side, which suggests that further gains may be in store over the short run.
The euro ran into resistance on Wednesday, as the EURUSD stopped well short of 1.15. The 1.15 level continues to be the major psychological hurdle. On the opposite side of the ledger, the pair is currently testing immediate support at 1.1440, which is the daily high from 7 July.
Wednesday was a watershed moment for the Canadian dollar after the Bank of Canada raised interest rates for the first time in nearly seven years. The USD/CAD plunged 200 pips as a result. The pair is currently trading in oversold levels, although the short-term technical have become irrelevant thanks to the latest fundamental shift. The loonie is expected to continue higher in the short term, placing added pressure on the DXY.